Research from the Association of Independent Professionals and the Self-Employed (IPSE) has uncovered fears that the self-employed will not be able to cover their basic costs during the coronavirus pandemic, despite government support packages that have been put into place over the past month.

Almost half of self-employed people (46%) say that they fear that they will be unable to cover their rent and bills, whilst 66% are worried that they will run out of savings in the next three months.

The study asked freelancers about their thoughts on government support available both before and after the announcement of the Self-Employment Income Support Scheme (SEISS). The number of people who believed that government support would not sustain their businesses throughout the crisis dropped from 60% before the announcement, to 46% after it. However, amongst freelancers employed through limited companies (and thus not eligible for the scheme), the percentage rose from 58% to 69%.

 

What Is SEISS?

 

The Self-Employment Income Support Scheme offers a taxable grant to self-employed individuals and their partners, worth 80% of their average trading profits for the last three months, with a cap of £2,500 per month.

To be eligible for the grant, individuals must meet the following conditions:

  • They must be registered as self-employed with HMRC
  • They must have submitted tax returns for 2016/17, 2017/18 and 2018/19, or for the years in which they have been trading during this time period.
  • They must still be trading (or have been trading up until the pandemic) in 2020/21
  • They must have lost trading profits due to coronavirus
  • Their self-employed profits must make up more than half of their annual average income
  • Their average annual self-employed profits for the calculation period must not exceed £50,000

 

Changes To SEISS

 

When the scheme was first announced, many freelancers and contractors were unsure how to proceed, meaning that HMRC has recently published updated guidance and details of how to work out total income and trading profits. The guidance was also updated with additional clarity on areas regarding making a claim, eligibility for the scheme and how the scheme works in tandem with Universal Credit, which many will have to claim whilst waiting for their grant to be processed.

Angela Clegg, technical manager at the Tax Faculty, said: “We recognise the complexities faced by HMRC in devising a new scheme from scratch to provide millions of individuals with financial support. The government is aware that there are still questions unanswered. The guidance is very clear though: don’t contact HMRC about the SEISS at the moment.” 

Clegg warns, “With HMRC phone lines very busy taking calls on other COVID-19 schemes, calls now will deflect resources from getting the scheme established and vital assistance to those who need it on what is already up and running.”

 

Recommendations

 

The IPSE report offers a number of recommendations to the government, designed to make the scheme more helpful for various self-employed groups

These recommendations include:

  • Extending the SEISS to the newly-employed, so that they can file an early return and benefit from the scheme
  • Include dividend retention in the Job Retention Scheme to help Limited Company Directors who are, as of now, not able to claim support
  • Relax Universal Credit application criteria to offer self-employed people a chance to claim whilst they wait for the SEISS grant to be paid out (the grant is currently likely to be paid in June)
  • Introduce a tapered provision for SEISS for those who earn above the £50,000 threshold

 

 

Limited Company Directors And SEISS

 

In both the original announcement and the updated guidance, limited company directors have been specifically excluded, making many worry that there is no help available for individuals who run their own company at all.

The SEISS guidance states:

“Those who pay themselves a salary and dividends through their own company are not covered by the scheme but will be covered for their salary by the Coronavirus Job Retention Scheme if they are operating PAYE schemes.”

This means that those who don’t use PAYE to pay their salaries, but instead take their salary from dividends, are not able to claim on the scheme. They can use the Coronavirus Job Retention Scheme to claim back 80% of employees’ salaries, but there is no direct help for them unless they are ‘furloughed’.

Andy Chamberlain, Director of Policy at IPSE said: “This research shows that it is not just a few self-employed people falling through the cracks in the government support: right across the sector, freelancers are facing dire financial damage because of the Coronavirus crisis.

“The Self-Employment Income Support Scheme (SEISS) offered generous support to many sole traders, but there are a lot of freelancers who will struggle in the interim before it can be implemented. Government should look at ways to open up access to temporary support before June.

“The lack of support for limited company directors in SEISS is not just a crack: it is a gaping hole in the package. The government must act quickly to fill it. We believe the best way would be to include dividend income – through which many limited company directors pay themselves – in the Job Retention Scheme.

“This would allow the self-employed who work through limited companies to furlough themselves and hold on to 80% of their income. If not, we suggest a bespoke solution involving either a grant or a temporary tax break for this significant and under-supported group.

Ben Willmott, Head of Public Policy at CIPD, points out that the current state of the government support package means that hundreds of thousands of people are slipping through the cracks, and may find themselves either unable to continue in their business at the end of the pandemic, or deeply in debt and unable to recover in the long-term.

He said:  “These include many of our 15,000 self-employed HR consultant members who are limited company owners, along with hundreds of thousands of other small company directors who receive most of their income in dividend payments rather than salary. Consequently, CIPD strongly backs the recommendation to allow dividend income earned by company directors to be considered in calculating earnings under the Job Retention Scheme.

“This would help support the livelihoods of hard-pressed small company owners and the ability of their businesses to bounce back once the crisis has passed.

“We also would urge the Government to consider seriously the other recommendations put forward by IPSE to help freelancers keep going through this crisis.”

 

Are you affected?

 

There is no doubt that limited company directory whose renumeration consists of significant dividend payments are not adequately catered for to the degree that other sections of the workforce are.

There is active lobbying of the government to address this issue now, and it is our hope that provisions are made to help support directors who are currently seeing their income decimated.

In the interim, a review of your current business circumstances may identify areas where savings can be made, and forward planning of how your company is going to navigate through this period of economic uncertainty could ultimately make the difference between business survival or failure.

Here at TFMC our team of experts are ready to advise and you can contact us on 0800 470 4820 or via email at info@tfmcentre.co.uk.