Freelancers finally given government coronavirus support – but it comes with a catch

The Treasury has announced its plan to give the self-employed parity with employees — but you’ll have to wait until June to get it. Full analysis and breakdown here.

The UK’s self-employed and freelance workers are to have 80% of their average monthly earnings paid for by the government during the coronavirus pandemic, chancellor Rishi Sunak announced on Thursday.

He and the treasury had been under pressure to announce the scheme, having promised employees 80% of their wages last week.

The Self-employment Income Support Scheme, which finally gives some sort of parity between the country’s employees and self-employed, aims to mitigate the effects of COVID-19 on business as much as possible. It is likely to be welcome news for many workers who have spent the beginnings of this crisis worried about their income.

But as many have pointed out, the scheme is not without its faults.

How does it work?

Much like the scheme for employees the government is offering freelance and self-employed workers 80% of their average monthly earnings, up to the amount of £2,500 a month, and is initially offering this for three months. It will only be payable to those who make the majority of their earnings being self-employed.

The taxable grant will be calculated from workers’ last three years’ tax returns and will only be paid to those whose annual self-employed earnings are less than £50,000 a year.

For workers who have not been self-employed for three years, Sunak clarified that HMRC would rely on the tax returns that have been filed.

The grant will only be paid out to people who have at least a tax return on file for last year. Workers who missed the January deadline to file their 2019 tax return have been granted a four-week extension period from now to complete it. It must be returned by 23 April.

What’s the problem then?

There appear to be more gaps in this scheme than in the one for employees – Sunak has largely put this down to the fact there is far more diversity in circumstance among the country’s five million self-employed workers.

The main issue, which has been pointed out by a number of creative industry bodies including the Creative Industries Federation, is that the government will not be issuing an immediate payment. Speaking yesterday, Sunak said the plan is for the first payments to be made in June.

“Self-employed workers have outgoings and business expenses due immediately,” says Creative Industries Federation CEO Caroline Norbury. “They cannot wait three months to be paid. It is vital that government implements an interim basic income for the self-employed, until the scheme is fully operational.”

The payments will be backdated to March, however, suggesting that the first initial payments could be as high as £7,500 for some. In the interim, the chancellor again fell back on his advice from previous coronavirus budget announcements – that freelancers and the self-employed can apply to the Universal Credit (UC) system in the interim.

Though it’s not ideal for most – UC payments can take up to five weeks to go through – Design Week outlined how designers can apply for this, and how the system has been adapted in light of the coronavirus crisis, in a piece on disrupted freelancer finances last week.

Speaking to BBC News yesterday after hearing the announcement, Andy Chamberlain, director of policy at the Association of Independent Professionals and the Self-Employed’s (IPSE) said he hoped his organisation and similar advocacy groups might be able to “bring that date forward”.  

What about the other 5 per cent?

Aside from a skewed timeline, there is one other major hole in the package – the 5% of workers who won’t be included in the plan.

The scheme excludes the recently self-employed who don’t have a filed tax return for 2019, such as recent graduates and short-term contractors.

It also excludes limited company contractors who pay themselves a salary and dividends through their company. In this instance, Chamberlain is recommending workers apply for the government’s various other support packages.

The Coronavirus Job Retention Scheme, for example, will give a limited company contractor the 80% of their PAYE salary as an employee. It won’t, however, be able to replace earnings through dividends.

Sunak says 95 per cent of self-employed workers will be covered by the scheme. For those that aren’t, he again advises applying for UC.

What else do I need to know?

  • The grant is taxable – meaning that in their next tax return workers will likely have to have to pay some of it back, providing they have returned to earning sufficiently.
  • Profit loss is not being calculated – so whether workers can demonstrate that they’ve lost 90% of business because of COVID-19, or just 5%, all will be entitled to the 80% grant.
  • It is likely that with this provision, the government will be rethinking preferential taxes for the self-employed once the pandemic is over – Sunak said it would be necessary to “right the ship” after coronavirus, meaning National Insurance contributions for the self-employed will probably rise to match those paid by employees.
  • You need to have earned at least 50% of your income through being self-employed to qualify.
  • You do not need to apply for the scheme – all eligible people will be contacted directly by HMRC with a form to need to fill out and send back.
  • More information can be found on the uk website.
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Comments
  • Rob Dowie March 29, 2020 at 1:16 pm

    I ran a ‘2 man’ limited company for over ten years until july 2019, with a good profits/income each year and a strong client base. I was advised to dissolve the company (in good credit) by my accountants when my co-director left, and I turned sole trader at that point. I have made a fair net income since with the same clients – under 50k.
    It looks like this simple change of status has rendered me ineligible for any for sort of CV19 grant, despite providing uninterrupted services to the same businesses which I have served for many years. Work has all but dried up completely as many of my clients are schools.

  • Michael March 30, 2020 at 9:18 am

    Seems like this scheme is actually more generous to self-employed than it is to PAYE employees because freelancers can carry on working (if they have some) whilst receiving the grant.

    I can’t imagine that many creative limited companies have gone from 100% work to 0% work overnight but if one of their employees now only has a 30% workload they must decide to either furlough them (and do no work) or keep them on running at a loss. It’s all or nothing.

  • Susan Will May 7, 2020 at 6:39 pm

    My Partner and I have both been freelance self employed for many decades. However some contracts irritatingly make us go paye for the duration. This can happen several times a year.
    We were both working my partner with SHETLAND series which was meant to last over 20 weeks and I with a Edinburgh company for a Qatari theatre. production. Neither of us has been able to work or earn at all since then.
    I am dreading this process .I have just started looking at it,I have received no email from Inland Revenue,(my partner has) . There is no phone line that I can find for guidance.
    I am making PPE and have been for the last 6 weeks for charity . No idea what is to happen.

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