Who wins and who loses in the Self-Employed Income Support scheme?

The Government has launched a ground-breaking scheme to help self-employed people remain solvent through the worst of the coronavirus (Covid-19) crisis.

The Self-Employed Income Support scheme will pay a direct cash grant of 80% of their profits, up to £2,500 per month.

But payments won’t be made before June. And those who turned self-employed recently will be excluded along with those who pay themselves via company dividends.

Self-employed people across the UK will be able to receive a taxable grant worth 80% of their average monthly profit over the last three years, up to a maximum of £2,500 per month.

This is similar to support for furloughed employees under the Corona Virus Job Retention Scheme. But it is likely to come at the cost of increased tax and National Insurance in future.

The scheme will run for an initial three months but could be extended if necessary.

Conditions  

To receive the grant, individuals must meet the following conditions.

  • They must be genuinely self-employed, earning the majority of their income from self-employment. This will rule out gig economy workers with additional jobs.
  • They must earn no more than £50,000 trading profit in 2018-19 or an average trading profit of less than £50,000 from 2016-17, 2017-18 and 2018-19. (This threshold is expected to cover 90% of self-employed people. Of the remaining 10%, half are claimed to have average income in excess of £200,000.)
  • Recipients must be adversely affected by the coronavirus crisis – i.e. showing a loss of income.
  • They must already be self-employed, having filed a 2018-19 tax return. This excludes those who recently turned to self-employment.

How to access the scheme

  • HMRC will identify eligible taxpayers and contact them directly with guidance on how to apply.
  • Applications will be made online using a “simple” form which should be up and running by the beginning of June.

The grant will then be made in a single payment, backdated.

Until then the self-employed will have to rely on welfare, grants or bank funding to survive. 

Exclusions

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. 

Coronavirus loses

Individuals must show they have suffered financially from the coronavirus crisis. In theory, even losing a small job or amount of pay could qualify. However, HMRC will be able to verify whether loses are genuine or sufficient when individuals file 2020-21 tax returns.

Future tax rises

The Chancellor hinted the self-employed would have to pay a future price for short-term support.

“It is now much harder to justify the inconsistency of contributions of people of different employment statuses. If we all want to benefit equally from state support, we must all pay in equally.”

Reaction

Brian Palmer, tax policy adviser for AAT, said:

“This is a positive step and is to be welcomed. We recognise the complexity of arranging a scheme of this type. However, I do feel concerned for the newly self-employed who will not qualify. The three-month wait for funds will leave many people worried.

“The self-employed should also realise that the quid pro quo for this help is that in a few years time they will be asked to pay the same tax and national insurance to, in the Chancellor’s words, level the playing field.”

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David Nunn is Content Manager at AAT.

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