The Chancellor of the Exchequer, Rishi Sunak, announced yesterday that a new support package will be made available to self-employed individuals. The coronavirus (COVID-19) Self-employment Income Support Scheme will pay 80% of trading profits capped at £2,500 per month. The level of support is similar to that available to furloughed employees who are to receive 80% of salary, also capped at £2,500 per month, under the government's coronavirus job retention scheme. While we await further details from the government about the scheme and exactly how it will operate, a summary is below.
Who qualifies for support?
The scheme will be available to those who are self-employed or a member of a partnership. They must have trading profits of £50,000 or less per annum and earn more than half of their income from self-employment. Those who earn more than that amount will not qualify for any payment under the scheme.
In addition, they must have:
•traded in the tax year 2019-20
•be trading at the time of application, or would be except for COVID-19
•intend to continue to trade in the tax year 2020-21
•have lost trading/partnership trading profits due to COVID-19
Self-employed individuals must have submitted a 2018-19 tax return (which was due by 31 January 2020) in order to be eligible for the scheme. If they have not done so, they have an extra four weeks in which to do so (by 23 April 2020).
Those who became self-employed since April 2019 will not be entitled to any payment under the scheme, although they may be able to benefit from other business support arrangements offered (for example, Universal Credit, the deferral of tax payments, grants to businesses paying little or no business rates and the Business Loan Interruption Scheme).
The operation of the scheme
The scheme will give the self-employed a grant which will be 80% of the average profits from the tax years (where applicable) 2016-17, 2017-18, and 2018-19.
HMRC will use data on 2018-19 returns already submitted to identify those eligible and will then contact them directly. Payments are not expected to be made until June 2020 although the payments will be for three months at once when they are.
Any payments made under the scheme will be treated as taxable income for the self-employed individuals.
Can individuals work while being paid?
For employees, the answer is no. The self-employed, however, are permitted to continue to trade while also receiving payments.
When are the first payments due? Both schemes are new to the UK, and there is no infrastructure yet in place to support them. The Chancellor explained that once the coronavirus job retention scheme for employees is in place, HMRC will then have capacity to develop the Self-employment Income Support Scheme. Although payments, when they arrive, will be in the form of a lump sum for the full three-months of the scheme, this is anticipated to be not until June 2020. The scheme will last for an initial three month period, but may be extended as necessary.
Inconsistency between treatment of the self-employed and the employed Employees (and their employers) have historically paid higher National Insurance contributions (NICs) than the self-employed, but in return have seen greater benefits (such as statutory sick pay and family leave benefits). In 2017 the then Chancellor of the Exchequer, Philip Hammond, attempted to increase Class 4 NICs payable by the self-employed from 9% to 10% in April 2018, and to 11% in 2019, to bring it closer to the 12% currently paid by employees but a public outcry forced him to change his mind. Since then the government had recognised in its Good Work Plan that there was an inconsistency, but it had no plans to resolve it at present. In his announcement, Mr Sunak drew attention to what he termed the "inconsistency" between treatment of employees and self-employed in these schemes, with employees paying more but receiving substantially the same benefit as those who are not. In the short to medium term, the Chancellor's proposed scheme will provide comfort to the self-employed. His comments, however, suggesting that in light of this proposal the government may need to look again at whether it's right that employees are taxed more than the self employed will set some alarm bells ringing. It is not yet clear whether this refers to an intention to bring the changes to the IR35 regime back on the table or to bring national insurance rates for the self employed in line with those for employees, or something else.