Self-employed? Will you fall through the cracks?

The Chancellor’s coronavirus support package for the self-employed and freelancers has been welcomed. Many in that category were worried that they had been forgotten.

Rishi Sunak reassured them, however, that this was not the case and outlined the details of the new scheme that would treat them in a similar way to employees who had been furloughed and were receiving 80% of their salaries through PAYE under the Job Retention Scheme.

Under the new scheme, the self-employed will be eligible to receive 80% of their average monthly profits for the last three years up to a maximum of £2,500 per month. This is subject to them having an overall trading profit of less than £50,000. Initially, the scheme will last for three months but this may be extended.

Although the scheme is thought to cover 95% of those who make their income from self- employment, it is feared there will be a few people who could fall through the gaps.

Who won’t qualify?

The first issue is that the support won’t be available until June. Individuals will need to apply through an online portal which has not yet been launched although they have been assured that payments will be backdated to 1 March.

Secondly, in order to qualify for the scheme, a self employed person has to have submitted a 2018/19 self assessment tax return. This condition has been included to mitigate against fraud but it means that if someone has been freelance for less than a complete tax year, they will not be eligible.

The Chancellor indicated that anyone who only started trading in 2019/20 would need to look to the welfare system for extra support by applying for a business interruption loan or for universal credit.

This would also apply to those who have dissolved a limited company recently and become a sole trader in response to the impending changes to the IR35 rules.

Where one-director companies sit

It’s believed that people who are self-employed but who provide their services through a limited company are likely to fall through the cracks. The HMRC self-employed guidance does say that, “If you’re a director of your own company and paid through PAYE you may be able to get support using the Job Retention Scheme (JRS).”

It’s unlikely, however, that people with personal services companies (PSCs) will be able to benefit from the self-employed package. Directors often pay themselves a low salary but top up their income with dividends. So even if they qualified under the Coronavirus Job Retention Scheme, they would be unlikely to receive a significant payment as they would be eligible for up to 80% of their salary and dividends would not count for support.

As Heather Self from the accountancy firm Blick Rothenberg explained, “If you’re an employee of your PSC, it’s going to be difficult (impossible?) to be furloughed and qualify for the Jobs Retention Scheme.”

Mr Sunak has admitted the rules have had to be devised in haste and will not be perfect for everyone straightaway. On the positive side, a group of fintech entrepreneurs are developing a prototype to help self-employed workers use historic banking information to prove previous income and predict any future loss of income.

If you have any queries about where you stand, do not hesitate to get in touch with us.


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