Self-Employed Bailout: Could Do Better?

Self-Employed Bailout: Could Do Better?
The Chancellor’s long-awaited bailout for the self-employed has left out contractors and those who are paid in dividends. On Thursday evening, Rishi Sunak at last unveiled his offer, saying it would help 95pc of people who earn the majority of their income from self-employment.

Although many people will receive payments amounting to 80pc of their profits, experts claimed the policy ignores substantial numbers of the five million individuals who work for themselves.

Those who qualify will receive payments as a taxable grant but these will not be available until June, which means that those who are not coping must rely on Universal Credit, which operates a five-week wait for the first payment.

However, Seb Maley of insurance firm Qdos Contractor, said that hundreds of thousands of genuinely self-employed people working through their own limited companies have been excluded, although the Chancellor has delivered for millions of self-employed workers.

Mr Maley found it a matter of concern that the Government has ignored these people when it matters most, as they, like employees, pay their taxes, contribute billions to the economy and are helping the country to ride the crisis.

These workers can apply instead to the job retention scheme offered to full-time employees. But as the level of support is calculated on regular taxable salary, this could leave many facing a huge fall in income. Mr Maley added that they would find much of their income ineligible if they take the majority of their pay in dividends.

Additionally, those whose average profits exceed £50,000 per year will be excluded from financial assistance, as will anyone who has become self-employed recently. Workers who are still building a business could also find they receive far less support because their earnings have only increased in recent months.

Unions expressed concern that their members could fall through the cracks, while individuals took to social media to point out the flaws in the scheme.

A trade body, the Association of Independent Professionals & the Self-Employed (IPSE), described the proposals as a ‘historic lifeline’ but said there remain gaps to be filled.

Derek Cribb of IPSE said that this assistance, while practical and wide-ranging, does not apply to all self-employed workers. Therefore, the organisation would continue working to fill in the gaps and make every effort to ensure that those in need are not left behind.

Details of Mr Sunak’s bailout

Mr Sunak’s proposals mean that most self-employed people will be able to claim 80pc of their average profit, based on their last three tax returns, up to a maximum of £2,500 per month. This approximates to the support given last week to employees who had been laid off or ‘furloughed’.

HMRC will write with information on how to claim to all those who are eligible. The payment, in the form of a lump sum, will be backdated to March 1, although it will not be made until June. Furthermore, tax will be due on the payment. As a related matter, the self-employed are allowed to defer their next tax payment on account, due in July, until January 2021.

The sting in the tail

Mr Sunak’s statement contained a hint of what is to come. Revealing the proposals, he said that everyone would have to pay into the system fairly, for access to state support to be equal.

As a trade-off for their relative lack of job and income security, as well as the lack of entitlement to holiday and sick pay, self-employed workers typically pay lower taxes than employees.

When questioned, Mr Sunak explained that the comment sheds light on the issue of inconsistency of treatment between employees and the self-employed and whether that is fair to everyone. Some have interpreted this as a sign that the self-employed could be forced to pay increased National Insurance contributions in the future.

When former chancellor Philip Hammond tried to introduce a similar measure in 2017, it was hastily dropped following an angry backlash.

QuickBooks Black Friday Week – Save 75% for 4 months – Offer ends 30th November
CLAIM NOW