Contractors & FreelancersCOVID-19

COVID-19 Self Employed Support Receives Mixed Reaction

By March 27, 2020 April 1st, 2020 2 Comments

“You haven’t been forgotten, we will not leave you behind, and we are all in this together” was the opening and closing statement from Rishi Sunak. While the support package is admirable and will help many self employed people, there are gaping holes…

freelancer working from home

You can find out more about the Self-Employment Income Support Scheme on the government website.

The biggest hole is that financial support will be accessible by the beginning of June… And the taxable grant will cover three months initially; from April – June. Many self employed taxpayers live month to month, and now must apply for Universal Credit in the mean time (£94 per week) – a system which is under immense pressure and itself takes around 5 weeks to provide a payment. Will this be soon enough for many self employed taxpayers?

Another big hole in this scheme is that you must have filed a 2018-19 tax return to qualify for this taxable grant. So anyone who is recently self employed is left out. This is to prevent fraud within the scheme, but that will be little solace to anyone who recently became self employed.

And a third hole that we can see is that if your trading profits (averaged over the last three years) are over £50,000 then you do not qualify for support. And while we understand that HMRC are trying to exclude very wealthy freelancers like, footballers and TV presenters, what about those who earn more because they must spend more to live where they have to live for work, ie: London. With a maximum monthly payment of £2500 per month, is the £50,000 trading profits ceiling really necessary?

Regardless, the support announced will provide some relief to many freelancers who are contemplating several months ahead without a pay day – but they may have to dip into savings or credit cards to make it to June.

 

Who Can Apply

You can apply if you’re a self-employed individual or a member of a partnership and:

  • Have trading profits of up to £50,000 per year (averaged out over three years)
  • The majority of income must comes from self employed work
  • Have submitted a Tax Return for the 2018-19 year (or must file within the next 4 weeks if you missed the Jan 2020 deadline)
  • Must be trading at the moment (or would be if not for COVID-19 restrictions)

And the support they will receive:

  • 80% of your trading profits per month (averaged out over the last 3 years of profits)
  • Up to a maximum of £2500 per month
  • Three month’s worth of support which will be extended if necessary
  • A lump sum payment of the three months worth of support expected to be put into each person’s bank account at the beginning of June
  • Unlike a furloughed employee, you may continue to operate the business
  • Remember this support is taxable

If you started trading between 2016-19, HMRC will only use those years for which you filed a Self-Assessment tax return.

HM Revenue and Customs will use existing information to identify those eligible for the scheme over the coming months and will contact people to invite them to apply.

Self employed people may also access other schemes offered to businesses such as the business interruption loans, three month mortgage holidays, and deferred Self Assessment payments. Find out more about these schemes on this blog.

 

What About Owner Managers or PSC Contractors?

Those who are on PAYE but take small salaries and dividends have not been provided for. Again, these are not necessarily people who are earning £200k a year. They could be the IT contractor who gets sporadic work and has been cut to save costs. Or they could be the small cleaning business owner with a staff of 5, who are all supported by the government’s measures, but they themselves are not.

“Those who pay themselves a salary and dividends through their own company are not covered by the scheme but will be covered for their salary by the Coronavirus Job Retention Scheme if they are operating PAYE schemes.” Excerpt from the government statement.

Due to the low salaries, they will receive very little financial support as employees. The 80% financial support would need to be measured from their monthly salary + dividends, and that has not been mentioned so far.

Dave Chaplin, CEO of Contractor Calculator had this to say:

“While we welcome the support package offered this afternoon by the Chancellor, we would be interested to hear Government’s reasoning for excluding self-employed earning above £50,000 from the scheme, and in particular incorporated freelancers who have been entirely ignored.

“It seems grossly unfair that employees of all incomes are covered up to £2,500 per month by the JRS, yet high-earning contractors and all those who are incorporated are penalised during a time of national crisis because they are good at what they do.”

 

Are Contractors Inside IR35 Treated As Employees For Financial Support?

Today’s measures rule out most contractors – inside or outside of IR35 – and while some may have savings, others won’t. Inherently contracting is a riskier job than self employment, it’s wrong to assume all contractors are always working. Which is why they command a higher day rate, to cover themselves for the anticipated risk. However could any contractor really have expected and prepared for a pandemic and lockdown? Probably not. 

And it is ironic, in the world of IR35 reform which insists many contractors operate as employed individuals and should be taxed as such, that contractors have not been included in the financial support for employees – even if they are working inside IR35.

Surely a much simpler method, taking less work to set up for HMRC, would be to bring in a universal wage to be granted to anyone who can’t or shouldn’t be working through this crisis. 

Rishi Sunak seemed to imply that it’s harder to justify help for the self employed who may pay proportionally less tax, and that the tax system may need to be changed in the future. However, this is likely to drastically discourage the self employed from continuing in self employment. As our economy bounces back, freelancers will be more vital to the economic recovery of our country than ever before, and discouraging them is surely a terrible idea.

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Join the discussion 2 Comments

  • Garry Prolze says:

    Please can you tell me what I can claim if at all as I don’t have a clue.
    Will I be penalised if I don’t have savings but my wife does. All I have is a pension, do I have to use this.

    Regards

    Garry Prolze
    Client at Stockport branch

    • Warr Co says:

      Hi Garry, we can’t discuss specifics here on a public forum. The best thing to do is give us a call where we can consult with you on your individual position. Please give us a call on 0161 477 6789 or complete the email form on Book A Consultation page and we’ll arrange a time to contact you.

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