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Following our brief summary last week we can now give full details of the support that Government are offering to self-employed individuals during the coronavirus crisis. After being slow to respond to calls for additional help, the “Self-Employment Income Support Scheme” aims to provide similar assistance across all forms of employment.

The Full Self-Employment Income Support Details

The support package announced is as follows:-

The Government will be paying 80% of an individual’s average monthly income.

The average will be calculated using the past 3 years’ trading profits of the individual. If all 3 years are not available, HMRC will calculate an average based on the records they do hold.

Similarly to the employee package, the support offered will be subject to a maximum cap of £2,500 per month. This is not net – all usual tax deductions will be applicable to the sums paid by HMRC. They are not however proposing to deduct tax at source.

In order to try and target the “individuals who really need the support”, the package is only available for those who made less than £50,000 trading profit in 2018/19 and less than £50,000 trading profit on average in the three tax years 2016/17, 2017/18 and 2018/19. If an individual’s trading profits, or the income they pay themselves exceeds this sum then they will not be eligible.

In order to qualify, more than 50% of an individual’s total taxable income must derive from self-employed work. This must be true for 2018/19 and also on average in the three tax years 2016/17, 2017/18 and 2018/19. It has been suggested that if they are employed and have a separate “side business” they will not receive support for the latter. The only entitlement would potentially be through their main employment, provided they are eligible for furlough.

Help is only available to those who submitted a 2018/2019 tax return in January 2020. If the filing deadline in January 2020 was missed there is now a grace period of 4 weeks in which they can submit their tax return. This is to reduce the number of fraudulent claims but is unfortunate for those who have recently become self-employed as they are therefore excluded from help.

No action is required to claim support as HMRC will be contacting individuals directly based on their tax records. Once HMRC make contact, they will ask for the information/documents required in order to calculate the correct level of payments.

Payments under the scheme will initially be made for a period of 3 months. As the system is more complicated than that for the employed, the first payments are not expected to be made until June when they will be paid directly into bank accounts. This is likely to cause cashflow issues for some as they will receive nothing for three months and then a lump sum payment of all three months’ allowance in one go.

A key aspect of the self-employment package is that unlike furloughed employees, claimants are still able to continue working and receive the support package.

Personal Service Companies excluded

Whilst the support package will help many, the variety of legal structures self-employed individuals use means that not everyone is covered.

Many people provide services through their own limited company, of which they are the sole director, shareholder and employee. They usually pay themselves a small base salary as a director, with the balance made up through dividends as this is very tax efficient. This structure is excluded from support under the new scheme – the only entitlement will be 80% of their basic salary IF they furlough themselves.

This will cause liquidity issues for the large number of people using this structure, and has the potential to disproportionately effect those in certain industries such as construction where it is the norm.

Self-Employment Income Support Exclusions

The Government has bluntly stated that they simply cannot help those they know nothing about. This means that they will not provide support if they do not have a tax return for an individual as they will not risk the potential fraudulent claims.

The Government has also stated that those whose trading profits are over £50,000 a year only constitute around 5% of the self-employed. As the self-employed scheme allows individuals to continue working in addition to claiming the support, the Government believes that payments to those 5% would be disproportionate.

Other help available

This new support package is in addition to the existing support available to the self-employed:

access to business interruption loans;
deferred self-assessment tax payments to January 2021; and
full access to Universal Credit

The Government is of the view that this will support many until the new support package is operational.

As there is likely to be an even bigger increase in claims for Universal Credit than already seen, the Department for Work and Pensions have been given extra resources to process claims. The Government have reiterated that individuals will be able to receive an advance payment “almost immediately” upon submission of their claim. This should assist with immediate cash flow issues, although the Department of Work and Pensions is already much more stretched than usual.

As an additional measure of support, Local Authorities have been provided with extra resources to cover Council Tax payments and to assist vulnerable households. Local Authorities will work within their communities to identify those in need.

Future tax rises

The Chancellor of the Exchequer has already hinted that taxation will change once this crisis has passed. He said that the implementation of support for the employed and self-employed has highlighted the disparity in National Insurance contributions between the two. As a result, NI contributions paid by the self-employed will probably be increased once the crisis has passed so that they aren’t “taxed less than the employed”.

In practice we can expect to see an increase in taxation across the board once the crisis has passed, to help pay back the hundreds of billions of pounds of borrowing needed to provide the support that has been pledged.

Further Help and Advice

If you have questions about the new Self-Employment Income Support Scheme, or any other aspect of the packages to help the employed or self -employed then we are here to help. Contact us today to speak to one of our expert employment law solicitors.