The Self-Employment Income Support Scheme - why 40% is both not enough and too much...

It’s got to be admitted that the Self-Employment Income Support Scheme has been one of the most effective contributions in addressing the problem of how to support those whose livelihoods have been most affected by the pandemic. Set up quickly, easy to claim and requiring no knowledge of tax whatsoever, it has now processed more than five million claims, and been a real lifesaver to those who have successfully claimed.

It isn’t without its flaws - anyone who started self-employment after 5 April 2019 is excluded, as well as a sizeable proportion of those who started during the 2018/19 tax year. And, in fairness, some of the kinks were ironed out as time went by to reduce some of the more egregious oversights. A scheme which might fairly have been described as “quick and dirty” at the outset was honed to a fairly precise implement within weeks.

There is little doubt that the scheme was a generous one to start off with, and it did need to be given the impact of lockdowns on the ability of many self-employed people to get out and about. It was something of an eye-opener to encounter people whose earnings came from carrying out tasks that were impacted in ways that might be hard to evaluate without talking to the person concerned.

By the time the second scheme went live, in mid-August, some sectors were beginning to either return to something like normal, whilst others were adapting and innovating to repurpose their businesses. For them, a grant representing 70% of their declared average earnings for a quarter was, in truth, profitable - if your profits were reduced by less than 70%, you were suddenly in profit. On the other hand, if your job required you to perform in people’s homes, you might be struggling, and 70% of your earnings was very useful. And, naturally, for those who were scraping by pre-COVID, there hadn’t been an awful lot of slack in the family budget anyway.

And so, when it was originally announced that the third scheme, expected to go live in mid-November, would pay out just 20% of average earnings, there were concerns. For some of the self-employed, particularly in white collar activities, things were beginning to return to something like normal and a little support to cover additional costs was welcome but not as critical. On the other hand, if you’re, say, a mobile hairdresser, with a mostly elderly customer base, the ability to function is very limited - your income and profit are almost certainly down a lot more than 20%, and you probably weren’t making that much to begin with.

So, even at 40%, there will be those who are ironically better off than they would be ordinarily, and those who will be in pretty desperate straits. The challenge for the Government is to find a way of targeting support to those most in need.

And that’s where you run into difficulties. A one size fits all scheme is easy to operate, and the beauty of the Self-Employment Income Support Scheme is that it uses information already held in HMRC’s computer systems through individual Self Assessment tax returns. The basic criteria for eligibility are really simple too;

• you must have submitted your 2018/19 tax return by 23 April 2020 (some twelve weeks after the statutory deadline);
• your average annual profit from self-employed activities must have been under £50,000 over the period from 6 April 2016 to 5 April 2019; and,
• at least half of your income, either in 2018/19 or over the three years to 5 April 2019, must have come from self-employment.

You can claim online as long as you can verify your identity with either a U.K. passport, a U.K. driving licence (with a photograph) or via your credit history - it takes five minutes or less. And, if you can’t self-verify online, lovely people will handle your claim over the telephone.

In order to target support, you need more data, and probably some human intervention, which is where things get tricky. People don’t always tell you everything that they might, or describe their activity somewhat vaguely, none of which matters much when they’re declaring income, but when you’re trying to categorise them, it offers challenges. And, with computerisation having stripped out many of the clerical staff who might hence have been available to assign to such work, there is a question of capacity.

And so, the Government is torn between the cost of supporting people whose needs vary from virtually nothing to nearly everything and all points in between, and its perceived need to staunch the flow of cash out of its coffers. So far, the impact of a gradual withdrawal of support has been relatively low but, as the pandemic hovers over an upcoming winter, and people’s financial reserves, if they ever existed at all, are increasingly burned through, there will be increasing hardship, and increasing clamour to act.

It’s a challenge that I wouldn’t fancy myself, but in the ever-changing situation that we find ourselves in, with a potential “no deal Brexit” getting closer, the Chancellor, the Treasury and senior HMRC officials may have to find ways of squaring the circle sooner rather than later. You can only wish them the best of luck, because I fear that they may need it...