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U.K. Tax Experts Urge Sunak to Plug Gaps in Income Support

Posted on Mar. 30, 2020

Tax professionals urged the U.K. government to find ways to help owners of small companies and self-employed people outside the scope of a support scheme intended to soften the economic impact of the coronavirus outbreak.

Separately, the Chartered Institute of Taxation has encouraged the government to look critically at the finance bill, and measures in previous finance acts that are set to take effect in April, and to consider deferring measures that are “not absolutely vital,” it told members on March 27.

Prime Minister Boris Johnson and Health Secretary Matt Hancock reported that they have tested positive for the coronavirus. Both said they had mild symptoms and were self-isolating. “I will continue to lead the government’s response via video-conference as we fight this virus,” Johnson tweeted from Downing Street, while Hancock said he was working from home.

‘Much-Needed Support’

“While we appreciate that the government’s priority has to be getting support to the largest number of people in the quickest manner possible, in the coming weeks we would like to see the government find ways to help those in self-employment and owners of small companies — who will otherwise not qualify for appropriate and much-needed support,” Jeremy Coker, president of the Association of Taxation Technicians, said in a March 27 release.

The government’s initial guidance on the self-employment income support scheme notes that grants will be available to those who have “lost trading profits due to COVID-19.” Grants to self-employed individuals and members of partnerships will be worth 80 percent of profits up to a cap of £2,500 per month.

HM Revenue & Customs will use the average profits from tax returns in 2016-2017, 2017-2018, and 2018-2019 to calculate the grant. The scheme, which Chancellor of the Exchequer Rishi Sunak announced on March 26, will be open to those who derive most of their income from self-employment and have profits of less than £50,000, calculated by reference to either 2018-2019 income or average profits over the three-year period.

Claimants must have filed a tax return for 2018-2019, but those who have not yet filed a return will have a further four weeks in which to do so. Claimants must have traded in the current tax year 2019-2020, which ends on April 5. They must also be trading when they apply — or “would be [trading] except for COVID 19” — and must intend to continue to trade in the tax year 2020-2021. Further guidance on the scheme will be updated as the scheme is developed, HMRC said.

“Government officials have clearly been working outstandingly hard in recent days to pull this package together and have even more work to do in the coming weeks to design and implement the system which will enable eligible individuals to claim this valuable assistance,” Coker said. “While it is a broad scheme, the qualifying conditions mean there are some groups who will not benefit. It is important those groups are aware so that they can start to seek help in terms of other support such as universal credit and other welfare schemes.”

The Association of Taxation Technicians noted that those who do not appear to qualify for the income support scheme include anyone who became self-employed on or after April 6, 2019, and self-employed individuals with trading profits of over £50,000. “Another group who are not technically self-employed, even if they might think of themselves that way, are individuals who have their own company and have taken their income from the company as a small salary and the rest as dividends,” it said. “They may not be able to claim support for the loss of salary under the job retention scheme for themselves (even if it applies to their employees) as it is not clear how the sole director of a company can furlough themselves. Even if it is permitted for this group to benefit from the job retention scheme, this will only allow a claim for the salary element which is usually modest.”

The tax body observed that since dividend income is not classed as self-employment income for the purposes of the income support scheme, “there will be no additional support, and such individuals will get much less than they might have hoped for.”

Brian Palmer, tax policy adviser at the Association of Accounting Technicians, noted that “there is huge complexity in arranging a scheme of this type, particularly in such a short time period.” On balance the income support scheme is “very generous indeed, particularly as those eligible will be able to continue working and yet receive the grant,” he said.

"However, there are still many pressing concerns for those who do not qualify due to being self-employed for less than a complete tax year and have not yet filed a tax return, therefore having no profits to average. Without the prospect of a direct grant from government, they risk being left to the mercy of an overstretched U.K. benefits system,” Palmer added. Those who are “self-employed from every perspective but provide their services through a limited company” risk “dropping through the cracks,” he suggested.

Universal Credit ‘Buckling Under Pressure’

HMRC is working urgently to deliver the income support scheme, and grants are expected to start to be paid by the beginning of June, it said. “This time is necessary to ensure that the scheme is both deliverable and fair. In the interim the self-employed will still [be] eligible for other government support including more generous universal credit and business continuity loans,” it added.

“The chancellor was very clear that we want to do this as quickly as possible. We've set a date of June. If we can do it faster, we will, but it is a complicated system that we are designing and we want to make sure we get it absolutely right,” Business Secretary Alok Sharma told the BBC.

But Labour member of Parliament Stephen Timms, chair of the Work and Pensions Committee, pointed out that few people will have enough in the bank to tide them over until June. “So they’ll have to rely on universal credit in the meantime,” he said in a statement.

The committee heard that the universal credit system is “already buckling under the pressure of half a million new claims,” Timms added. “The government must now do all it can to shore it up, so people get the money they need, and quickly.  And the advance [of universal credit], payable upfront to those who need it, should be made non-repayable.”

Job Retention Scheme Extended

The job retention scheme will now cover National Insurance and pension costs as well as wages, and furloughed workers will be free to join hundreds of thousands of National Health Service volunteer responders without risking their pay, HM Treasury announced.

The scheme will cover employer National Insurance contributions, and the minimum contributions that employers must make into employees’ pensions, as well as covering 80 percent of salary subject to a cap of £2,500 a month. The move could save businesses an extra £300 a month for each employee under the scheme, Treasury said in a March 27 release. It noted that more than 500,000 people have signed up to join NHS Volunteer Responders.

The government is strengthening the retention scheme because “we will do whatever it takes to support jobs,” Sunak said.

HMRC published on March 26 initial guidance on the job retention scheme for employers and employees. Grants will be paid to employers for up to three months, but that period may be extended.

Employers will use a portal to claim payments under the scheme, which the government expects to have operating by the end of April. Most public sector employers are not expected to claim, because most of their employees will be providing essential public services.

“Furloughed employees must have been on your [Pay As You Earn] payroll on February 28, 2020, and can be on any type of contract, including full-time employees, part-time employees, employees on agency contracts, [and] employees on flexible or zero-hour contracts,” HMRC said. “To be eligible for the subsidy, when on furlough, an employee cannot undertake work for or on behalf of the organization.”

Payments received by a business under the scheme are to be included as income in the business’s calculation of taxable profits for income tax or corporation tax. The businesses can then deduct the employment costs as normal, HMRC added.

Furloughed employees will still be paid at least 80 percent of their wages, under deduction of tax and National Insurance, the guidance noted.

HMRC warned that scammers were claiming to be from HMRC and offering financial support as a result of the coronavirus. “If you receive an email, text, or call claiming to be from us that asks you to click on a link or give information such as your name, credit card, or bank details, it’s a scam,” HMRC tweeted.

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