There are a number of twists in the Coronavirus Self-employed Income Support Scheme which was announced today, not least of which is the bomb shell hint that there will be some rethinking of how the tax system works for self-employed workers in the future.
Who is missed out of the Coronavirus Self-employed Income Support Scheme
The Coronavirus Self-employed Income Support Scheme will cover the majority of self-employed workers who are on moderate earnings and have been self employed for a reasonable period of time.
The scheme will cover those with average net profits (the amount declared to pay tax on) of less than £50k per year – if you’re earning more than this then you’re expected to have savings to support yourself and indeed it’s likely if your earnings are at this level that your income hasn’t dropped off a cliff in the way a taxi driver or hairdresser’s has. However for some just over the £50k threshold who’s earnings have bombed it’s a real problem as there’ll be little in the way of government assistance and most people live just beyond their means relying heavily on loans and credit cards.
There will also be some self-employed workers who have only traded a couple of years and have had significant set up costs in their first years, so this could bring their average net profits down significantly. Those who did their taxes with a write down on purchases over a number of years or those that leased equipment won’t now have to accept they saw quite such significant reductions in their reported income, will have paid more tax in their set up years and hence will see more benefit from the Coronavirus Self-employed Income Support Scheme.
There will also be some who have only just entered self-employment and haven’t yet completed a tax return. The Chancellor said that it was impossible to cover these people as there is no way to ascertain what their earnings might have been.
Expect a three month delay before funds are paid
The June expectation for payment of taxable grants under the Coronavirus Self-employed Income Support Scheme is also an issue. The Coronavirus Self-employed Income Support Scheme will take time to get up and running – even more so because a four week grace period has been allowed for tardy tax payers who haven’t bothered to submit their tax returns that were due on the 31st of January. Due to this no funds will be paid to self-employed workers before June and then the three month taxable grant will be paid as a single lump sum.
You might think this a massive issue, but the reality is, for many, there is other assistance available. The first thing is the Government have said you can carry on working and still claim. Do NOT shut your business down if you’re self employed unless you literally don’t have any sales. Even if sales are drastically reduced and it’s only enough to pay the food bill then carry on selling and buy some food – sales may pick up way before three months are up and shutting down is a hard step to reverse. You can still claim.
Rent and mortgage payments can be delayed with a promise that you won’t be evicted. Tax payments can be delayed – even your council is unlikely to come down heavy on you if your council tax payments are late and you can delay income tax payments until January 2021 and if you are VAT registered don’t bother paying that at the moment as the Government have offered a VAT deferment too. It is also possible to apply for Universal Credit, although this is relatively low, but so long as you can put food on the table you can pretty much delay every other bill you have until the payment comes in June.
There will be people who are self-employed who are in dire straits, but delaying every bill will be your best strategy and using Universal credit for food. Whilst there can be a delay of anything up to five weeks to get Universal Credit, the government suggests that you may well be able to get an advance payment as a loan against future payments once your claim has been approved.
Watch for self-employment taxation rises in the future
Perhaps the biggest shock which will impact all self-employed workers was the suggestion from Rishi Sunak that the entire self-employed taxation scheme would be examined in the future. If the self-employed (who generally don’t benefit from sick pay, redundancy, and indeed no certainty of income) want to benefit from the Coronavirus Self-employed Income Support Scheme then it’s fair that in the future they also pay tax on parity with those in employment.
Those who are self-employed accepted the risks of uncertain income when they signed up rather than getting a job on PAYE, for varying reasons ranging from higher earning potential, freedom to choose their own hours, or perhaps the inability to find a PAYE position.
Having accepted the risks of self-employment and, even in this unprecedented crisis, then expecting a government bail out is likely to have taxation consequences in the future. Although things like holiday pay may not ever apply to self-employed workers, being taxed in the future on parity with employed workers is likely to be strongly considered.
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