A year ago, the government was faced with a novel situation – a global pandemic that would end up shutting down the country, and indeed the world. Having to act quickly, it came up with various support schemes for businesses, starting with the coronavirus job retention scheme (CJRS), so employees could be furloughed from their job rather than lose it, and then to the self-employment income support scheme (SEISS) to support the self-employed, who it would not ordinarily be required to support. It was done in lightning speed and with the mantra ‘don’t let the perfect be the enemy of the good’.
The government is to be applauded for those schemes but, unfortunately, it left almost three million people to face the gaps in support, from the newly self-employed to the directors of small limited companies. Various campaign groups were formed as was the All Party Parliamentary Group for Gaps in Support to fight for these excluded groups. This was the largest APPG in history with 262 cross-party MPs coming together for a common cause. I, myself, wrote two policies – the directors income support scheme and the targeted income grant scheme – in an attempt to help the Treasury provide the support that these excluded groups needed.
Having realised the gravity of the pandemic, the government came up with CJRS. This scheme, which has become known as furlough, was designed to provide grants to employers to pay 80% of a staff wage and employment costs each month. This was up to a total of £2,500 per person per month. These grants were lowered consecutively to 70% and then 60% over the summer but, were restored to 80% when the second national lockdown was announced.
The scheme was then extended in 2021 for the third lockdown and in the Budget, it was extended to September 2021. In July, the government will introduce an employer contribution towards the cost of unworked hours of 10% in July, 20% in August and 20% in September, as the economy reopens.
After the government designed the CJRS, there was increasing pressure to also provide for the self-employed. So, the Treasury came up with the SEISS to provide support for the self-employed during the pandemic.
The scheme paid taxable grants worth 80% of someone’s average monthly trading profit, which was worth up to £7,500 in total over a three-month period. When announcing the scheme, however, the chancellor was quick to mention that it could result in the self-employed having to pay more taxes. In the end, on Budget day this didn’t happen, for this year anyway, but the chancellor did announce an extension of the SEISS to September 2021 and that it would be extended to another 600,000 people, including the newly self-employed.
The fourth grant will be worth 80% of three months’ average trading profits, paid out in a single instalment and capped at £7,500 in total. The grant will cover the period February to April and can be claimed from late April.
The fifth grant is covering May to September. The value of the grant will be determined by a turnover test. Turnover must have fallen by 30% for claimants to continue to receive the full grant worth 80% of three months’ average trading profits, capped at £7,500. Where turnover has fallen by less than 30%, a 30% grant will be received, capped at £2,850. The final grant can be claimed from late July.
Despite the generous support schemes, there were still gaps in support.
ForgottenLtd was campaigning to get the government to provide support for the limited company directors. These directors were not entitled to SEISS, as they were not self-employed. They could claim CJRS but only on the small basic salary and not the dividends, so this was 80% of an already small amount. Also, if a director claimed CJRS, they were not allowed to work, unlike the self-employed who could claim SEISS and still work.
To find a solution, the efforts were initially focused on dividends and finding a way to quantify them. In October 2020, I drafted a policy called the directors income support scheme (DISS). Instead of looking at dividends, this scheme would be based on trading profits in the CT600. The DISS policy was backed by ForgottenLtd, the Federation of Small Businesses and the ACCA and, in time, had the unanimous support of the APPG Gaps in Support.
This policy was drafted as a result of me teaming up with the APPG Gaps in Support to try and help the Treasury provide further support outside the DISS group. This was a headline policy that included within it the newly self-employed, PAYE freelancers, limited company directors, the 50/50 rule group and the over £50,000 trading profits group.
The newly self-employed missed out on the first round of SEISS because they hadn’t submitted a tax return and didn’t have the necessary three-year trading accounts. About 3% of self-employed people (151,000) had been self-employed only since after the end of the tax year ending 2019, meaning that they were not eligible for SEISS.
In December 2020, Northern Ireland announced that they had a scheme for the newly self-employed. This scheme offered a one-off taxable grant of £3,500 to the self-employed who had commenced trading between 6 April 2019 and 5 April 2020. They had to show a decline in trading profits of at least 40% and self-certify that they had been adversely affected by the covid-19 pandemic.
