Budget: March 2021 – Coronavirus support for freelancers
Last Updated on 10 March 2021
There are three types of freelancer in the creative industries. This post looks at how announcements made by Chancellor Rishi Sunak on 3 March 2021 affect each type. It focuses on coronavirus support.
For an outline of each type of freelancer, go here >
Sole Trader Freelancers
There are to be two more grants for sole traders, on top of the three previous grants.
Eligibility: The good news is that these two grants are available to people who submitted a tax return by 2nd March 2021 for the tax year 2019-20. The calculation will now be made on profits from up to FOUR tax years, 2016/17, 2017/18, 2018/19 and 2019/20.
If you have fewer years as a sole trader HMRC uses the most recent tax returns and averages them out.
If you have a gap in your tax returns – eg 2017-18 and 2019-20, HMRC will take the 2019-20 return information only.
Unfortunately there is still a requirement for a sole trader to have made more than 50% average income from the sole trader business, which may still exclude people with PAYE income that’s more than sole trader income.
You will of course still have to be trading this year, and you’ll have to declare that the pandemic has affected your turnover.
Grant 4 will cover three months, February-April 2021, and will be calculated at 80% of average monthly turnover in tax year 2019-20, up to a total of £2,500 per month for three months (=£7,500).
Eligible sole traders will be able to apply from “late April” until 31 May 2021. HMRC will be contacting eligible sole traders in April.
Grant 5 will cover May onwards, and will be the last grant, according to Rishi Sunak. He says it will cover May to September. That’s five months.
BUT, it’s a grant of based on only three months of profit.
It seems to me very mean for SEISS to give a grant based on just three months of average profits, when the furlough scheme is being extended for five months.
Here’s the confirmation from the government announcement:
Grant 5 will be reduced for people whose turnover has not gone down by more than 30% between April 2020 and April 2021.
This will create a bit of a cliff-edge. Turnover down by 29% means you get 30% grant to a maximum of £2,850. Turnover down by 30% means you get the 80% grant up to a maximum of £7,500.
The reason for this “turnover test” is because there’s been some criticism that the SEISS has not distinguished between sole traders who have no income and those who have been able to earn.
The 30% turnover threshold is designed to target support where it’s needed most. The threshold is based on turnover, but the grant will be calculated on profits.
It’s expected sole traders will be able to apply for grant 5 from some time in July 2021.
Full details for these grants are still to be announced. I’ll update this page as and when.
The Self-employment Income Support Scheme has been targeted at people who are registered as a sole trader. Three taxable grants have been paid to sole traders since March 2020 based on certain strict criteria.
For the first three grants people would have had to be registered as a sole trader as long ago as the 2018-19 tax year, and submitted a tax return for that year. The average profit figure was calculated on three tax years where available; 2016/17, 2017/18 and 2018/19.
If you’re able to be furloughed, the scheme will be extended to the end of September 2021. Employers will have to contribute more towards your salary from July 2021.
Talk to your employer if this is you. The employer is the one who actions the furloughing. Employees have no right to demand it. Employers don’t have to use the scheme if they don’t want to.
The Job Retention Scheme (known colloquially as furloughing) has helped millions of people on payroll through the pandemic. The scheme extension was heavily trailed before the budget statement.
Many freelancers are paid through a payroll, but have been missed by the furlough scheme because of the date criteria. Also, it’s a scheme which is operated by employers, but it’s entirely voluntary for them. If they don’t want to furlough you, they don’t have to.
Limited Company Freelancers
Nothing new on coronavirus support, except the extension of the job retention (furlough) scheme. Dividends are still not eligible to calculate income support under the job retention scheme. Furloughing is only based on the salary element.
Some tax changes have been announced which are worthy of note. From April 2023 corporation tax will increase to 25% (a big leap from 19%) , but only for businesses with profits above £250,000.
Businesses with profits less than £50,000 will keep corporation tax at 19%.
Between £50,000 and £250,000 the corporation tax rate will be tapered. So avoiding a massive cliff-edge.
Limited Company freelancers have been one of the worst-supported groups during the pandemic.
The treasury doesn’t consider these people ‘self-employed’, as that’s a term for people registered as a sole trader. Therefore the SEISS isn’t available to them.
Limited company freelancers typically take money from their own company through a salary (PAYE) and/or by taking out dividends.
Technically freelancers could furlough themselves and apply for support, but only for the salary element of their income.
Dividend income remains outside the scope of the scheme. HMRC says it is open to fraud. This has caused big problems for people who pay a low salary through the year and take out dividends in a lump sum when they have work.
Some limited company freelancers were also caught by the cut-off date for salary reporting. Some people pay their salary through the year, but report it all to HMRC once at the end of the tax year.
When the furloughing scheme was launched, the reporting cut-off date for eligibility was mid-March 2020, preventing people from gaining financial support if they had reported annual salary information at the end of that month.
It’s my view that the Treasury and HMRC really dropped the ball with limited company freelancers. That’s in stark contrast to the inventive approach to the job retention scheme for PAYE and the SEISS for sole traders.
Posted on 03 March 2021