According to a Treasury Select Committee (TSC) Interim Report, more than a million workers have been locked out of government support notwithstanding the introduction of two key financial support schemes intended to protect the livelihoods of salaried and self-employed individuals: the Coronavirus Job Retention Scheme (CJRS) and the Self Employment Income Support Scheme (SEISS).
The CJRS was implemented with the purpose of giving workers 80 per cent of their salaries up to a cap of £2,500; and the SEISS in turn provided pay to self-employed people 80 per cent of their average monthly trading profits over the last three years.
However, the TSC identifies four different groups or individuals who did not get support from either scheme:
- Those newly in employment or newly self-employed;
- The self-employed with an annual trading profit in excess of £50,000;
- Directors of limited companies who take a large part of their income in dividends and who do not qualify for SEISS; and
- Freelancers and those on short term contracts.
The TSC received a significant amount of evidence from people who were denied government support based on the date they began work. Even when the Chancellor extended the cut-off date by which an employee had to be in employment in order for their employer to access the scheme from 28 February to 19 March, the requirement that the employer had to have made a ‘Real Time Information’ (RTI) submission to HMRC before 19 March created a gap in coverage.
The reality that RTI submissions often tend to be made only when workers are actually paid (often well after they had been appointed in post) meant that, in evidence from UK Hospitality, somewhere between 350,000 and 500,000 workers in their sector alone had not been covered. The total figure across all sectors of the economy will have been even greater.
The TSC Report urges the government to find a way to extend the eligibility criteria to assist new starters, by either extending the cut-off date to 31 March or by accepting alternative forms of evidence that can demonstrate an individual was working for their employer as of 19 March.
Self-employed above trading profits threshold
In order to gain support from the SEISS, an individual’s annual trading profits had to be less than £50,000. It is estimated that 225,000 people have missed out on support as a result of this arbitrary cut-off figure.
The TSC notes there was no equivalent criteria to access the CJRS and “it cannot be right to have a system where, in one household, a self-employed single parent earning just above the cap receives nothing, whilst next door, a couple, either both self-employed and earnings profits below the cap, or salaried employees with full entitlement to CJRS receive up to £5,000 a month”. The TSC calls for the cap to be removed to allow some financial assistance for those who earn an amount just in excess of it.
Limited company directors
These individuals often pay themselves a relatively small salary through PAYE and supplement this income by taking dividend payments from company profits. Only the PAYE component rather than the dividends counts towards the eligibility assessment for claiming support from the CJRS so any benefit in furloughing themselves is likely to be minimal.
The Treasury does not know how many people are impacted in this group but the Institute of Fiscal Studies gives an estimate of around 710,000. The TSC calls on the government to find a practical solution to support those who are missing out on support because they pay themselves in dividends.
The Association of Independent Professionals and the Self-Employed (IPSE) has presented the government with a solution which the Committee supports, whereby HMRC would request additional information about the proportion of the dividends that has come from the company profits rather than other sources (which was the issue the Chancellor was concerned about) and which would require self-certification with HMRC being able to investigate claims made.
Freelancers and short-term contractors
Those working freelance or on a short term contract have missed out on government support for a variety of reasons, such as them not being contracted to work at the designated cut-off date, them not earning more than half their income through self-employment, their employer not being able to afford to keep them on the pay roll until financial support became available or their employer not wanting to apply to a scheme to ask for assistance.
The TSC noted that according to ONS data, 15.6 per cent of the self-employed categorise themselves as “freelance” or “agency” which in a population of more than 5 million self-employed people would be around 780,000 freelance workers. Having received a significant number of submissions from those in this category who had been denied support, the TSC called on the government to establish a system of support equivalent to around 80 per cent of their average monthly income earned in the first 11 months of the 2019-20 tax year.
The submission of a 2018-19 tax return being a key eligibility criteria for the SEISS meant that many people who became self-employed after April 2019, and who would otherwise be about to file their first statement of earnings, have been excluded from claiming support. The TSC estimated 150,000 newly self-employed individuals may have been excluded by this criteria and, while recognising the challenges of offering support to those who need it while implementing safeguards to protect against fraud, they encouraged the government to undertake an urgent review to see how it could extend support to those in this group.
The TSC also identified the issue of payments made to employees (typically tips in the hospitality industry) through a PAYE tronc system. While tips collected (often electronically) under a tronc system are included in employees’ pay slips make up a significant proportion of an employee’s regular reliable income and are subject to income tax, they are not considered to be wages in an employee’s furloughed wage calculations. The TSC calls on the government to amend the CJRS to allow tronc payments made via PAYE to be included when calculating worker’s pay when assessing entitlement.
The TSC observed that when challenged about the gaps in support, the Chancellor often cited the administrative difficulties in addressing issues given how quickly he was forced to act when the pandemic emerged. However, given that the lifetime of the schemes are now extended they find that there is now more time to tackle the problems they have identified.
The Interim Report makes clear that if the government is going to completely fulfil its promise of doing ‘whatever it takes’ to protect people and businesses from the pandemic, then it must adapt the existing schemes to provide protection to those workers excluded from them.
It is not too late for the government to act and provide additional support to those who have thus far been excluded from the CJRS and SEISS. It is likely such a move would have cross-party support and be popular with the public at large. The government should not be deterred from acting as a result of concerns over fraudulent claims or administrative difficulties. These things can be addressed. All that is required is the political will to do so.
To read the report in full go to: https://publications.parliament.uk/pa/cm5801/cmselect/cmtreasy/454/45402.htm
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