(co-written by Adam Wheal, trainee solicitor and Claire Merritt, partner)
On Thursday 26 March 2020, the Chancellor Rishi Sunak announced details of the Self-Employment Income Support Scheme which he described as “one of the most generous self-employed support schemes anywhere in the world”. This blog discusses the impact this scheme will have on self-employed individuals, who will no doubt be concerned for their income and livelihood during these difficult COVID-19 times, particularly since the Prime Minister announced a lockdown in the UK.
On Friday 20 March 2020, the Chancellor revealed the proposal that the State would provide grants to businesses of 80% of the monthly salary of retained employees up to a total of £2,500 under the Coronavirus Job Retention Scheme. This announcement was hailed as ground breaking and commits the government to an “unprecedented” scheme of financial support to avoid mass redundancies and lay-offs.
However, the announcement shone a very bright spotlight on the government’s support for the 5 million people within the UK who are self-employed and so would not benefit from the scheme. Self-employed individuals account for just over 15% of the UK labour market and so are an integral part of the economy. However, with no protection for their wages, they found themselves faced with the difficult choice of either listening to government advice and staying at home, or placing themselves at risk by continuing to work in order to receive their income.
During the same speech on Friday 20 March, the Chancellor announced measures to “strengthen the safety net” for self-employed individuals by delaying tax payments and suspending the minimum income floor for Universal Credit so that the self-employed would receive the same amount as someone on statutory sick pay – £94.25 a week.
Whilst this may have provided support for some, self-employed people who have savings, or who live with a higher earning family member, would still not qualify for help under Universal Credit, and those higher up the earnings scale would likely see substantial losses in their income. Therefore, many self-employed individuals feel that the proposals do not go far enough to support them financially during the upcoming months. Jason Moyer-Lee, General Secretary of the Independent Workers’ Union of Great Britain, has said that whilst the lockdown is necessary to prevent the spread of the virus, urgent income measures were needed to protect the livelihoods of the self-employed and those in the gig economy. The Chancellor’s announcement yesterday evening was therefore highly anticipated.
Under the Self-Employment Income Support Scheme, the government will pay self-employed individuals who have been adversely affected by the Coronavirus a taxable grant worth 80% of their average monthly income, with a cap of £2,500 a month. Earlier in the week the House of Commons Public Bill Committee proposed an amendment to the Coronavirus Bill (now the Coronavirus Act 2020) to provide that self-employed individuals should receive guaranteed payments of 80% of their earnings averaged over the last three years, or £2,917, whichever is the lower. Although the scheme announced by the Chancellor on Thursday evening contains a lower cap of £2,500 a month, it will now be analogous to the support provided under the Coronavirus Job Retention Scheme for employees.
Income will be calculated by taking the average of income over the last three years, and the scheme is open to those with trading profits of up to £50,000, which the Chancellor stated will cover 95% of self-employed individuals.
To try and ensure that just the genuinely self-employed benefit from the scheme, it will only be available to individuals who make the majority of their income from self-employment, and only those with a tax return for 2019 will be eligible. However, the Chancellor stated that those who had missed their tax return deadline in January would be entitled to an additional four weeks, starting from the 26 March, in which to submit their tax return.
There will be no steps to take for the individual to access the scheme. HMRC will contact the eligible self-employed person directly and request that they fill out a simple online form. The grant will then be paid directly straight into their bank account.
The announcement of the scheme would have initially come as a relief for many self-employed individuals that the government is supporting them. However, due to the technicalities and time involved in implementing the Coronavirus Job Retention Scheme (which it is hoped will be in place at the end of April), the Chancellor said that it was “operationally difficult” to implement the Self-Employment Income Support Scheme at the same time. As a result, it is not expected to be active until June, with payments then backdated to March. This will no doubt be a serious concern for those who have been hit by the immediate financial effect of COVID-19.
Whilst the Chancellor attempted to reassure the self-employed that they could rely on welfare support and Universal Credit in the interim period, this can have its limits, as outline above, and can often take 5 weeks for individuals to receive the first payment. Although individuals can receive advance payment of Universal Credit in 10 days or less of submitting their claim, given the sheer number of people who have already been trying to access it within the last few weeks, the likelihood of this now happening in reality is perhaps doubtful.
A question was also raised in relation to those individuals who have only recently entered the work force and do not have three years’ worth of accounts to show. The Chancellor clarified that if individuals do not have three years’ worth to show, this will not prevent them from accessing the scheme. If an individual has only one year of accounts to show, then these will be the figures used. However, due to the volatility of self-employed work, using accounts from just one year may not reflect an accurate average figure in comparison to those individuals who have three years’ worth of accounts. If an individual has no records which can be accessed because they are very recently self-employed, the scheme will not be able to help them.
Similar to the Coronavirus Job Retention Scheme, the Self-Employment Income Scheme is anticipated to last for three months. If the scheme is active and able to make payments to people at the beginning of June, they could then receive 3 months’ pay backdated to March in one lump sum.
Without wanting to make a concrete statement about future tax policy, the Chancellor observed in a closing observation that in light of these new schemes there is now an inconsistency in tax contributions between self-employed and employed individuals. He therefore felt that it is harder to sustain the argument that the employed should pay a higher rate of tax on the basis they are treated differently, if self-employed and employed individuals will now be “treated the same”. Therefore, this new scheme may come at a future cost for the self-employed in terms of increases to their tax contributions – a possibility that the Chancellor has now undoubtedly put into motion.
If you would like further guidance in relation to these schemes, or more general employment advice in light of COVID-19, please do contact a member of the employment team.
Our page “Coronavirus (COVID-19) – Legal advice and guidance” is continually being updated with advice and guidance as and when updates come in from Government or other regulatory bodies.