Another whopper of a package. Yesterday the chancellor introduced a range of new measures for the self employed to the tune of around £6.5bn (or 0.3% of GDP on numbers from Capital Economics) – to help them through the tricky months ahead.
The idea is to offer taxable grants of 80% of previous income up to £2,500 a month to those already in the self-assessment system and with an income below £50,000 (anyone over that is considered able to fend for themselves).
The income used for the calculation will be based on an average of the income declared in the last three tax years. If you haven’t got three years of tax returns it will be based on whatever you have.
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This looks like good news for some of the self employed – particularly as you can claim the grant even if you continue to work. It isn’t, of course going to make everyone happy – being based on income not turnover, it will mean that those with high expenses might not be able to cover all their fixed expenses and have excess income from the grant.
Also worrying for some will be that the scheme won’t be in place until June – although the well organised can live off their tax savings until then (July’s payments are to be delayed six months). Finally it’s not great news for the newly self employed – if they can’t show a tax return with an income on it, they aren’t going to get paid.
However there is a lifeline in here for those who have perhaps avoided filing tax returns in the past (the UK shadow economy makes up about 10% of GDP – useful piece on it here in the Telegraph). You will now get four weeks to set things straight – to file a tax return on the back of which the HMRC can work out what kind of grant you might be entitled to. If you aren’t in the system you can’t get paid.
There is a hint of never letting a good crisis go to waste in this – once the tax returns required to access the grants have been filed, HMRC may keep a beady eye on whether those same self-employed workers file again in 2021 and 2022.
We have long expected a major crackdown on the tax avoiding part of the cash economy – but we expected it to come about more via the slow death of cash rather than by a grant for tax return trade off. It will be fascinating to see how many new self-assessment tax returns turn up in the next four weeks.
Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).
After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times
Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast - but still writes for Moneyweek monthly.
Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.
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