- The Institute for Fiscal Studies (IFS) reports that many self-employed workers would get no support, while a quarter may be financially better off as a result of the crisis, even if their business shuts down
- Around two million self-employed people will not be protected by the government’s Self-employment Income Support Scheme, states IFS
- The IFS reports that another two million people who run their own company may be at risk if they pay themselves much of their income in dividends, which aren’t covered by the Job Retention Scheme
Millions of people could be at risk of “falling through the gaps” in the wage subsidy package and benefits system set out by the UK government amid the coronavirus crisis, warns the Institute for Fiscal Studies (IFS).
The economics thinktank has reported that many self-employed workers would get no support, while others would be financially better off as a result of the crisis.
The IFS warned that around two million self-employed people will not be protected by the government’s Self-employment Income Support Scheme (SEISS) as they: receive less than half of their income from self-employment; earn more than £50,000 a year; or only started their business within the past year and so have missed the threshold for proving their past income in order to receive wage subsidies.
Among the 3.8 million people in the UK that receive more than half of their income from self-employment, the IFS has also estimated that roughly 18% of them will be ineligible for the SEISS.
The IFS further reported that around two million people who run their own company may be at risk due to paying themselves a small salary, and taking the rest of their income in dividends – a salary can be paid partially through the government’s Job Retention Scheme (JRS), whereas dividends are excluded, meaning it will only cover a small part of their actual income.
A quarter of the self-employed will, however, be financially better off than they would have been without the crisis, even if their business shuts down completely, reports the IFS. This is if their benefits income outweighs the 20% of lost earnings not made up by the SEISS for example [which currently pays 80% of self-employed workers’ profits], or if their current lost earnings are less than they then receive through government subsidies, which may be given based on higher, past earnings.
The IFS also reported that “both employees and the self-employed will now have the great majority of their income replaced if they are furloughed or their business closes completely”.
“On average, if those for whom self-employment is their main source of earnings see their business close completely, they will only lose about 14% of family income once SEISS is fully in place, compared to 44% before the reforms.”
On average, if employees are furloughed they will only lose about 12% of net family income, compared to 53% before the reforms, added the IFS.
Stuart Adam, senior research economist at the IFS, said: “Under pressure to come up with a workable scheme to support the self-employed at speed, the Chancellor has erred on the side of generosity for most. Being able to claim the full amount even if profits are affected only marginally will leave some self-employed benefitting substantially.
“The delay in payments will cause financial hardship for some. But the fact that they can claim benefits for the next three months, and then also claim the earnings replacement in early June, will mean many will ultimately lose little or no income overall.
“But some will fall through the gaps completely – including high earners and the newly self-employed – and others will see only part of their overall earnings covered, including many who combine self-employment with employment or whose business is set up as a company.”
For more information, visit: imagesmag.uk/IFS