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Reprieve for the Self Employed – With a sting in the tail?

Our Chancellor Rishi Sunak outlined a rescue package that could help the majority of self-employed people over the next few months. These are the basic details:

Self-employment Income Support Scheme

UK Chancellor Rishi Sunak announced yesterday evening help for the self-employed at the daily Government briefing. Here are the details:

What is it?

The Government’s new Coronavirus Self-employment Income Support Scheme is open to those who were trading in the last tax year and are planning to continue to do so. The scheme will be open to those with a trading profit of less than £50,000 in 2018-19, or an average trading profit of less than £50,000 for tax years 2016-17, 2017-18 and 2018-19. More than half of the taxpayer’s income needs to come from self-employment to qualify for the relief.

What help is available?

If a loss in income has been suffered due to the Coronavirus crisis, a taxable grant will be paid to the self-employed individual or partner, worth up to 80% of profits, and capped at £2,500 per month. The grant will be initially available for three months, payable in one lump-sum, and is anticipated to be paid at the beginning of June.

How do I claim the help?

The Chancellor said this will cover 95% of the UK self-employed population.

This is how it works:

  • HM Revenue and Customs (HMRC) will use existing information to identify those potentially eligible and will invite applications
  • The application form will require confirmation that eligibility requirements are met
  • Payment will be made directly into the recipient’s bank account, details of which will need to be confirmed on the application form
  • There is no need to contact HMRC now. Those potentially eligible will be contacted by HMRC directly

If a tax return for 18/19 has not yet been submitted the Chancellor has stated that there will be a four-week grace period to allow returns to be filed.

Sting in the tail?

Rishi Sunak went on to say (and I precis) that there would be a levelling of the contributions from self-employed people as they would enjoy similar benefits now to the employed during this crisis.  In fact, the self-employed are potentially better off as they are encouraged to carry on earning too in addition to claiming from the Self-employment Income Support Scheme.

What might this mean? I think the Chancellor was indicating that national insurance contribution levels could be increased.  Now there is a significant difference in what we pay:

Self-employed rates

  • Class 2 if your profits are £6,365 or more a year
  • Class 4 if your profits are £8,632 or more a year

You work out your profits by deducting your expenses from your self-employed income.

How much you pay

Class          Rate for tax year 2019 to 2020

Class 2         £3 a week

Class 4         9% on profits between £8,632 and £50,000

2% on profits over £50,000

Employee National Insurance rates (standard)

This shows how much employers deduct from employees’ pay for the 2019 to 2020 tax year.

Category letter £118 to £166 a week (£512 to £719 a month) £166.01 to £962 a week (£719.01 to £4,167 a month) Over £962 a week (£4,167 a month)
A 0% 12% 2%

Employer National Insurance rates (standard)

This shows how much employers pay towards employees’ National Insurance for the 2019 to 2020 tax year.

Category letter £118 to £166 a week (£512 to £719 a month) £166.01 to £962 a week (£719.01 to £4,167 a month) Over £962 a week (£4,167 a month)
A 0% 13.8% 13.8%

Different categories of employees pay different rates of national insurance, but the above employee and employer rates would be applicable to the majority.

You can see that if you combine the rates below £50,000.00 per annum earnings that employed people generate 25.8% contribution for the State in comparison to 9% for the self-employed.

 

 

 Summary

If you are currently trading as self-employed once we (the country) have recovered from COVID 19 you might need to consider how you trade.  Your options could be:

  • Increase your charges to cover the extra cost of national insurance
  • Earn less
  • Trade as a limited company

This is only my opinion but given the debate around self-employed national insurance for the last few years I think changes to self employed national insurance contribution rates are a likely outcome.

 

Steve Speed

27/03/2020