There is widespread reporting this morning that the government will today be announcing new funding arrangements for the self-employed for the duration of the coronavirus crisis. This is, of course, welcome, and overdue.
We do not know precisely what these arrangements will be as yet. But I will be judging them against my own proposal for such funding made on Sunday, which was as follows:
My suggestion is in several parts, but some facts have to be considered first
In practice, what Sunak has offered to employees is a maximum of £24,000 pounds a year, which for an average person, after tax and National Insurance of about £4,200 on this sum would leave them with a net income per month of about £1,650. As a matter of fact, this is higher than the average self-employed earnings in the UK at present. The importance of this figure is that any support to the self-employed should not involve payment to them of tax and National Insurance that would, then, be subject to later recovery, if appropriate.
Then it is important to note that unlike employees self-employed people have considerable variations in their earnings from time to time. For this reason it is unfair to provide support now on the basis of, for example, the last tax return which may be wholly unrepresentative of a self-employed persons income overtime. I am instead suggesting that support be provided on the basis of their average net declared earnings declared from self-employment over the last three years. If they have underdeclared those earnings, that is their problem, I am afraid. If they have a loss during the period that should be ignored for these purposes.
The self-employed person should, then, be permitted to make a claim of 80% of this average figure for their earnings over the last three tax years subject to a maximum, in this case, of £20,000 (there is no point in being spuriously accurate) per annum to allow for likely tax that would have been paid.
The self-employed person could then claim this sum in monthly instalments to add to their income this year. I stress, that income would remain taxable.
This claim could be done by simply making payment through the HMRC payment on account system through which payment could also be made.
That said, the possibility of fraud (and it is significant) would have to be addressed. I suggest three measures. First, for this year the self-employed will have to declare their billings per month on their tax returns. This is really not hard.
Second, if during a month their billings per month multiplied by the ratio of their net profit to turnover as shown on their last three tax returns plus the amount claimed in coronavirus support exceeded £1,666 in any month then the excess will have to be repaid in full: there is a duty to make sure overclaims do not arise now. This is not a difficult figure to calculate. HMRC could easily provide a calculator.
Third, to prevent billing being delayed to permit claims to be made, if total net earnings in the year (presuming there jus a recovery after lockdown) exceed £24,000 then a repayment of support provided will be expected in 2021/22. A tapering mechanism may be appropriate: full repayment might, for example, be required if income exceeds £36,000, but this would need to be tested and I have not yet had time to do that.
Fourth, a self-employed person would be required to take into consideration other sources of income when making their claim: it must not be possible that their total income with the claim included should exceed £1,666 in gross terms. If they did make claim without taking this factor into account all excess payments made would be refundable, in full on demand.
Subject to these factors HMRC should now simply pay requests made.
I would be inclined to extend this scheme to small landlords as well, but quite specifically subject to them granting their tenants rent holidays.
And I would be planning a considerable increase in staffing at HMRC to check the claims in due course. Their closure and consolidation programmes must end now.
Do this and I think the problem for the self-employed would be substantially solved.
Let's see what happens.
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Already hearing of the impact of this – people could very well lose homes if this is not sorted out. But what is sobering to me is the amount of risk people have taken on even though they are self employed in the terms of debt and mortgages that they have taken on. This is not just being critical of personal choice, but more aimed at a market that allows people to take on such high levels of risk in order to make sale / get a transaction in the first place.
I do wonder what the plan is when all these people whose wages are being paid by the state, discover in the aftermath of all this, that the businesses they worked for have collapsed, or in the case of the self-employed their clients have vanished. I’ve noted that there hasn’t really been anyone advocating payments for the unemployed, and yet, all these people currently deemed worthy of state benevolence, may find themselves trying to survive on unemployment benefits which were specifically designed to be impossible to survive on; the goal has always been to force people into any possible job, no matter how awful or unsuitable. For their own sake, perhaps they should widen the scope of their advocacy.
Alternatively, and even more problematic, perhaps the government intends to pay the wages of those deemed worthy indefinitely (because I don’t see how the could withdraw the support without millions of people losing everything). Why should the person who loses their employment due to coronavirus mitigation measures and the subsequent economic fallout, be treated preferentially to someone who lost their job for other reasons (company downsizing etc). In both cases the parties now unemployed find themselves in that position through no fault of their own, and both will face the same difficulties finding new employment in the aftermath of all this. Does the government propose to keep paying one group their wages, whilst leaving the other to spiral into financial ruin on Universal Credit?
“If they have underdeclared those earnings, that is their problem, I am afraid.”
If they don’t have enough to live on and are forced to take risks to stay alive (as anyone would), it is everyone’s problem.
That’s the nature of the pandemic – it is in everyone’s interests for people to stay home.
Everybody must have enough to live on regardless of past conduct. We can’t incentivise risky behaviour.