Freelancers and Rishi Sunak’s ‘Winter Economy Plan’
This post has been updated following changes announced on 22 October 2020
The Chancellor’s statement today (Thursday 24 September) is a response to the fact that COVID-19 is not going away.
He talked about a “permanent adjustment” to the economy and a need to deal with a “new normal”.
He needed to replace existing support with something more sustainable.
So what do his new measures mean for freelancers?
Read the whole plan on gov.uk:
There are three types of ‘freelancer’ in the creative industries and each could be affected in different ways. To be frank, none of them is very palatable.
‘Sole Trader’ freelancers
Up to now sole traders have been able to apply for two SEISS grants, as long as they meet certain criteria:
- registered as a sole trader since at least 2018-19 and submitted a tax return for that year
- business adversely affected by COVID-19
- less than £50K profits in 2018-19
- at least 50% income comes from sole trader work
Most shocking to me is that these criteria won’t change. If you were eligible before you’ll be eligible again, presuming that COVID-19 is still damaging your business.
This means that anyone who started up in the last 18 months won’t be eligible, and even if you started up two years ago, your grant will be calculated on 2018-19 when you were just getting going.
There will be two additional grants under this system, the first covering November-January 2020. This will be capped at 40% (sic) of monthly profits up to a maximum of £3,750 for the whole three months. This is the equivalent of £1,250 per month.
The previous two grants were 80% and 70%. Originally the plan was for grant 3 to be 20% – a kick in the teeth for people who’ve had no other income since March. This was upped to 40% on 22 October.
IPSE, which represents many sole traders called the original plan “woefully inadequate”.
The second new grant will cover February-April 2021. The government says is will “review the level of the second grant”.
Other options for Sole Traders
Bounce Back Loans extended
- These small government-backed loans are now available until the end of 2020 via participating banks – a slight extension of the application deadline.
- The Chancellor introduced a new slogan: Pay as you Grow.
If you have a government backed loan you can pay it off over the next 10 years (originally it was six years) with no damage to your credit rating (in theory) and you can even pay back interest only for a while.
Holding on to cash
Cash flow is the most important thing to keep a business going. There are two deferral schemes, both of which are now extended by a year.
- Sole Traders can defer income tax payments that were due at the end of January 2021. You still have to pay the tax but can spread the payments across 12 months until January 2022.
- If you’re a VAT registered sole trader and deferred VAT that was due in July 2020, you can now spread that payment across the 2021-2022 financial year.
Note that the VAT deferral only talks about VAT that should have been paid in July 2020. It looks like a future VAT bill will simply have to be paid as normal. This seems strange.
Limited Company Freelancers
Being a sole director of a limited company didn’t really fit with the original furlough scheme, particularly if you needed to continue to keep your clients warm. It also completely ignored dividend income for company directors.
The new Job Support Scheme is set up differently and may provide some support, but again only on the salary element, and only in a limited way.
The first draft of the Winter Economy Plan doesn’t overtly mention sole director companies, but does say “All Small and Medium-sized Enterprises (SMEs) will be eligible”.
This implies that you could work part time and get some salary top-up from the government for time you can’t work because of COVID-19.
It wouldn’t mean a lot of money, and you would have to pay yourself a salary, but could be welcome relief for some who were completely excluded from the earlier schemes.
This scheme will run from 1 November for 6 months.
Under this scheme employees must work at least 20% of the time. The employer covers 5% of the non-working time and the government will cover 75%.
Yet again there is no engagement with the issue of sole directors who pay some or all of their income through dividends. Dividends remain a total blind spot for the Treasury and HMRC.
Other options for Limited Company Freelancers
The loans and VAT deferral mentioned above (in the Sole Trader section) would also be available to limited companies.
Don’t forget the Job Retention Bonus, if you furloughed someone earlier in the year.
Yet again, it seems that people who are on payroll for short periods and with multiple employers will not be helped.
This affects a huge number of people working in the creative industries.
The Job Support Scheme is the only port of call once furloughing comes to an end in November 2020. But there’s no guarantee that an employer will want to pay a freelancer part time and then claim a top up from the government.
This might work for people on fixed term contracts of some length, but short term working is something which HMRC and the Treasury find very difficult to get their heads around.
You do not get the feeling they have spent any of the last 6 months trying to understand why people fall outside the old-fashioned ’employee’/’ self-employed’ model.
Any other sources of solace?
Alongside the lobbying, the onus will now fall on charitable organisations and unions to support people working in the creative industries.
The brilliant Film and TV Charity has already announced an innovative scheme to help people stay within the industry until March 2021.
Please pass on their details to anyone in need of emotional or financial support.
Check out all the support organisations on our support page:
Please help me keep this page updated with your comments below. Thanks!
Posted on 24 September 2020