The Government is under increasing pressure to include over 1m freelancers, contractors and self-employed in COVID-19 support, after a Treasury Select Committee report voiced its concerns about those enduring financial hardship.
In its publication ‘Economic impact of coronavirus: Gaps in support’, the Treasury Select Committee, that includes former Financial Secretary to the Treasury, Mel Stride, focused on the groups ineligible for the Coronavirus Job Retention Scheme (CJRS) and the Self-employment Income Support Scheme (SEISS).
Despite welcoming the Government intervention, the Committee concluded that the haste at which these packages were rolled out has “resulted in some hard edges in policy design and some critical gaps in provision.”
Include dividends in CJRS, advises Committee
Most notably, the Treasury Select Committee identified the approximate 710,000 limited company contractors as one group in need of state support. As things stand, contractors do not qualify for the SEISS, while the CRJS does not count dividends, with PAYE salary only recognised.
While both the Prime Minister and the Chancellor have accepted that limited company contractors aren’t fully supported by the CJRS, at the time of writing little has been done to cater for these individuals’ specific needs.
The Government is reluctant to acknowledge dividends in the furlough scheme because it believes there is “no way of identifying which dividends people receive are in lieu of wages, and which are simply a return on capital, either in their own company or as a general investment.”
However, lobbying-body for contractors, IPSE, has suggested ways to stop fraudulent claims, which the Treasury Select Committee described as a “ready made solution”.
It entails HMRC requesting information regarding the proportion of dividends coming from company profits and from other sources. As the report states: “HMRC would reserve the right to investigate claims and, if it was later found that applicants had inflated their figures, HMRC would reclaim the support with penalties.”
The Committee said it accepts this approach may require “significant resources”, but regardless, it urged the Government to “accept and implement this proposal. While it will have immediate cost implications, it could mitigate future economic scarring and safeguard future tax revenues.”
This report also highlighted that hundreds of thousands of people new to self-employment, self-employed workers with profits of £50,000 and over, and agency workers engaged on short-term contracts also fall between the cracks.
Newly self-employed need support “quickly”
ONS figures suggest roughly 150,000 self-employed people who started businesses after April 2019 do not qualify for the SEISS, which will pay two taxable grants equating to 80% (up to £7,500) and 70% (up to £6,570) of monthly trading profits.
The Government says this is to prevent fraud. However, the Select Committee is of the view that the situation needs addressing and advised the Chancellor to “undertake an urgent review to see how it can extend support to those newly self-employed who are unable to benefit from the SEISS.”
Calls to remove SEISS’s £50,000 cap
That self-employed workers with average trading profits of £50,000 or more cannot claim for the SEISS was also highlighted by the Select Committee. The Government’s argument is that those earning above this threshold had an income on average of £200,000 in the 2018/19 tax year. However, the report believes these figures have been “skewed” by very high earners.
Given there is no equivalent cut-off point to the CJRS, the Government has been encouraged to “tackle the cliff edge that exists in the design of the SEISS by removing the £50,000 cap.” It then suggests that people with profits “just above” this amount should be deemed eligible.
“Not right” that PAYE freelancers overlooked
The final group missing out on COVID-19 support are freelancers working on short-term PAYE contracts. According to the report, it “cannot be right” that anywhere up to 780,000 people working this way are not covered by either Government scheme. While it’s not clear how many are currently facing financial difficulties, the Select Committee referenced seasonal staff and freelancers working television and theatre as some of those impacted.
There are a number of reasons why these workers may not qualify for either the CJRS or the SEISS, including: the individual not being in contract at the designated cut-off date, self-employment not making up more than half of their income, employers unable to afford to keep the worker engaged until the CJRS kicked in or the employer not wanting to furlough them.
With this in mind, the report recommends that the Government “gives this group access to financial support that equates to 80 per cent of their average monthly income earned in the first 11 months of the 2019–20 tax year, based on their PAYE tax record in year. This support should be available up to a total of £2,500 per month (as for salaried employees).”
While many independent workers have welcomed the recommendations made by the Select Committee, whether any of them will materialise remains to be seen. As always, Qdos will keep you updated.
Qdos provides leading tax support and tax liability insurance for freelancers, contractors and the self-employed. From tax advice, protection and a number of vital business insurance policies, we offer a range of trusted services to the UK’s growing independent workforce.
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