Coronavirus UK: Financial Support for the Self-Employed and Freelancers

At 5pm today, Chancellor of the Exchequer Rishi Sunak finally announced the support package that will be put in place for the self-employed. This couldn’t have come soon enough for the 15% of the UK workforce who are self-employed or freelancers. The coronavirus outbreak and subsequent lockdown has seen the UK’s 5 million self-employed workers struggling with a lack of earnings, either because they have been unable to work or have lost vital projects. So, what did the much-anticipated announcement unveil?

A taxable grant for the self-employed

The key thing is the “Self-employment Income Support Scheme”, which is taxable grant of up to 80% of a self-employed person’s average earnings over the past three years of trading. The calculation will be done by HMRC based on profit over the three previous tax returns (or one or two years if that’s how long the person has been self-employed). Pay-outs will be up to a maximum of £2,500 per month, the same max threshold as that of employees. The scheme will run for at least three months and may be extended if necessary. HMRC will contact those who are eligible.

Who does it cover?

As “self-employed” is a broad category covering many types of workers—from construction contractors to freelance web developers, plumbers to photographers, the question is who is eligible to receive the grant? The Self-employment Income Support Scheme offers targeted support for those who:

  • Are already self-employed, with at least one year’s accounts, so a 2018-19 tax return.
  • Have been adversely affected by COVID-19 i.e. have lost income.
  • Make the majority of their income from self-employment.
  • Have trading profits below £50,000 a year on average (according to the government, this covers 95% of the self-employed).

Who doesn’t it cover?

Importantly, the financial support isn’t available to:

  • Those who have recently become self-employed i.e. those who haven’t filed a tax return as a self-employed person. Instead, this group must apply for universal credit if they lose their income.
  • The 5% who earn over £50k a year in trading profit. This group is not eligible for any support due to their high earnings.
  • Limited company owners who pay themselves a salary. This group must use the Coronavirus Job Retention Scheme if they operate a PAYE scheme, paying 80% of the government-permitted monthly director salary but only if the owner furloughs themselves, which is an issue if they have even one client who wants to continue.

When will the payments be made?

If self-employed people had been breathing a sigh of relief at the announcement, this is where they hit the panic button. Payments will be made in a lump sum backdated to March by HMRC—“as early as the beginning of June”. This isn’t much relief for self-employed people who have already seen their work dry up and have absolutely no income. Rishi noted “We will not be able to protect every single job or save every single business.”

What else is available?

In the Q&A session, Rishi was rightly asked what the self-employed who have no money should do until June, especially when many already have no income and are struggling to pay their bills or buy food. In response to this, the other measures available that have been opened up to self-employed workers are:

  • Universal Credit payments of up to £94.25 a week. However, it’s worth noting that this takes into consideration your partner’s income, so freelancers with an employed partner are unlikely to be covered. If you have more than £16k in savings, you are also not eligible.
  • Employment and Support (ESA) allowance if you’re unable to work.
  • A Business Interruption Loan that must be paid back but is interest-free for one year. Check the terms and conditions carefully, especially if you have to offer a personal guarantee.
  • A deferral of self-assessment tax payments from July 2020 until January 2021.
  • A deferral of VAT payments due from 20 March 2020 until 30 June 2020
  • Late tax returns are permitted for the next four weeks only.

What else can you do?

If you’re struggling to pay your bills, the following is being put in place:

  • Mortgage lenders and rental companies must allow a payment holiday for three months as long as the person is not already in arrears, which will not impact your credit score. (This also includes landlords whose tenants are experiencing problems paying.)
  • Landlords must not be able to evict tenants for at least three months.
  • At the end of the period, landlords and tenants should work together to figure out an affordable repayment plan.
  • Personal loan or credit card lenders must offer flexibility based on customers’ individual circumstances.

What changes will there be to self-employed tax?

Interestingly, Rishi took the opportunity to point out the disparity in the amount of tax paid by the self-employed compared to employees, suggesting a re-balancing of taxes when the crisis is over. When many self-employed people have lost their livelihoods and businesses, this hardly seemed the appropriate time to take a dig at the self-employed, especially considering the lack of sick pay, holiday pay, pensions, maternity and paternity provisions, and so on offered to employees.

Many self-employed people and freelancers will be relieved to here that provisions are in place, though a wait until June will be concerning to many. You can find more information on the government provisions here.

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