UK continues Self-Employed Aid During Coronavirus Crisis
Last November it was announced that self-employed workers undergoing financial difficulty would continue to receive financial support from the government as the country continues to navigate the coronavirus crisis.
To curb the spread of the coronavirus, Boris Johnson and his parliament issued a third UK lockdown in January, but reducing the economy’s activity has had a harsh effect on the self-employment sector.
Having lost access to income, workers within this group are continuing to face financial challenges, and many are worried about staying afloat without government support.
It has taken the UK government longer to produce aid for self-employed workers due to the complexities of the sector. Mr Sunak stated that these new emergency measures would provide much-needed support to many during the crisis.
What does the self-employed aid package include?
During the start of the coronavirus pandemic in 2020, Mr Sunak declared that the Self-Employed Income Support Scheme (SEISS) covered 95% of self-employed people earning up to GBP 50,000 a year and who rely on self-employed work for the majority of their income.
At the time it was declared that at least half of these earnings must come from self-employed work registered in the 2018-19 tax year, which was a condition introduced to minimise the chances of fraud. Anyone who missed that submission deadline had four weeks to file their tax return to qualify for the scheme.
Those who are eligible for the scheme are able to:
- Apply for a grant worth 80% of their average monthly profits over the last three years, capped at GBP 2,500 a month
- Apply for a three-month extension to file accounts with the government’s Company House agency
- Receive financial support from the scheme while working simultaneously
- Access the business interruption loan program, delay tax payments and claim universal credit self-employed benefits
However, the grants will be taxable, and self-employed workers who receive the aid will need to declare it on their tax returns by 2022. The scheme does not cover company owners who pay themselves dividends or individuals who have only recently become self-employed. The remaining 5% of self-employed workers, whose average yearly earnings amount to GBP 200,000 will also not be eligible.
The grants were initially backdated to March but did not arrive in bank accounts until June 2020 as the government needed to assess the applications before delivering the coronavirus self-employed aid.
In November 2020, it was confirmed that there would be a fourth grant to help support self employed individuals. During last month’s budget, Rishi Sunak stated that the grant would be set at 80% of 3 months’ average trading profits, released in a single instalment, capped at GBP 7,500. The fourth grant would consider 2019 to 2020 tax returns and be available to those who became self-employed during the tax year 2019 to 2020. There were no further changes to the rest of the eligibility criteria.
It was confirmed during the Budget that there will be a fifth grant, covering the period May to September. The government website states that there will be further details on the fifth grant in due course.
The impact of delaying aid until June
The UK government initially received mixed responses on the aid package announced by Sunak.
The BBC outlined that the Federation of Small Business (FSB), which represents many self-employed workers, supported the measure, stating: “Although the deal is not perfect, the government has moved a very long way.”
Others worried that the aid was too late and that many self-employed workers would struggle to support themselves up until June financially. Labour MP John McDonnell, who was contacted by numerous self-employed people, voiced his concerns on Sky News:
“Some of them are really struggling.” John McDonnell said that while he is “relieved” by the income support package for the self-employed, there were many workers now being hit by big utility bills and council tax.
Effects of self-employed packages on Pound Sterling
The British pound (GBP) significantly benefited from the aid package for the self-employed, making extensive recoveries against both the US dollar (USD) and the euro (EUR).
The British pound to US dollar (GBP/USD) exchange rate saw immediate gains as a result of the announcement, and the British pound to euro as (GBP/EUR) also improved, with the announcement providing renewed trader confidence. Investors recognised that the emergency measures introduced by the UK government would soften the economic damage caused by the coronavirus.
UK economy to bounce back in April
This week thousands of UK businesses reopened after closing their doors back in January during the third national lockdown. It’s thought that the UK economy will bounce back during this time, as it’s predicted that public spending will see a significant surge. The British public is allowed to engage in outdoor pub dining and visit salons once again and the Bank of England (BoE) predict a sharp recovery as a result.
It’s thought that this is the primary driver for the British pound’s (GBP) rebound against its major competitors. The British pound to US dollar exchange rate has risen to USD 1.38, whilst the British pound to euro (GBP/EUR) initially increased to EUR 1.17 but has subsequently declined to EUR 1.15.
Sterling is likely to see some gains as the UK economy reaps the benefits of businesses reopening.