17.On 20 March, the Chancellor announced the Coronavirus Job Retention Scheme (CJRS) with the objective of helping businesses to keep people in employment. All UK employers were entitled to apply for a grant, intended to help them to continue paying part of their employees’ wages and retain staff during the crisis.
18.The Chancellor’s announcement of support for the self-employed in the form of the Self-Employed Income Support Scheme (SEISS) came six days later. Up until this time, we had received many evidence submissions highlighting the inequity that the Government’s initial support package had created between those employed through PAYE, who now had access to a secure income, and the UK’s five million self-employed workers. Many called for the principle of the job retention scheme to apply to freelancers and self-employed workers as well and we wrote to the Chancellor to urge him to take more action to help the self-employed. While those ineligible for CJRS or SEISS may have access to other welfare benefits, many who submitted evidence told us that they were not entitled to Universal Credit because their savings exceeded £16,000.
19.At the time of the SEISS launch, the Chancellor said that some 95 per cent of people who are majority self-employed could benefit from this scheme. But the Institute for Fiscal Studies estimated that roughly 675,000 or 18 per cent of the 3.8 million people who receive more than half of their income from self-employment would be ineligible for support under the SEISS.
20.We pressed HMRC for an explanation of the figure given by the Chancellor. HMRC initially told us that the 95 per cent estimate was based on the percentage of self-employed returns submitted for 2017–18 that would qualify on the basis of the £50,000 cap. The estimate was therefore inaccurate. It was not made with reference to the actual tax year to which the £50,000 cap applies, it excluded anyone who commenced self-employment after 5 April 2019, or whose self-employed income was less than 50 per cent of their total income. HMRC has since told us that it does not have data on the percentage of those self-employed at the start of the lockdown that would be entitled to claim support under the SEISS.
21.We received significant volumes of evidence from individuals and organisations concerned about financial hardship because they or their members did not meet the eligibility criteria for support. We heard from many who were ineligible for the CJRS scheme. Equity told us that its members—including actors, stage managers, theatre directors and designers—deserved the same support and respect as employees in secure jobs. We also heard many concerns from the self-employed. The Advertising Producers Association—which represents freelancers in the production of commercials—told us that over 90 per cent of their members would not benefit from government support. The Creative Industries Federation told us that “urgent clarity and support” was needed for those falling through the gaps.
22.In this report we draw attention to five main groups of employed and self-employed people who are unable to benefit from financial support under the Government’s main schemes. These groups came up most frequently in evidence but there were many gaps that have been suggested and we include some of these in our Annex.
23.We received many evidence submissions from people who had started work, or who were due to start work, after the Government’s designated cut-off date (initially announced as 28 February) and who were therefore deemed ineligible for support under the CJRS. UKHospitality told us that the cut-off date was applicable to thousands of staff in their sector and that more flexibility was needed.
24.The Chancellor responded by extending the cut-off date to 19 March. The Government announced that it expected over 200,000 more employees would benefit from support through the CJRS after the extension of the eligibility date.
25.However, we continued to hear from many individuals who had started work before the cut-off date and were still ineligible for support because their employer had not submitted the required paperwork to add them to the payroll. UKHospitality told us that, after the extension of the cut-off date, some individuals, who had previously met the criteria for support, were now no longer eligible. They explained:
[…] the Treasury guidance and HMRC guidance introduced a new criterion over and above what had been previously announced in the guidance that came out on 27 March. On 27 March, the HMRC guidance said you had to be on the payroll. You had to be employed by the company. You had to be contracted. Then at the end of last week, on the Thursday, when the extension was made to 19 March, a new requirement was imposed, which meant that you not only had to be on the payroll; you had to have participated in an HMRC RTI [Real Time Information] event. You had to have had a payslip that went through. […] on the one hand, we increased the number of people who went into the scheme because they had had an RTI event before 19 March. Correspondingly, quite a number of people in our businesses who had previously been classified as furloughable, who had been on the payroll at the end of February but had not had an RTI event, are now excluded.
26.HMRC told us that the design of the scheme requiring people to have had an RTI event was “a key protection”, because it meant they had data on existing payroll systems and existing employees. We asked HMRC whether allowances could be made for people who had signed employment contracts with a new employer and could provide the signed contract as evidence of employment. HMRC responded:
I appreciate what you say about the kinds of evidence that people could produce, but what we have to do here is get a scheme set up very rapidly; time really has been the enemy of perfection in this. […]
We are going to get help to the vast majority. I appreciate there are going to be some hard cases, but this is only one of a number of schemes, and hopefully people will get help from one or other of the different schemes that the Government have put in place to help people through this crisis.
27.We asked HMRC how many people move jobs in a typical month. They subsequently referred us to an Office for National Statistics publication which indicated that in the last year around a million people started being employed each quarter having not been employed before, with a further 800,000 moving from one job to another. UK Hospitality told us that somewhere between 350,000 and 500,000 people within hospitality alone were potentially still missing out because they had not had an RTI event.
