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Coronavirus: The Chancellor sets out plans for the self-employed

The Chancellor, Rishi Sunak, announced a further package of measures for the self-employed community, mirroring the scheme for the employed workforce.

Our experts give their comments on what the announcement means for the self-employed.

“The Government support programme for the self-employed was always going to be difficult to execute, because of the huge amount of variances in working patterns, incomes and expenses across different self-employed workers. .

“The new Self-Employed Income Support Scheme will be worth up to £2,500 per month for three-months and will be paid in a single lump sum in June, but it could be earlier if the Government can establish the process sooner.

“It is fantastic that the Government has introduced a scheme which puts the self-employed on a level playing field as the employed workforce, and the Chancellor has made a huge statement by offering the same level of support.

“However, there are some notable differences and issues which may suggest that the Scheme is not as generous as it first seems, and there are some slightly onerous requirements to navigate.

“Firstly, the Scheme is only available to those self-employed persons with average business profits up to £50,000, whereas the furloughed worker scheme had no such cap.

“Also, the scheme does not recognise the fact that many self-employed persons operate their business through a company; this is not necessarily for any tax reason but for limited liability protection.

“It was always going to be difficult for the Chancellor to design a scheme for the self-employed because there are too many variables in play, and it appears that it was too difficult to consider those operating through a company.  It’s also another sign that the Government and HM Revenue & Customs (HMRC) do not favour self-employed persons using companies, and it follows the decision to delay the much criticised new IR35 rules.

“The Chancellor proclaimed that the self-employed “have not been forgotten”, but a reasonable proportion will not eligible because of the conditions around the scheme.

“There was also a suggestion by the Chancellor that the National Insurance (NIC) position for self-employed persons could be ‘levelled-up’ in the future by harmonising the NIC rates.  Currently, a self-employed individual pays 3% less NIC on profits up to £50,000 compared to an employee (but they also have to pay Class 2 NIC which is £158.60 a year). Given that self-employed individuals have been granted an almost identical package of support to the employed worker (albeit with some restrictions), this could be the pre-cursor opportunity for the Government to end the disparity in the two tax regimes, which it has been wanting to do for some time.”

Nimesh Shah, Partner – Private Client

 

“Rishi Sunak is supporting the self-employed but making it clear that the perceived tax privileges they currently receive will be challenged in subsequent budgets. That is the sting in the tail for the self-employed.”

Andrew Sanford, Partner – Audit, Assurance & Advisory

 

“The Chancellor said that for the self-employed to benefit from the State they should expect to contribute equally in future. This means that national insurance contributions will be aligned so that employees and the self-employed pay the same. Expect this to be included in the Autumn Budget.”

David Hough, Partner – Audit, Assurance & Advisory

The scheme does not recognise the fact that many self-employed persons operate their business through a company.

“It’s great to see the Chancellor providing much-needed support to the self-employed, but there are still gaps which will particularly affect owner-managed companies.

“Where an entrepreneur takes his or her income as a mixture of salary and dividends, the dividend element will not qualify for either the employee Job Retention Scheme or the new Self-Employed Income Support Scheme support.

“We hope that the Chancellor will recognise the problems which many owner-managed companies are still facing and provide further support for this important group in the coming days.

“This is a real issue for contractors with Personal Service Companies already struggling with IR35.  Through no fault of their own, they will not qualify for either the employed or self-employed packages.  What is the Chancellor going to do for them?”

“The package won’t help those who started a business in the last 12-months – they will be very disappointed”

Heather Self, Partner – Corporate Tax

 

“Glad to hear that detailed guidance on the Job Retention Scheme will come tonight. However, the Coronavirus Interruption Loan Scheme (CBILS) is not getting to the businesses who need it as banks are still requesting personal guarantees which people are not in the position to give. We have seen businesses that desperately need these loans being turned down, and now are on the edge of going under, taking many hundreds of employees with them. Banks need to be cautious but should relax their criteria in order that the businesses that need it the most can access the measures that were introduced with them in mind.

“The Self-Employed Income Support Scheme broadly reflects the Coronavirus Job Retention Scheme  but is calculated on an average of the past three-years income. It is not clear how the Government will determine who is “adversely affected”.

“As expected, there is an income ceiling of £50,000, which means many contractors, particularly in the IT sector, will be excluded from benefiting from the arrangement. This will be a blow to the primary earners in the household who have waited with bated breath to see what the measures are, only to discover they are still being left behind.

“Whilst the average earning may be £200,000 for these people (according to the Chancellor), there will be many people who earn just over £50,000 and they will be the biggest losers.

“The Scheme rewards the good tax-paying citizens, who filed their tax returns on time and have filed a return for the year ended April 2019, although the Chancellor will allow people who haven’t filed returns to now do so, so they can benefit from the Scheme.

