The designers still left behind by the Government’s coronavirus support packages

What was welcome news for some has proved to be a poor support package for others — the self-employed with personal service companies feel particularly neglected.

On 26 March the UK was given its fourth Budget statement of the month. Reacting to mounting calls for support, chancellor Rishi Sunak announced the government would begin paying the country’s five million self-employed workers 80% of their average wage up to £2,500, in a bid to further mitigate the effects of the coronavirus pandemic on the UK’s businesses.

Sunak accompanied the message with an assurance: that the UK’s self-employed and freelance workers would not be “left behind” as the country continues to lockdown in its fight against COVID-19.

The promise of parity between employees and the self-employed was welcome news for many. But as others are now learning, the measures are not as wide-reaching as necessary and thousands now face the reality of no government support as business dwindles.

Job Retention Scheme vs. SEISS

There are some notable holes in Sunak’s support package, the biggest and perhaps most glaring being its omission of personal service companies.

For self-employed workers who pay themselves a salary and dividends from their own limited company, the government has opted to forgo any financial help. There appears to be little reasoning for this decision.

The chancellor and the Self-Employed Income Support Scheme (SEISS) website both point out that those working for their own personal service company can claim support as an employee through the government’s Coronavirus Job Retention Scheme. There are, however, a number of reasons why this isn’t ideal.

In line with the latter-mentioned scheme, a freelance or self-employed worker would have to furlough themselves to qualify for government support — for sole proprietors, this means stopping operations completely. While most businesses are likely to be impacted, having to cease all work can be a daunting choice to make, and one that would require workers to pass up any work that did come in over the next few months.

Meanwhile for those who do qualify for the SEISS grant, there is no requirement to cease trading. As reported last week, profit loss is not being calculated for the SEISS grant – meaning the same amount is paid out regardless of if a worker has lost five per cent of business or 95 per cent.

“A dividend is taxed, but now not recognised as an income”

Additionally, 80% of a personal service company worker’s salary is likely to be far less than their usual take home.

The way most sole proprietors (workers running their own personal service company) receive an income is through a mix of a PAYE salary and dividends. This process effectively evens out the cashflow discrepancies over the course of the year — in months where work is scarce, dividends can be adjusted accordingly to cover both business overheads and personal welfare.

One designer’s situation, as told to Design Week, perhaps best explains why this does not translate well to the government’s Coronavirus Job Retention Scheme.

“The only option I have for government support is to furlough myself and receive 80% of my PAYE base rate salary, about £550, which is then also taxed,” they say. “For most of us there is no option other than to pay part PAYE and part dividend.

“The main reason for this being that we don’t have steady income, so we simply can’t withdraw a fixed amount per month. Instead, we need the flexibility to draw a base amount with the rest coming in the form of a dividend, as and when we have the finance or need to do so. This dividend is taxed by the government but now not recognised as an income.”

“Urgent clarity” needed for short-term contractors

Beyond personal service company workers being left behind, the SEISS package also ignores those who work on short-term PAYE contracts with different employers, as many freelance designers will be accustomed to.

On the grounds of the Coronavirus Job Retention Scheme, eligible recipients need to have been on the payroll of a company on or before 28 February. For those who weren’t employed in work then, this poses a problem.

As Philippa Childs, head of creative industries trade union Bectu, explains: “Current government advice is for people on PAYE contracts to be re-hired by their previous employer to access support through the job retention scheme and we are encouraging employers to do this… However, we know that isn’t always possible.”

A similar line was taken by Creative Industries Federation CEO Caroline Norbury, who says the organisation is seeking “urgent clarity” for temporary and short-term contractors.

Recent graduates out of pocket

In her statement, Norbury also highlighted another hole – those who commenced self-employment after April 2019. As Sunak stated in his announcement of the SEISS package, payments will be calculated from the average earnings of self-employed workers over the last three years, according to their tax returns.

In the case a worker has not been trading this long, payments will be calculated from the tax returns that are available – but for those who don’t have a tax return for the last year, no help is being offered.

