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Self Employed Income Support Scheme

Posted on 27 March 2020

On Friday 20 March, the Chancellor Rishi Sunak announced a radical support package for employees, designed to last at least until June.  He also recognised that there was a large number of self employed workers whose livelihoods were threatened by the COVID-19 crisis.  He pledged to help them, but warned that the process may take time, as it was far more complicated than designing a scheme for employees.

On Thursday 26 March, he set out some more details of how the scheme might operate, and produced a guidance note.  In an attempt to align the support given to the self employed with the Coronavirus Job Retention Scheme available to employees, eligible self employed workers will receive an amount equivalent to 80% of their profits, up to £2,500 per month, for at least three months. 

The scheme supports 95% of the self employed community – around 3.8 million people.  However, not everyone will be able to access the scheme.  It is open only to those with a trading profit of less than £50,000 in 2018-19 or an average trading profit of less than £50,000 from 2016-17, 2017-18 and 2018-19, and more than half of the individual's income must have come through self employment.  To minimise fraud, only those who have a tax return for 2019 will be able to apply.  If they have missed January's deadline for filing their return, they will still be allowed to come within the scheme if they submit it within the next month.  If an individual has provided their services through a company and has paid themselves a salary and dividends, they will be expected to make their claim through the job retention scheme as an employee. 

Access to the scheme will be by invitation only.  HMRC is currently reviewing self employed tax returns and will contact those who are eligible to let them know how they might apply.  The Chancellor has indicated that people should only claim under the scheme if they have lost out due to the crisis, but he has said that the scheme is open to everyone who meets the eligibility criteria and proof of loss will not be required.  He was more concerned that the scheme could be easily rolled out to those that need it than to protect the taxpayer against fraudulent claims, explaining that he did not want to let "perfect be the enemy of the good". Grants will come in the form of lump sum cash payments, but will not be available until June – news that has caused significant disquiet in the self employed community. 

It would appear that the Chancellor intends to pay for the scheme partly through reviewing the national insurance contributions made by self employed earners.  The disparity between the contributions of employed and self employed earners has long been a sore subject for the Treasury – particularly since the budget u-turn Philip Hammond was forced to make three years ago - and may finally be confronted once the crisis has passed.  This could have significant repercussions in many sectors of the economy, where the employment status of workers has often been driven by tax considerations.  Aligning national insurance contributions may well resolve some of the complications that have arisen in recent years.

In the meantime, though, millions of self employed workers will be able to rest more easily as a result of the Chancellor's announcement.

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