Covid-19: self employed package hints at future tax equity

Chancellor Rishi Sunak has unveiled a £9bn package of support for self employed taxpayers and members of partnerships, Self-Employed Income Support Scheme, affected by the coronavirus epidemic which he said was equivalent to the furlough scheme for those paid via PAYE, and has indicated that future tax policy may need to change to reflect this equivalence

The new Coronavirus (Covid-19) Self-employment Income Support Scheme will pay 80% of an individual’s average monthly profit over the last three years, as a taxable grant up to a maximum of £2,500 a month. It will be open to all across the UK for a three month period, with an extension if necessary.

This scheme applies to self-employed individuals and members of a partnership, who have lost income due to coronavirus.

HMRC will use the average trading profits from tax returns in 2016-17, 2017-18 and 2018-19 to determine the size of the grant

Those who cannot produce three years of accounts will be able to submit either one or two years, but Sunak pointed out that income levels for the self employed can be volatile, and hence the three-year requirement.

The financial support figure and terms are the same as those set out earlier in the crisis, when PAYE employees were offered a scheme covering 80% of their monthly earnings up to a £2,500 cap.

Sunak said the delay in rolling out help for the self employed was because of the difficulty of devising a scheme which offered ‘deliverable, fair and targeted support’, given that the self employed are ‘a diverse population with some people earning significant profits’. For the same reason, it will only be on offer for those with trading profits of up to £50,000.

Applicants for the scheme must make the majority of their income from self employment. To minimise fraud, they must also have already submitted a tax return for 2019.

'If you claim tax credits you’ll need to include the grant in your claim as income,' HMRC guidance states.

However, Sunak also announced that from today, 26 March, anyone who was late filing their January tax return and missed the 31 January deadline will have four weeks in which to submit a return with a final deadline of Thursday 23 April 2020.

He said government analysis suggests that the scheme will benefit 95% of those who are self employed, while the remainder have substantially higher incomes than average.

Availability of funds

HMRC plans to be able to offer access to the scheme no later than the beginning of June, when the department will contact those eligible directly and ask them to fill in an online form. Payments will be made directly into their bank account, and will be back dated to 1 March, meaning a self employed taxpayer will receive three months’ money in one go.

HMRC has issued initial guidance on the scheme and further details will be shared in due course by the tax authority.

Asked how those who have no resources will manage until June, Sunak said the welfare payments system had also been changed, so self employed people will be able to make a universal credit application and should receive an emergency payment within days, and they will also be eligible to apply for business continuity loans where they have a business bank account.

The Chancellor said that the operational complexity of devising the scheme had also thrown into relief what he termed the ‘inconsistency’ of current tax policy, given that the planned intervention for the self employed marked ‘one of the most significant economic interventions in the history of the British state’.

‘It is harder to justify the inconsistency of contributions. We are all in this together and everyone, both PAYE and self employed, is now benefiting from the same state support. When we start to come out of this and right the ship, there will be questions about ensuring equivalence in the future,’ Sunak said.

David Hough, partner, Blick Rothenberg said: ‘The Chancellor said that for the self-employed to benefit from the State they should expect to contribute equally in future.

‘This means that national insurance contributions (NICs) will be aligned so that employees and the self-employed pay the same. Expect this to be included in the Autumn Budget.’

The scheme also does not recognise the fact that many self-employed persons operate their business through a company, for example contractors using personal service companies (PSCs); this is not necessarily for any tax reason but for limited liability protection, Hough said.

If you are a director of your own company and paid through PAYE it may be possible to get support using the Coronavirus Job Retention Scheme, although final guidance on the JRS measure for employees is not yet available [as of 26 Mar 2020].

Joanne Harris, technical commercial manager at SJD Accountancy said: ‘PSCs who pay themselves salary and dividends will not be eligible for the self employed scheme but will be covered by the Job Retention Scheme if they are operating PAYE schemes.’

Reporting by Pat Sweet, Sara White

Pat Sweet |Reporter, Accountancy Daily [2010-2021]

Pat Sweet was the former online reporter at Accountancy Daily and contributor to the monthly Accountancy magazine, pub...

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