This is likely to affect recent graduates and those at the start of their careers disproportionately. In this case, there is little support on offer other than accessing the UK’s welfare system via Universal Credit (UC).

This isn’t ideal, but the base rate of £94.25 a week can be topped up if further benefits are needed too, such as housing payment. More information about how UC has been reshaped in light of the coronavirus pandemic can be found in Design Week’s guide to freelance finance.

“A step in the right direction, but more needs to be done”

As more holes in the support scheme have come to light, there has been an outpouring of support for those affected. Bectu has launched an appeal to challenge the limits of support package as it currently stands.

“We acknowledge what has been announced is a step in the right direction, but there is still more work to be done,” says head of Bectu Philippa Childs.

As part of this, Bectu is urging supporters to email their MPs with a template highlighting those left out by the package.

Additionally, a petition to the UK parliament has also been circulated, urging the government to consider parity between measures for sole traders and personal service company workers. It has nearly 190,000 signatures at the time of publishing.

Hide Comments (8)Show Comments (8)
  • Stef April 1, 2020 at 8:29 am

    Pretty sure this is an INTENTIONAL oversight by the Chancellor. Many of us in this situation are high earners and so the government would need to shell out a lot of ££s to ensure parity with those employed+salaried PAYE high earners who will be getting 80% of their salary (to a maximum of £2,500 per month). Plus it’s impossible for us to put ourselves on furlough!

  • Michele Oliver April 1, 2020 at 11:06 am

    Not just graduates affected regarding those who became self-employed within the last year – previous PAYE perm work before that does not seem to count either. The only support available is Universal Credit – £594 for us as a couple. Difficult to take when so many are on 80-100% of previous wages.

  • Ian Howard April 1, 2020 at 11:24 am

    Limited company creatives set themselves up as freelancers in this way as this was the industry recommended way to do this. Everyone said ‘you’ve got to go limited or use an umbrella company, or you can’t work for us.”

    BUT, the limited company freelancers also benefit from paying less tax than an employee or an umbrella worker. Perhaps this is a IR35 phase one?

  • Valeria April 3, 2020 at 11:38 am

    We need to be clear about a point though: The main thing about company directors salary is that is kept artificially low not for cashflow reasons but for tax purposes. A salary of 719 £ per month is the maximum a company director can take tax-free every year and then take the rest in dividends. Cashflow isn’t an issue, any accountant will tell you you don’t need to officially withdraw your salary every.month even when there liquidity. You simply withdraw money when you can and then he’ll calculate the payroll at the end of the year for you. The question is: should the government treat company directors as freelancers for help even if they paid way less taxes? We need to be honest about this. I find it difficult to accept that wanting to minimise one’s tax bill now corresponds to wanting to maximise government’s payments. A bit shameless.

  • Marc April 5, 2020 at 10:46 pm

    That’s not actually true. If you are a small limited business, as we are, our dividends our only paid if we are in profit (which incidentally gets corporation tax applied). The notion that we are all tax dodging is an insult to small business owners who are doing all they can to keep staff employed through these difficult times. We as directors are always the first one to take a hit and we don’t even get paid any more than the rest of our staff in the first place. We are trying our best to save jobs even when we get no support. Calling us shameless is rude and baseless.

  • Robert April 7, 2020 at 11:25 am

    I think the above comments apply more to one man band limited companies, who have set themselves up to pay less tax through various loopholes in the tax system, not small companies… I think you got the wrong end of the stick Marc.

  • Jason Denning April 9, 2020 at 8:25 am

    A director running a Limited company with more than 1 employee can still pay themselves a descent taxable wage. Everyone knows paying yourself dividends is to avoid taxes. When I was recommended setting up a limited company to save taxes I was still recommended I pay my self a living taxable wage, and I am happy to do so to pay my fair taxes. Now it is to my benefit. I have no sympathy for these tax avoiders.

  • Jason Denning April 9, 2020 at 8:27 am

    It is shameless, and off that the tax avoidance is left out completely if anyone talking about it but full of other excuses as to why you pay yourself such a Low wage. Tax avoidance is the only reason. Guess you all should have saved some of those dividends for these rainy days.

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