The UK self-employment income support scheme – a shift in the legal and political landscape?

The Chancellor’s announcement on 26 March of a support package for the UK’s self-employed population was, in many ways, expected. Pressure had been mounting over the need to support this ‘forgotten’ population, whose earning potential has in many cases been drastically impacted by the social distancing and self-isolation measures the government has had to impose in light of COVID-19. This pressure had two underlying drivers – firstly, the sense that a moral obligation was owed to individuals who, through no fault of their own, have found themselves suddenly unable to run their businesses; and secondly, a fear that the absence of support might drive self-employed people to flout the clear public health guidance and continue to travel and work, perhaps even when unwell.

Notwithstanding the strength of feeling around this subject, the generosity of the package may have taken some by surprise. Essentially, the Chancellor has committed to putting self-employed people on the same footing as the UK’s employee population – guaranteeing 80% of their average profits, capped at £2,500 per month, for a 3 month period backdated to 1 March. Even more significantly, there is no condition under the scheme that these individuals stop working (in contrast to the employee-focused job retention scheme, which applies only where employees are ‘furloughed’ i.e. do no work at all).

The proposed arrangements will inevitably be viewed as a blunt instrument by some, and potentially open to abuse (a fact that is perhaps inevitable when unprecedented and complex arrangements are being developed by policy makers at an urgent pace). Profits will be calculated on the basis of a three year average, assuming that this data is available (and a shorter period if it is not), with the eligibility requirements being that the individual has submitted a tax return for 2018/19 (or does so within four weeks of 26 March), has annual trading profits of no more than £50,000 and that the majority of their income is received from self-employment. 

The scheme represents a shift in one of the fundamental tenets underlying the self-employment / employment divide – the principle that those who are self-employed bear their own financial risk.  The announcement of this extraordinary support package demonstrates that, on this occasion at least, the government is prepared to step in and offer the same support to self-employed people as it has made available to employees. The quid pro quo may be a change in some of the advantages currently available to the self-employed, most notably their social security treatment.  Although he resisted being drawn on the point and said that he was not foreshadowing a specific change in policy, the Chancellor made an “observation” that there is an inconsistency in the level of contribution currently made by self-employed people as compared to employees, and that such inconsistency is thrown into light by the parity of financial support that is now being offered to those two populations.  The Chancellor noted that the question of whether this is fair must be answered going forward. Despite the Chancellor’s insistence that he was only making an “observation”, it seems probable that a change in the level of national insurance contributions payable to self-employed people is on the horizon. 

Notwithstanding any unwelcome changes that may emerge further down the line, the announcement of the scheme will be welcome news for thousands of self-employed people, including those ‘workers’ in the gig economy who, based on what we know so far, also appear to be covered by the scheme. It may also come as a relief to organisations who make significant use of self-employed people as part of their business model. In the absence of any government support, the spotlight was starting to turn on those organisations and the steps they were (or weren’t) taking to support their workforces. Putting in place any sort of financial or other support for a self-employed workforce is fraught with difficulty from a legal risk perspective – the battles around employment classification in many sectors are being fiercely fought, and offering a benefit that would more naturally be reserved for employees is not a decision to be taken lightly. In recent days and weeks, companies have found themselves facing the difficult decision of whether to do the ‘right’ thing or the least risky thing, faced with the reality that an offer of support may later count against them in a legal status challenge.

While the government’s scheme won’t necessarily eliminate the need for support to be provided by companies to their self-employed workforces (particularly as the help is not expected to be available for several weeks – perhaps even as late as June), it may at least relieve the pressure to put in place material financial measures. More importantly, companies are likely to take some comfort from the fact that the government has taken this unprecedented step.  If the government feels that the right thing to do is to support the self-employed population in a time of crisis, there is a clear logic for companies to be able to likewise without the fear of it being used against them in a tax or employment tribunal.