“There will still be many self-employed people who aren’t able to access the Scheme, for example cleaners and people with low income, who perhaps didn’t know that they should have been filing a tax return, even if there was no income tax or national insurance due. For many of these individuals the only answer will be Universal Credit and let’s hope they can get their claims approved before their next rent payment is due.

“The Chancellor indicates that self-employed NICs changes will follow, likely to be increased in line with employee NIC arrangements in due course. A political football that has been kicked around for years, but now the self-employed are being treated in line with the employed, it is only fair that these rates are aligned.

“The owner-managed businesses are still forgotten – the businesses that employ one person or a few people, who remunerate themselves by dividend payments. They won’t benefit from the furloughing measures and won’t benefit from the self-employed measures. Most also won’t benefit from business rates or premises grants.

“A few weeks ago, IR35 was in the spotlight and many individuals were imminently going to be placed on to payrolls. Now that these measures have been delayed, these people have had their contracts cancelled, they don’t benefit from furloughing and today’s measures will not assist them at all.

“There are still people left behind and forgotten about by the Government.”

Genevieve Morris, Partner – Corporate Tax

The NIC rates for employed and self-employed individuals may be standardised, once the immediate Coronavirus issues have passed.

“It is pleasing to see that the Chancellor has pledged to match the Coronavirus Job Retention Scheme for the self-employed, but with payments not likely to start until the beginning of June, it may be too late.

“The Chancellor also announced that those who “had not filed a tax return in time by January” would be able to do so in the next four weeks and avail themselves of the scheme. This is clearly aimed at some of the self-employed who may not have always filed a tax return and now find themselves wanting to claim back from the State. This is likely to be the first time a number of taxi drivers, delivery people and trades people will have filed a tax return and they may struggle to do so.

“The Chancellor has made a very clear statement that he thinks the tax differences between the employed and self-employed are going to cease. He made the point that if the self-employed want the same support as the employed, then the tax advantages will be taken away. This is likely to be an unpopular change for the 5% of self-employed who earn over £50,000 and can’t avail themselves of this Scheme.

“There is still no financial support for business owners who have historically taken money from their company in the form of dividends, which is dearly needed as these owners often take these dividends at the end of the tax year, 5 April.

“HMRC are going to continue to struggle with all the new schemes which have been put in place, at a time when they are under resourced.”

Simon Rothenberg, Senior Manager – Audit, Assurance & Advisory

 

“The Chancellor’s help for the self-employed is probably more generous than many expected, given that it will help all self-employed individuals with an income (average profit) of up to £50,000 per year.

“However, no help has been promised for those individuals who have traditionally made greater profits, including many freelance IT contractors and business specialists, despite many of these people being classical Conservative voters.

“Another issue is the fact that it isn’t presently clear whether the Scheme will be available for those individuals who have historically undertaken their activities via Personal Service Companies (PSCs), rather than sole traders or in a partnership structure. Freelance contractors working through a PSC aren’t legally self-employed, though they would be self-employed from a colloquial perspective and may therefore remain outside the terms of the support presently being provided.

“Moreover, the Chancellor made it clear that in the longer-term, some of the ‘breaks’ that the self-employed have been able to benefit from compared to their employed peers will disappear. For example, the NIC rates for employed and self-employed individuals may be standardised, once the immediate Coronavirus issues have passed.

“Another challenge with the Government’s recently announced support for the self-employed is that it requires individuals to have completed tax returns in previous years. Whilst this is clearly an understandable ‘safety-check’ on the part of the Chancellor, it does mean that individuals who have only recently started a business and who weren’t therefore classified as self-employed at or before 5 April 2019, would not appear to be eligible for this support.”

Robert Salter, Senior Advisor – Global Mobility

 

“The additional support announced today for self-employed individuals is welcome and should help protect those smaller businesses, which have so far not been the focus of the Chancellor. This measure, combined with the previously announced rate relief, grants and loan scheme should go some way to propping up the finances of struggling business owners.

“It is clear that at some point, possibly later this year, we are likely to have an emergency Budget. Tax rises are on the horizon, possibly for all taxpayers, which will likely be justified by the Chancellor to part-fund the massive spending and borrowing now taking place.”

Robert Pullen, Partner – Private Client

 

“Although welcomed, many self-employed workers that have recently started up that have incurred losses will be disadvantaged. Losses tend to occur at the beginning of a business’ life cycle and will reduce the overall  ‘average’ trading profits the self-employed can claim – employees cannot earn ‘losses’. Similarly, complex rules exist to new self-employed traders whose year-end is not the 5th April. As a result, their first year’s profit is usually apportioned, thus showing an overall lower trading profit in the first year of trade and lowering the overall average for three-years – in this case.’

George Parker, Assistant Manager – Private Client

 

Contact us

If you would like to discuss any of the above or have other queries about how you can make the right decisions for the future of your business and your income, please get in touch with your usual Blick Rothenberg contact.

You can also visit our Coronavirus – Practical Guidance for businesses today Hub for our latest updates and insights.