Help for the self-employed left out in yesterday’s scheme

I’m one of the many self-employed people who are left out by the package of support announced yesterday. I’ve only been entirely self-employed for less than a year, so can’t make a claim.

This is a temporary post, with a suggestion (from my husband Bill, who used to be a tax accountant) of how the Chancellor could help the many thousands of others who have set up businesses more recently, and who don’t fit the current eligibility.

The Chancellor’s Flawed Scheme

The problem with giving the self employed a blanket income like the 80% wages guarantee is that ;

 - they are an extremely varied population to identify 

-  some don’t need the money 

-  it’s complicated to pay them as they are not on the PAYE system, 

so says Rishi Sunak.

The scheme announced yesterday tries to address this by selecting certain self employed people for help and excluding others. 

But by inventing a selection process now you exclude many deserving people because no scheme is perfect. 

The Chancellor is also worried about fraud if people invent self employment now just to qualify for the scheme and has selected a qualifying date of 5 April 2019.

So, those who are recently self-employed and do not have a full year of accounts will not receive any help under the Chancellor’s scheme. Also those with low past earnings but higher current earnings will lose out.

These concerns can be solved by not having a selection process now - but instead having a selective clawback after the event by using the existing self assessment system.

This could work and work immediately.  

Specifically - 

1 Give all self employed people a grant now of £2,000 a month for 3 months. People need to register as self employed at HMRC if they are not already. They need to declare formally that they were trading genuinely on 1 March 2020.

2 Tax the grant in tax year 2020/21 at a special tax rate of up to 100% for people who do not end up qualifying by virtue of high earnings, other income, not genuine self employment. The rest are taxed at normal rates.

3 The self employed can put their bank details on their online self assessment account as they do to get a tax refund. 

So with high earners, for example, the grant will be automatically clawed back without any thought. Others not qualifying may need HMRC to review their cases in more detail - but after the event. The clawback means that some of this money is effectively a loan from the Government. 

There is scope for fraudulently declaring self employment - but HMRC can at least ensure these are genuine people (National Insurance number required, for example) who are then on the tax system and can be pursued for clawback.

The existing self assessment system can be used to do this - no need to invent a new system or to try and find deserving cases now.

So, policy and mechanism sorted.

The deserving self employed get the money, the undeserving get it clawed back through self assessment process in next years’ payments. 

Of course another solution (and my preferred route) would be Universal Basic Income, which would help everybody.

Let me know what you think. Any other suggestions gratefully received!