Challenges for self-employed
twitter Chancellor’s scheme looks generous but many won’t be able to claim and others will face a long wait
LAST week, I answered a question about the UK Government’s Coronavirus Job Retention Scheme.
It has been put in place to help companies pay their employees who are not able to work during the crisis because business has dropped off and the idea of “furloughing” staff is better business sense than having to make them redundant. I’m also getting a lot of questions from readers who are keen to know what help is available for the self-employed, and so I promised to look at the scheme that the Chancellor has introduced for those who work for themselves. On the face of it both schemes look very similar. The Job Retention Scheme for employees will pay 80 per cent of a previous salary up to a maximum of £2500 per month and eligible workers have to have been on their employer’s payroll on February 28 this year. The self-employed scheme will pay out 80 per cent of trading profits up to a maximum of £2500 per month as well. This cash is being called a grant and is taxable. To be eligible for this money, a self-employed person will have to have completed a tax return for 2018-19. Trading profits will be calculated as the average over the last three years, or using as much information as is available if you haven’t been working for three years.
There are other eligibility rules for the self-employed scheme that will make it difficult for some people to claim.
First of all, you have to have been trading in 2019-20. You have to intend to trade in the tax year 2020-21 – the tax year that began at the start of this week – and you have to have lost trading profits due to the coronavirus crisis.
There are further restrictions on claims because your profits from self-employment must be less than £50,000 and more than half of your income must come from self-employment.
So the bottom line is that the scheme itself is very generous for those who can claim. But there will be many self-employed who won’t be able to make a claim and who have been told that they will have to make a claim for benefits if they are unable to claim through the self-employed scheme.
HMRC has said it will be in touch with people who it thinks will be eligible to make a claim and that the self-employed don’t need to do anything at this stage.
The other issue is that it’s unlikely that any cash will be available under
this scheme until June – and it’s unclear what the self-employed who are able to make a claim are supposed to live on until then.
The Government has said it has also allowed the self-employed to defer the tax payment that is due at the end of July this year until January 2021, and that this move should provide relief since the self-employed can effectively use the money that is in their bank accounts at the moment to live on until the self-employed grants come through in June.
There are two problems with this. The first is that many self-employed won’t actually have that money in the bank yet, given that it’s only the beginning of April. The second is that the tax deferment is exactly that – it has not been waived and the money will still have to be found at the end of January next year.
There is no guarantee that the self-employed will see profits back to normal by then and it’s doubtful in many cases whether they will have the ability to save enough to pay January’s tax bill as well as the one that they deferred.
I also have an issue with the numbers of people who have been excluded from the Government scheme.
Firstly, anyone with profits greater than £50,000 will receive no benefit at all. This strikes me as grossly unfair.
A household with two selfemployed, each with profits of £49,000, could get up to £5000 a month from the scheme while a household with one person earning £51,000 will get nothing.
Anyone who is new to self-employment will get no help either. And this is unfair.
It means that tens of thousands will be reliant on Universal Credit, if they qualify for that. And as we all know, this is not the easiest benefit to claim at the moment because there is such a high demand.