27th March 2020 Written by: Dr Bruce Philp

Coronavirus (COVID-19) has delivered a massive shock to the global economy. A recession looms and people are worried about their health and livelihoods. The UK Government has emphasised the importance of staying at home, and maintaining social distancing. However, for many small businesses (whether sole traders or limited liability companies) this threatens their viability, with ramifications for their households. The Government has attempted to build consensus, and worked with employer organisations, as well as the TUC, to devise a programme of support for those in employment, including employees and the self-employed.

In an early move the new Chancellor of the Exchequer, Rishi Sunak, announced three schemes: Business Interruption Loans of up-to £5M, interest free for 12 months; Hardship Grant Scheme, with grants of up-to £25K for the smallest businesses; and the Jobs Retention Scheme. The latter was a bold move which sought to ensure employees’ jobs were protected.

Unlike the Labour Government’s response to the 2008 Global Financial Crisis, which sought to boost the economy through quantitative easing in the financial sector, the present Conservative Government have gone direct to business with the Jobs Retention Scheme. While some of the Government’s opponents may have gone further, this nevertheless represents an ambitious demand-side intervention, which one would not generally associate with Conservative administrations.

The Jobs Retention Scheme was a response for employees. In the immediate aftermath of that announcement there were calls for the Government to address the needs of the self-employed. On 26 March, Rishi Sunak announced a further scheme designed to address this gap in provision: the Self-Employed Income Support Scheme. This provides a taxable grant of up-to 80% of self-employed average monthly profits (calculated over the last 3 years, when possible), up to £2500 a month, and is aimed to support sole traders, including plumbers, electricians and childminders.

In the first instance the scheme is to be open for 3 months, but it will only be open to businesses with trading profits up-to £50K per annum, and to those individuals who receive the majority of their income from self-employment. Additionally, only those who have filed their 2019 tax return will be able to apply, though individuals who missed the January deadline have been given an additional four weeks to file their tax returns, and be eligible for the scheme.

The Self-Employed Income Support Scheme is a welcome initiative which seeks to give the self-employed equivalent treatment to employees. There remain challenges however. By making the scheme contingent on HMRC data, a layer of complexity is introduced, and it is anticipated payments will not reach eligible participants until June. For those self-employed who may already be in a precarious financial position this will prove challenging, and the banks may not be that supportive, especially if their behaviour mirrors that of 2008. Had those registered with HMRC as self-employed simply been paid a grant, irrespective of previous profits, relief could have been more immediate. That would have been a boon for some, but concerns regarding tax evasion and tax avoidance among sole-traders, as well as preferential treatment in the taxation system, are likely to have played some part in the decision to use HMRC tax returns.

Ultimately, the substantial Government intervention we have seen in last couple of weeks comes at a price, with government borrowing now, being repaid by future taxes. As the Chancellor noted in his press conference, going forwards, “if we all want to benefit equally from State support we must all pay in equally in future”. Thus, even greater alignment of the tax regime between employees and the self-employed, is a likely outcome of the substantial interventions we are witnessing.

Further details about Government provision for small business in the wake of the COVID-19 crisis can be found at https://www.businesssupport.gov.uk/.

Dr Bruce Philp is the Head of Research and Enterprise at Birmingham City University Business School.