Help for the self-employed? Not if you’re doing well.
I have to say that I’m very worried by the Chancellor’s announcements this evening. Rishi Sunak opened his presentation saying that the self-employed would get a similar deal to employees who are furloughed under the Coronavirus Job Retention Scheme. Partly true.
First up, let’s clarify what “self-employed” means, because I’ve had lots of questions about this from people. Self-employed means that you have an unincorporated business and that you must file your business’s profit and loss account as part of your personal income tax self-assessment return. If you run a limited company and pay yourself by salary that runs through payroll and is subject to PAYE (unless you only pay yourself up to the National Insurance threshold) and top that up with dividends, then you are not self-employed. You are an employee. Even if you’re the only person in your company, you’re still employed.
The Chancellor’s announcement was that self-employed people would get 80% of their average monthly profits from their business (not gross income but profits after all expenses are deducted) over the last three years up to a monthly cap of £2,500. The calculations will be based off your self-assessment returns, and to qualify you must have filed your 2018-19 tax return. These were due in January, and he’s given a four-week extension for any self-employed people who have not filed. So far so good, and this puts the self-employed on a level playing field with furloughed employees.
And then he stuck the knife in.
- If your business generates profits of more than £50,000 it looks like you don’t qualify for this benefit. We’ll need to wait and see the details, but he said it was only for businesses with a trading profit of up to £50,000. So, if you’re self-employed and doing really well, it looks like you’re screwed. Sorry, but that’s how I heard it. By all means leave the cap at £2,500 per month just like furloughed employees, but why take it away? Even if your profits were more than £50,000 if you’ve lost all your revenues due to the Coronavirus then your profits are now zero. THIS IS WRONG.
- Payments to self-employed people will not be available until June. June? We’re still in March! I appreciate that HMRC needs to build a new system for this as well as for the Coronavirus Job Retention Scheme, but June? That’s three months from now! Many people will end up on Universal Credit as a result of this, and that really sucks.
Finally, and this is more for owners of limited companies who pay themselves a low salary and then top it up with dividends, rather than for the self-employed, Rishi Sunak hinted that the government was looking at the different ways that people are remunerated and was looking to align things more. If that’s the case, then as a director of a limited company the low salary high dividend route may be closing very soon.
As ever, we don’t have the details. The legislation has still not been debated and published by Parliament. Same for the Coronavirus Job Retention Scheme. Loads of questions and we don’t have the answers yet. However, at the moment it feels to me that owners of successful small businesses are going to be screwed. Having been initially very supportive of the UK government’s schemes announced last week, I’m now rather wary and much more concerned.
Let’s not panic. Not yet. We need to see the detail. Hang tight, peeps. As soon as more information is available, I promise to share it in the same plain English, as in this and my previous articles.