28.While we acknowledge that protection against fraud needs to be a key consideration in policy design, hundreds of thousands of individuals are suffering financial hardship through no fault of their own. Either their unfortunate timing in starting a new job, or their employer’s choice of timing in submitting paperwork to HMRC, will have made them ineligible to be furloughed and unable to claim support.
29.We urge the Government to find a way to extend eligibility criteria to all new starters, perhaps by further extending the cut-off date to 31 March, or widening access by accepting alternative forms of evidence that can demonstrate an individual’s employment, such as a signed contract of employment.
30.In order to be eligible to claim support from the SEISS scheme an individual’s annual trading profits must be less than £50,000. We received many submissions from self-employed people with trading profits in excess of the £50,000 cap who were therefore deemed ineligible for SEISS support.
31.When we highlighted this gap to the Chancellor, he stated:
The average income of those who earned more than £50,000 in 18/19 was more than £200,000. It is not right for the government to be giving money to individuals with higher average incomes who are more likely to have access to savings and other resources. Those unable to access the SEISS, such as those with recent profits in excess of £50,000, can still benefit from the series of measures announced by the Chancellor to boost household incomes and support for businesses, such as income tax and VAT deferrals, support for renters and access to three-month mortgage holidays. They may also still be able to access support through the temporary Coronavirus Business Interruption Loan Scheme.
32.However, the figure given by the Chancellor is an average which is likely to be skewed by a small number of very high earners. Bectu—a union representing over 40,000 staff, contract and freelancer workers in the media and entertainment industries—told us that “ … the £50,000 upper threshold in the SEISS is difficult to justify when there is no equivalent in the JRS. Many people in the creative industries work in London and the South East and fall the wrong side of the threshold, despite not being ‘super rich’”.
33.Kate Bell from the TUC told us:
I do think something the Government might look at is how hard that £50,000 cut-off is, and could it be applied more on a taper basis. I think that is the basis on which the employee scheme has been designed, basically, so there is no hard income cut-off.
34.There can be significant inequity between households’ eligibility for SEISS whereby one household with two self-employed incomes of just less than £50,000 can receive total benefits of £5,000 a month, whereas another household earning slightly over £50,000 gets nothing. We challenged HMRC on the fairness of a policy where there can be such inequity between two households. HMRC responded:
If we had a lot of time, we could work on developing the policy. You could take account of households, which is extremely difficult, operationally, for us to do. You could do a range of things, if you had more time.
36.While the Committee recognises the importance of allocating financial support to those who earn the least, the design of the SEISS means that hundreds of thousands of people are potentially suffering financial hardship because of the arbitrary £50,000 cut-off that has no equivalent in the job retention support scheme. We are not suggesting that the Government rolls out blanket support to all but it cannot be right to have a system where, in one household, a self-employed single-parent earning just above the cap receives nothing while next door, a couple, either both self-employed and earning profits below the cap, or salaried employees with full entitlement to CJRS receive up to £5,000 a month.
37.The Government must tackle the cliff edge that exists in the design of the SEISS by removing the £50,000 cap and allowing those with profits just over this cap access to some financial support, up to the total monthly support cap of £2,500 (as for salaried employees).
38.Many limited company directors are not eligible for financial support under either scheme. These individuals who manage their own companies often pay themselves a relatively small salary through PAYE (often set at the National Insurance earnings threshold, which is currently £166 per week) and supplement this income by taking dividend payments from company profits. Only the salary (i.e. PAYE) component, rather than these dividends, counts towards the eligibility assessment for claiming support under the CJRS so, whilst limited company directors may furlough themselves and claim support under this scheme, benefits are likely to be minimal. The Association of Independent Professionals and the Self-Employed (IPSE) explained
The reason they do that is because they do not know how much profit their company is going to make in the year, so it is more sensible to pay themselves a small salary and then take out whatever they can afford to take out as the dividend. It is how people are advised to do things very often by their accountant.
39.In the Chancellor’s response to us he said:
The design of the Self-Employed Income Support Scheme (SEISS) means it is targeted at those who need it the most, and who are most reliant on their self-employment income. The Government recognises that PSCs [Public Service Companies] […] may not be eligible for the scheme. […] Those who are not eligible for the SEISS may still be eligible for other support.
40.HMRC told us that it has “no way of identifying which dividends people receive are in lieu of wages, and which are simply a return on capital, either in their own company or as a general investment.”
41.IPSE suggested that a way of managing some of these practical issues might be to “claw-back” at a later stage:
We have been asking the Treasury, first, whether it could adopt a “pay now, claw back later” approach. […] They are getting very little by way of support when compared to some other groups. They are going to need something. They are going to need some help if they are to survive this crisis, in the same way as we are trying to ensure others can survive it. They will be the ones we will turn to, to get the economy going again on the other side of this. It is very important that we get support to them. We are saying to the Treasury, “You have been very generous with some other groups. Thank you very much, but is there not a way that we can relax the rules on this? Even if we overpay someone, we might be able to claw that back afterwards.”
