Coronavirus National Crisis – What government financial support is available to self-employed workers?

The advice contained in this article is correct as of 22nd April 2020. The situation with Coronavirus is developing rapidly, so please do check for further blog posts for the latest updates.

Pattinson and Brewer have reviewed the government’s attempts to provide financial support to self-employed during the Coronavirus. This has come in the form of the Self-Employment Income Support Scheme (SEISS). Those who weren’t eligible for the Job Retention Scheme (JRS), because they do not pay tax via PAYE, might be eligible for SEISS. This covers the UK’s self-employed workforce, which comprises 15% of the working population. The scheme is also likely to cover those who are workers for employment law purposes but self-employed for tax purposes.

The scheme, however, has been criticised for leaving gaps in support, particularly for casual workers and self-employed creative workers in the entertainment industry. Today’s blog will explore these issues in further detail.

Eligibility for Self-Employment Income Support Scheme

1. The scheme is available for self-employed individuals or members of a partnership.

2. Trading profits from self-employment must be no more than £50,000.

The test for meeting this £50,000 threshold can met in two ways. First, the training profits in the 2018-19 tax year can be used. Second, it can be based on the average trading profits between 2016 and 2019. In this second way, if the average profits are less than £50,000, the occasions that the trading profits have exceed this limit for a year will not matter. For both methods, it’s necessary for the trading profits to constitute more than half of the Claimant’s total taxable income.

3. The individual must have submitted an income tax self-assessment return for the tax year 2018-19, and must have traded in the tax year 2019-20. Self-assessment tax returns for the tax year 2018-19 must be filed by 23 April 2020.

4. The individual must be trading when an application for a grant under this scheme is made or would have been trading, except for the Coronavirus outbreak, and intends to continue trading in 2020-21.

5. The individual must be able to show that they have lost trading income or partnership income due to the Coronavirus. There is no amount specified for such lost income to trigger a right to claim the grant.

How do I apply?

HMRC aims to contact businesses and self-employed individuals who they consider may be eligible by mid May 2020. It will invite those individuals to apply for the grant. It is not necessary for individuals to contact HMRC to make the claim in the first place, although it’s likely that there will be an opportunity for someone to make a claim if they consider they have been missed off wrongly by HMRC.

How much can be claimed and when?

There is a taxable grant for 80% of the average trading from tax years 2016 to 2019. HMRC will calculate this by adding the total trading profits for the three tax years (where applicable) then divide this by three (where applicable) and use this amount to calculate the monthly amount. The grant will cover a maximum of £2,500 per month for three months.

The scheme is intended to last for three months, but this will perhaps be extended in line with the JRS. Unfortunately, the scheme will only become operative in June 2020 and no financial relief is being employed to self-employed people or businesses operating in this way.

What are the problems with the scheme?

It is naturally quite difficult to identify the extent to which trading profit must have been affected by the Coronavirus. The scheme doesn’t suggest that the HMRC grant may take into account the extent to which profit losses have suffered. Could the grant be reduced if an individual’s profit losses are, for example, £700?. We await further guidance from the government.

There are also potentially huge gaps in the SEISS’s coverage. For example, the Institute for Fiscal Studies has estimated that around 2 million people with self-employment income fall within the scheme. Our experience working with unions that serve creative workers tells us that the entertainment industry has been severely impact. Countless theatres and other entertainment venues ‘went dark’, coupled with film and TV productions shutting down nationwide. The statistic mentioned above also includes freelancers who operate via limited companies, where their incomes goes and they pay themselves a salary from. In other words, those who pay themselves primarily via dividends coupled with a smaller portion through PAYE, are very unlikely to be included. Some individuals have chosen to trade through a limited company for particular reasons, such as tax, whilst others will have been required by their clients or the industry they work in.

The requirement that trading profits must be no more than £50,000 effectively acts a salary gap. Therefore, those who earned, on average, more than £50,000 over their previous tax returns from 2018/19 will miss out entirely. This will no doubt exclude a considerable number of businesses from the scheme.

Those who are beginning life as self-employed workers also face difficulties under the scheme. As the SEISS is based on the 2018/2019 tax return, this excludes many people who become self-employed after April 2019 and would otherwise be ready to file their first statement of earnings. Some might be eligible but have only traded for a few months of the 2018/2019 tax year, but have since made much more profit, will only be partially covered. Similarly, a key trade union for creative workers, Equity, has a significant number of young members. In fact, the average age of their membership is 27. What about new entrants and drama school graduates who haven’t completed their first tax return yet?

What about those with less than half of their income from self-employment? The Institute for Fiscal studies estimates this number to be around 1.3 million people who will fall outside of the SEISS due to this rule. The scheme is clearly designed for those who are majority self-employed, but it unfortunately excludes those who have self-employment as a secondary form of income coupled with their main job. This will also exclude those who are building their businesses up while they remain employed.

Pattinson & Brewer’s specialist employment team

We have particular experience dealing with employment law advice exclusively to claimants. Our special relationship with the trade union movement means that we have particular insight into the working lives of employees and the self-employed alike.

Please check our website for further blogs on these matters as things progress.

You can also follow us on Twitter/Facebook using the handle @PB_Employment