We’ve been waiting all week to see what support the Government will provide to the Self-Employed and, tonight, we found out.
Rishi Sunak outlined the scheme and categorically stated that “To all of those who are self-employed, you haven’t been forgotten, we will not leave you behind”……and then left a lot behind.
It would be impossible to implement a scheme that works for everyone so, as expected, there are some good and bad bits.
The good bits of the scheme are:
- If you qualify for the scheme, the Government will pay you a grant of 80% of your trading profits for 3 months. This grant is capped at £2,500 per month from March to May. This will then be revisited in June to see whether it needs to be extended. The 80% will be applied to your average profits from the past 3 years based on your personal tax returns. If you’ve traded for less than 3 years, they’ll use the years you have filed.
- There is minimal paperwork to fill in – the Government will work out who is eligible, and the amount of grant, based on submitted tax returns. They’ll contact you and there will then be a simple online form to complete
- You can continue to work while getting the grant
This could be very generous, but there are some downsides:
- The full grant will be paid in one lump sum in June, so you may have cashflow issues before then.
- There are strict eligibility criteria, which rules out a lot of self-employed people who are also not eligible for the business support announced last week
- The grants will be taxable in your personal tax return for the year ended 5 April 2021
Who is eligible?
You will be eligible if you meet all of these criteria:
- You have over half of your income on your personal tax return in 2018-19 from self-employment. (If you haven’t filed it yet, you have 4 weeks to do so.)
- Your trading profit in 2018-19 is less than £50,000 (or your average over the three years ending 5 April 2019 is less than £50,000)
- You are already registered as self-employed. Although the Treasury statement doesn’t specifically say so, there is a general understanding that this will mean you must have already submitted a personal tax return for 2018-19 to give them something to use for the calculations
Who is left behind?
The real losers here are:
- People who are only recently self-employed
- Owners of Limited Companies – the Treasury statement says “Those who pay themselves a salary and dividends through their own company are not covered by the scheme”
What do I think?
It is impossible to please everyone, but the fact that a lot of people aren’t eligible does seem a big flaw in the scheme.
I do get the fact that they want to avoid lots of people suddenly claiming to be self-employed, but it seems they’re cutting off any new businesses in the past 12 months.
And, as well as many of my own clients, most “self-employed” people I know are working through a Limited Company, which means they’re not eligible for this scheme.
They may be operating a PAYE scheme and, therefore, qualify for the Job Retention Scheme but that scheme only really covers the staff – not the owner.
The Job Retention Scheme pays 80% of salary but only if you are furloughed and undertake no work at all for the business. The general consensus, including the detailed examples from the Institute of Chartered Accountants in England & Wales, is that “work” includes doing any company admin at all.
As a Director, it’s therefore practically impossible to be furloughed and get the grant. Are you really going to sit twiddling your thumbs for 3 months, without trying to make sales for the future? Or putting marketing together? Or working on your finances?
I’ll accept that many Directors do benefit from lower tax rates than employed people, so there may be a separate argument that this omission evens things out. But, then again, they also take all of the risks of running a company.
And Rishi Sunak stated that taxes would change in the future to ensure that the self-employed pay as much tax as employed people.
All in all, it’s a very generous scheme if you qualify. But there are a lot of genuinely self-employed people who are left with nothing and are indeed “left behind”.
If you found this useful, please share it using the icons at the side of the page, or leave a comment below.
If you’d like a meeting or a Skype call to discuss this, please get in touch with your favourite Liverpool accountant:
- You can ring us on 0151 380 8080
- You can email us at email@example.com