The newly self-employed were included in the TIGS policy with either a flat grant of £3,500 or to be included in the SEISS fourth grant. So, it was enormously satisfying to hear the news the day before the Budget that the newly self-employed were being included in the SEISS fourth grant and indeed, the SEISS fifth grant.
In the Budget, it was announced that 600,000 more newly self-employed people would be able to claim for the first time but, they must have filed their tax return by midnight on 2 March 2021.
The PAYE freelancers are an interesting group because although they see themselves as self-employed, they have some income which is on-payroll but not as an employee and some income as self-employed. This meant that, under the 50/50 rule, they were excluded from both the CJRS and SEISS. Many in this group have a personal income below £25,000 per year so extending the SEISS fourth grant to this group would target those on low or moderate incomes.
The limited company directors are a group that have been left out of any meaningful support during covid-19. As previously mentioned, the main problem was that it was too difficult to quantify the dividends that made up the majority of their income. Under the DISS, I focused on the trading profits in the CT600 as an alternative, in the hope that this would provide the government with a workable solution.
In the meantime, in Northern Ireland, the limited company directors’ support scheme had been launched. This would give limited company directors a one-off taxable grant of £3,500 provided they met the criteria, which in part followed the DISS policy.
The DISS was submitted to the financial secretary to the Treasury (FST), Jesse Norman, and copied to the chancellor in November 2020. The DISS group had meetings with the FST and officials from HMT and HMRC on several occasions, in an attempt to find a way around the two main problems which were the risk of fraud and the scheme not being too labour intensive.
Despite having the backing of the majority of the APPG Gaps in Support (especially Caroline Lucas MP), the Budget revealed nothing for this group. This came as no great surprise, as we had been unable to convince HMT and HMRC that this was not a high fraud risk because of the self-certification. This was despite arguing that the entire tax system is based on self-certification and self-assessment and this group were, after all, formal directors with legally binding obligations.
This group represents those who have profits of over £50,000 per annum, and it is estimated that 80% of this group are men. More than half of the group have personal incomes between £50,000 and £100,000.
It could be argued that this group should not need financial support but, due to the cliff edge, someone with profits of £50,000 can receive significant support, whereas someone with £50,001 receives nothing. There is also an inconsistency with the CJRS, which has no such cap. A high-income employee can be furloughed and receive £2,500 per month, or £7,500 per quarter, whilst the equivalent self-employed person receives no support. The people most affected are those in areas where the cost of living is generally higher.
Despite having the backing of Conservative MPs on the APPG on Gaps in Support from Esther McVey and Philip Davies, this group did not benefit from the Budget, as the ceiling was kept at £50,000.
The so-called 50/50 rule states that where an individual has trading profits that are less than their non-trading profits (for example, income from employment or investment income), they are ineligible for SEISS. This is the largest group with approximately 1.7m potentially being excluded from government support. 45% of the ineligible group are made up of women who have combined incomes below £50,000, with half of the group having profits in the region of £5,000 per year.
The TIGS policy recommended that the government allow claimants to combine their income if it totalled below £50,000. As this would benefit a large number of low-income groups, it would be within the principles for the SEISS scheme to help the most vulnerable.
Despite our efforts, the 50/50 group remain excluded under the Budget. It was deemed too difficult and labour intensive to collate this information across trading profits and RTI submission for this group.
What is interesting to me is what the pandemic has highlighted in terms of these groups. The high-level view is that there are continuing significant problems with the self-employed sector and those working off-payroll. It is clear to see that there are disparate groups in these sectors that range from being deemed employees for tax purposes with zero employments rights and, in some cases, no corresponding NICs benefits, and those who are self-employed for tax purposes but, with basic employment rights.
Another significant problem is the lack of government data on these sectors. When I was a senior policy adviser at the Office of Tax Simplification, I advised that more needed to be done to capture data from these sectors, so the government was better informed.
Moving forward out of coronavirus, now is the time to review the reports, including those from the Office of Tax Simplification and the Taylor Review, to address the issues and make sure that those needing support are supported and that the genuinely self-employed are able to trade without constant worry over their employment status. That would also extend to the organisations that have to wrestle with employment status and the off-payroll rules, sometimes on a daily basis.
