The Chancellor has revealed a multibillion-pound bailout to help millions of self-employed workers hit by the coronavirus crisis, following on from the Job Retention Scheme announced last week where laid off employees would be paid 80 per cent of their wages up to a maximum of £2,500 per month.
A scheme similar to that is being set up by June so that the government can pay money into people’s bank accounts to reimburse them for losses incurred by following instructions to stay at home.
It appears that the bailout will be means-tested to ensure it is correctly targeted at those most in need and will be administered by HM Revenue & Customs.
People will need to provide their bank details, although it appears they won't have to provide proof that their incomes have been reduced by the coronavirus pandemic, but that may need clarification.
This new scheme will be a welcome relief for many.
Self-employed individuals and members of a partnership will get the following support:
Further details are being added to the HMRC website.
The scheme is unprecedented for the self-employed, as is the scheme for the employed announced previously.
The downside is that payments are unlikely to be made before June, though will then effectively be three months' work of grant in one lump sum. In the meantime, those eligible will have to rely on savings, borrowings or benefits to cover the gap.
It appears that in order to qualify, the self-employed will have to get more than half of their income from self-employment and have a trading profit of less than £50,000 in 2018-19, or an average trading profit of less than £50,000 from 2016-17, 2017-18 and 2018-19. So some may not get support where they do not meet the criteria.
The Chancellor also indicated that there would in future be a much closer parity between the National Insurance and tax paid by employees and the self-employed, the details for which will follow in due course, probably in the next Budget.
So the 9% NICs for self-employed may be equalised with 12% paid by employees on the basis that they get the same treatment so should pay the same tax.
But the 2019 Conservative Party manifesto did promise that there would be no increase in NICs during this Parliament, so attempting to increase them for the self-employed could result in a re-run of 2017 when the then Chancellor Philip Hammond had to do a humiliating u-turn on increasing Class 4 NICs for the self-employed from 9% to 11%, as the manifesto had promised there would be no increase..
Those who pay themselves a salary and dividends through their own company are not covered by the scheme, but may be covered for their salary only by the Coronavirus Job Retention Scheme if they are operating PAYE schemes. However, they may have to prove that they have stopped working.
The duties of a director are taxed as an officeholder, not as an employee. Directors have to designate themselves separately as an employee of their own company, though there is conflicting case law on this.
Further details about how the Job Retention Scheme actually works will help clarify the position of those working via their own companies. Many "self-employed" people operate through a limited company, so are not really catered for, it would seem.
In addition to the above, the following has already been announced for the self employed:
A word of warning about the deferment of self assessment tax until January 2021 as this could create large tax bills next year.
There will be a time delay for the self employed before they see any actual reduction in their tax liability as income that falls into the tax year to 5 April 2021 is reported and tax paid in January/July 2022.
Where an accounting year/period ends early in the tax year, that will move to 2023. So there is a long term cash flow issue that will need to be addressed.
The first payment on account for 2020/2021 is 31 January 2021, when submitting your return for 2019/2020. The second payment on account will be on 31 July 2021.
What a self employed person will need to do is apply for reduced payments on account for the tax year 2020/ 2021 in the tax return sent in by 31 January 2021.
Any self--employed individual concerned about paying their tax due to coronavirus, can call HMRC’s helpline for help and advice: 0800 024 1222.
For the latest, check out the Coronavirus KnowldegeHub.