A very large 5% - Why help for the self employed isn’t the good news you think

We had been promised help for days. Across the UK, self-employed people looked at the deal for the salaried and wondered when it would be their turn. We knew it was complex and we waited.

Last night’s announcement undoubtedly eased the worry for millions. The government said it covered 95% of self-employed people. But, as with everything political, that would depend on how you define self-employed. 

Immediately my timeline began filling with friends that were left out. By far, the largest number were those who pay themselves through their business. They all shared the same complaint. The scheme excluded them as they were not self-employed but employed by themselves.  A nice twist if you are a fan of dark humour.

The suggestion was that they should access the PAYE furlough scheme, yet that is also barred.

Why?

In most cases they pay themselves a low PAYE wage and dividends according to earned profit - a standard practice in small business as it allows you to adjust earnings month on month according to income. The furlough scheme would not get close to their real annual earnings, or 80% thereof. Even those who follow a standard PAYE scheme may be excluded because, as directors, how do you furlough yourself? Someone must keep the business open in case of new clients.

Was this intentional? Well, HMRC have the data, they know from Corporation Tax and individual returns how much is paid in dividends, the government supposedly consulted on this scheme with representatives from the Small Business Federation and the TUC. Did no one in the room raise this issue?

What does it mean? In my industry, music, it will no doubt mean some smaller businesses, one or two person operations where there are only ‘directors’, will go to the wall. It will mean hardship for many more. In a wider context, those excluded will still be asked to repair the damage through higher tax takes, a definition of unfairness and a likely source of ill feeling in years to come. In a time when we are supposed to stand together, it will mean a section of ‘us’ is left out and feels neglected by the rest. It could mean that those left out need to break self-isolation driving further contagion and making this whole nightmare last longer.

This needs to be looked at again. Businesses that have been solid for years will go under, causing further economic damage and contraction. The scheme may be a start, but it is far from a solution.