A year ago, the government was faced with a novel situation – a global pandemic that would end up shutting down the country, and indeed the world. Having to act quickly, it came up with various support schemes for businesses, starting with the coronavirus job retention scheme (CJRS), so employees could be furloughed from their job rather than lose it, and then to the self-employment income support scheme (SEISS) to support the self-employed, who it would not ordinarily be required to support. It was done in lightning speed and with the mantra ‘don’t let the perfect be the enemy of the good’.
The government is to be applauded for those schemes but, unfortunately, it left almost three million people to face the gaps in support, from the newly self-employed to the directors of small limited companies. Various campaign groups were formed as was the All Party Parliamentary Group for Gaps in Support to fight for these excluded groups. This was the largest APPG in history with 262 cross-party MPs coming together for a common cause. I, myself, wrote two policies – the directors income support scheme and the targeted income grant scheme – in an attempt to help the Treasury provide the support that these excluded groups needed.
Having realised the gravity of the pandemic, the government came up with CJRS. This scheme, which has become known as furlough, was designed to provide grants to employers to pay 80% of a staff wage and employment costs each month. This was up to a total of £2,500 per person per month. These grants were lowered consecutively to 70% and then 60% over the summer but, were restored to 80% when the second national lockdown was announced.
The scheme was then extended in 2021 for the third lockdown and in the Budget, it was extended to September 2021. In July, the government will introduce an employer contribution towards the cost of unworked hours of 10% in July, 20% in August and 20% in September, as the economy reopens.
After the government designed the CJRS, there was increasing pressure to also provide for the self-employed. So, the Treasury came up with the SEISS to provide support for the self-employed during the pandemic.
The scheme paid taxable grants worth 80% of someone’s average monthly trading profit, which was worth up to £7,500 in total over a three-month period. When announcing the scheme, however, the chancellor was quick to mention that it could result in the self-employed having to pay more taxes. In the end, on Budget day this didn’t happen, for this year anyway, but the chancellor did announce an extension of the SEISS to September 2021 and that it would be extended to another 600,000 people, including the newly self-employed.
The fourth grant will be worth 80% of three months’ average trading profits, paid out in a single instalment and capped at £7,500 in total. The grant will cover the period February to April and can be claimed from late April.
The fifth grant is covering May to September. The value of the grant will be determined by a turnover test. Turnover must have fallen by 30% for claimants to continue to receive the full grant worth 80% of three months’ average trading profits, capped at £7,500. Where turnover has fallen by less than 30%, a 30% grant will be received, capped at £2,850. The final grant can be claimed from late July.
Despite the generous support schemes, there were still gaps in support.
ForgottenLtd was campaigning to get the government to provide support for the limited company directors. These directors were not entitled to SEISS, as they were not self-employed. They could claim CJRS but only on the small basic salary and not the dividends, so this was 80% of an already small amount. Also, if a director claimed CJRS, they were not allowed to work, unlike the self-employed who could claim SEISS and still work.
To find a solution, the efforts were initially focused on dividends and finding a way to quantify them. In October 2020, I drafted a policy called the directors income support scheme (DISS). Instead of looking at dividends, this scheme would be based on trading profits in the CT600. The DISS policy was backed by ForgottenLtd, the Federation of Small Businesses and the ACCA and, in time, had the unanimous support of the APPG Gaps in Support.
This policy was drafted as a result of me teaming up with the APPG Gaps in Support to try and help the Treasury provide further support outside the DISS group. This was a headline policy that included within it the newly self-employed, PAYE freelancers, limited company directors, the 50/50 rule group and the over £50,000 trading profits group.
The newly self-employed missed out on the first round of SEISS because they hadn’t submitted a tax return and didn’t have the necessary three-year trading accounts. About 3% of self-employed people (151,000) had been self-employed only since after the end of the tax year ending 2019, meaning that they were not eligible for SEISS.
In December 2020, Northern Ireland announced that they had a scheme for the newly self-employed. This scheme offered a one-off taxable grant of £3,500 to the self-employed who had commenced trading between 6 April 2019 and 5 April 2020. They had to show a decline in trading profits of at least 40% and self-certify that they had been adversely affected by the covid-19 pandemic.
