Coronavirus: help for the self-employed

Rishi Sunak’s scheme comes with several catches © Getty

published 4 April 2020

A week after announcing unprecedented support for employees at risk of losing their jobs, the government bowed to pressure to offer similar help to millions of self-employed workers. But Chancellor Rishi Sunak’s Self-Employment Income Support System is complicated and many self-employed people will miss out.

The scheme offers support to self-employed workers, including those in partnerships, who have suffered a loss of income because of Covid-19. They’ll be eligible for a taxable grant worth 80% of their average monthly profits over the past three years, up to a maximum of £2,500 a month.

There is no need to apply for this support. HM Revenue & Customs will use its records to identify who is eligible and then contact them to invite online applications. The money will initially be available for three months, though the scheme may be extended, and will be paid in a single lump sum – though probably not until June.

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Who qualifies?

For those who qualify, the scheme compares favourably to equivalent state support for employees, especially as you can continue to work and still claim help. Yet many self-employed people don’t meet its criteria. To be eligible, more than half your income must come from self-employment. You must have had a trading profit of less than £50,000 in the 2018-2019 tax year, or an average trading profit of less than £50,000 in 2016-2017, 2017-2018 and 2018-2019. You must also have a full year’s worth of accounts, though if you have not yet filed a tax return for the 2018-2019 tax year you can still qualify for the scheme if you get the return in by 23 April.

Crucially, you also won’t be able to claim if you’re set up as a limited company rather than as a sole trader or a partner. This rules many people out. The government says 95% of the self-employed will be eligible for support, but this is based on the four million or so people set up as sole traders and partners, rather than the broader definition of the self-employed used by the Office for National Statistics, which gives a figure of around five million.

In practice then, the terms of the self-employed support rule out most people previously earning more than £50,000 a year, even if they have now lost all their income, anyone who became self-employed after 6 April last year and anyone who trades as a limited company.

The latter group may be able to get some support from the Coronavirus Job Retention Scheme, which provides employers with financial assistance to pay up to 80% of employees’ wages if they furlough them for a period, rather than laying them off. If you’re self-employed and your limited company has paid you a salary, you may be able to use this scheme to access help; you would have to furlough yourself to be eligible, though you may still be allowed to perform essential administration such as filing company accounts. But you can’t use the scheme to replace dividend income your limited company has paid you.

A limited safety net

For self-employed people missing out on support from these schemes, there is a limited safety net. If you’re sick or self-isolating, you may be eligible to claim employment and support allowance, where the rules have been changed to ensure you’ll get at least the equivalent of statutory sick pay, around £94 a week. The terms of universal credit have also been amended, allowing for more generous benefits if your income has fallen so low that you can claim this support.

Concessions from HM Revenue & Customs may also help self-employed people get through the crisis. If you have a VAT bill due between 20 March and 30 June, you don’t have to pay it until 31 March 2021. Similarly, if you have a self-assessment income-tax bill due on 31 July, you can defer this until 31 January 2021. HMRC has also promised to take a sympathetic view of firms and the self-employed struggling with tax payments. Call 0800-024 1222 for advice.

IR35 reforms delayed – but don’t count on business interruption insurance

• The virus has succeeded where countless campaigners have failed. It has secured the cancellation of next month’s controversial IR35 reforms, albeit temporarily.

Ministers had been insisting that the reforms, which make employers responsible for determining the tax status of their contractors and freelance workers, would go ahead on 6 April, despite warnings that the changes are unfair and poorly understood. But the Treasury now accepts that sticking with the timetable would add unnecessarily to the burden facing self-employed contractors and freelancers. The IR35 changes won’t be introduced before 6 April 2021.

It’s not all good news for those concerned about IR35. For one thing, the postponement has come too late for many people, with a significant number of employers already opting to avoid contractors altogether, insisting that those undertaking short-term and project work operate as employees for tax purposes. This means they must pay tax through the pay-as-you-earn system, rather than as a personal service company where their bill could be lower.

Moreover, ministers insist that the reforms will come into effect eventually. It will then be much harder for contractors and freelancers to continue operating through personal service companies, with HM Revenue & Customs requiring companies hiring them to classify many more of them as workers. Note too that the chancellor has dropped a heavy hint that the payback for self-employed support during this crisis will be changes to the tax system in the future. All self-employed workers may soon face higher national insurance bills.

• Can you claim insurance if your business has been forced to cease trading for a time because the virus has forced your premises to close? Probably not, according to the Association of British Insurers. It says most business interruption insurance covers closure of a property only because of physical damage – a flood or fire, perhaps. And even those policies that do include infectious disease as a reason for closing a building will often name the diseases covered; those not named, including any new virus such as this one, will thus be excluded. Only a handful of firms will have cover paying out if they can’t trade because of closure owing to infectious disease.

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David Prosser is a regular MoneyWeek columnist, writing on small business and entrepreneurship, as well as pensions and other forms of tax-efficient savings and investments. David has been a financial journalist for almost 30 years, specialising initially in personal finance, and then in broader business coverage. He has worked for national newspaper groups including The Financial Times, The Guardian and Observer, Express Newspapers and, most recently, The Independent, where he served for more than three years as business editor.