The newly self-employed were included in the TIGS policy with either a flat grant of £3,500 or to be included in the SEISS fourth grant. So, it was enormously satisfying to hear the news the day before the Budget that the newly self-employed were being included in the SEISS fourth grant and indeed, the SEISS fifth grant.
In the Budget, it was announced that 600,000 more newly self-employed people would be able to claim for the first time but, they must have filed their tax return by midnight on 2 March 2021.
The PAYE freelancers are an interesting group because although they see themselves as self-employed, they have some income which is on-payroll but not as an employee and some income as self-employed. This meant that, under the 50/50 rule, they were excluded from both the CJRS and SEISS. Many in this group have a personal income below £25,000 per year so extending the SEISS fourth grant to this group would target those on low or moderate incomes.
The limited company directors are a group that have been left out of any meaningful support during covid-19. As previously mentioned, the main problem was that it was too difficult to quantify the dividends that made up the majority of their income. Under the DISS, I focused on the trading profits in the CT600 as an alternative, in the hope that this would provide the government with a workable solution.
In the meantime, in Northern Ireland, the limited company directors’ support scheme had been launched. This would give limited company directors a one-off taxable grant of £3,500 provided they met the criteria, which in part followed the DISS policy.
The DISS was submitted to the financial secretary to the Treasury (FST), Jesse Norman, and copied to the chancellor in November 2020. The DISS group had meetings with the FST and officials from HMT and HMRC on several occasions, in an attempt to find a way around the two main problems which were the risk of fraud and the scheme not being too labour intensive.
Despite having the backing of the majority of the APPG Gaps in Support (especially Caroline Lucas MP), the Budget revealed nothing for this group. This came as no great surprise, as we had been unable to convince HMT and HMRC that this was not a high fraud risk because of the self-certification. This was despite arguing that the entire tax system is based on self-certification and self-assessment and this group were, after all, formal directors with legally binding obligations.
This group represents those who have profits of over £50,000 per annum, and it is estimated that 80% of this group are men. More than half of the group have personal incomes between £50,000 and £100,000.
It could be argued that this group should not need financial support but, due to the cliff edge, someone with profits of £50,000 can receive significant support, whereas someone with £50,001 receives nothing. There is also an inconsistency with the CJRS, which has no such cap. A high-income employee can be furloughed and receive £2,500 per month, or £7,500 per quarter, whilst the equivalent self-employed person receives no support. The people most affected are those in areas where the cost of living is generally higher.
Despite having the backing of Conservative MPs on the APPG on Gaps in Support from Esther McVey and Philip Davies, this group did not benefit from the Budget, as the ceiling was kept at £50,000.
The so-called 50/50 rule states that where an individual has trading profits that are less than their non-trading profits (for example, income from employment or investment income), they are ineligible for SEISS. This is the largest group with approximately 1.7m potentially being excluded from government support. 45% of the ineligible group are made up of women who have combined incomes below £50,000, with half of the group having profits in the region of £5,000 per year.
The TIGS policy recommended that the government allow claimants to combine their income if it totalled below £50,000. As this would benefit a large number of low-income groups, it would be within the principles for the SEISS scheme to help the most vulnerable.
Despite our efforts, the 50/50 group remain excluded under the Budget. It was deemed too difficult and labour intensive to collate this information across trading profits and RTI submission for this group.
What is interesting to me is what the pandemic has highlighted in terms of these groups. The high-level view is that there are continuing significant problems with the self-employed sector and those working off-payroll. It is clear to see that there are disparate groups in these sectors that range from being deemed employees for tax purposes with zero employments rights and, in some cases, no corresponding NICs benefits, and those who are self-employed for tax purposes but, with basic employment rights.
Another significant problem is the lack of government data on these sectors. When I was a senior policy adviser at the Office of Tax Simplification, I advised that more needed to be done to capture data from these sectors, so the government was better informed.
Moving forward out of coronavirus, now is the time to review the reports, including those from the Office of Tax Simplification and the Taylor Review, to address the issues and make sure that those needing support are supported and that the genuinely self-employed are able to trade without constant worry over their employment status. That would also extend to the organisations that have to wrestle with employment status and the off-payroll rules, sometimes on a daily basis.
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