42.In a follow up letter after his appearance before us, the Chief Secretary to the Treasury told us he had been “working to understand options for this group” and went on to describe the Treasury’s engagement with stakeholders to consider alternative proposals. However, nothing has since been done. The Chief Secretary asserted that a ‘claw back’ approach to recovering payments, as proposed by IPSE, could “… create significant losses due to error, fraud and criminal attack, and there is a high risk that incorrect or fraudulent payments could not be recovered, ultimately at the cost of UK taxpayers”. He further explained that the requirement for “… manual compliance checks would be highly resource intensive for HMRC; due regard must be given to the opportunity cost for that resource and where compliance activity would have to be reduced elsewhere”.
43.At the Liaison Committee on 27 May, the Chair asked the Prime Minister if he would intervene and allow dividends to contribute towards the assessment of income for self-employed people under the furlough (CJRS) scheme. The Prime Minister acknowledged the difficulties for the self-employed and agreed to discuss with the Chancellor whether dividends could be taken into account and extra support made available to this group.
44.The Treasury does not know how many people are within this affected group. It referred us to an Institute for Fiscal Studies estimate that there were 1.8 million company owner managers in 2014–15, but observed that this estimate does not tell us how many of these individuals have taken dividend income in lieu of a salary. IPSE told us that there are around 710,000 limited company directors who are getting little support.
45.The Government has acknowledged the issue of hundreds of thousands of limited company directors missing out on support but has so far failed to take any action. Many of these individuals, who have a key role to play in firing up the economy again, are facing significant financial hardship.
46.The Government must find a practical solution to supporting hundreds of thousands of limited company directors who are missing out on support because they pay themselves in dividends. IPSE has presented the Treasury with a ready-made solution whereby HMRC would request additional information about the proportion of dividends that have come from company profits and from other sources and require self-certification by the applicant. HMRC would reserve the right to investigate claims and, if it was later found that applicants had inflated their figures, HMRC would reclaim the support with penalties. While we recognise that this approach may require significant resources, we urge the Government to accept and implement this proposal. While it will have immediate cost implications, it could mitigate future economic scarring and safeguard future tax revenues.
47.In some industries, such as television and theatre, short-term PAYE contracts lasting just weeks or months are the norm, often combined additionally with some self-employed work. The impact of the virus for many freelance workers has meant that they have either been released from their contracts or have not had them renewed as would ordinarily have happened. Entitlement to support under either the SEISS or Job Retention Scheme is not available for many of these individuals either because:
48.Bectu, a union representing contract and freelance workers in the media and entertainment industries, informed us that a survey of its members found that 47 per cent of PAYE freelancers working in film and TV were not in a contract at the cut-off date and only 2 per cent had so far been told they were being furloughed by their employer.
49.The Advertising Producers Association told us that it is “[…] fairly common to move between employment and freelance work in this sector”. They proposed that freelancers should be able to file their 5 April 2020 tax return by 31 May 2020 and that their 2019–20 income be included for the purpose of calculating entitlement to support. Without this, they said “[…] a whole group of people will be arbitrarily left out altogether”.
50.Bectu proposed that the Government use the tax data from previous tax returns to build a picture of an average total verifiable income across different streams for each worker who claims. They stressed that any system would need to be mindful of the different methods in which self-employed workers earn income and encouraged the Government to cover 80 per cent of this income.
51.According to ONS data for January to December 2019, 15.6 per cent of self-employed people categorised themselves as “freelance” or “agency”. In a population of more than 5 million self-employed, we estimate that around 780,000 people in this group could be freelancers. We received a significant number of submissions from this group who told us that they were ineligible for the support schemes.
52.It cannot be right that distinct groups of individuals fail to benefit from the Government’s principal support schemes when the shutdown has taken away their livelihoods overnight through no fault of their own.
53.We call on the Government to recognise the impact of the coronavirus on PAYE freelance workers and establish a system of support which ensures that this group of people can access financial support during the crisis. We recommend it gives this group access to financial support that equates to 80 per cent of their average monthly income earned in the first 11 months of the 2019–20 tax year, based on their PAYE tax record in year. This support should be available up to a total of £2,500 per month (as for salaried employees).
54.As the submission of a 2018–19 tax return is a key eligibility criteria for the SEISS, many people who became self-employed after April 2019 and would otherwise be about to file their first statement of earnings have been excluded from claiming support. The National Union of Journalists told us that the requirement to have filed a tax return for 2018–19 unfairly excludes individuals who are in their first year of being self-employed, often the most precarious and expensive time, with necessary investment in equipment, insurances, working premises and other overheads.
55.The TUC told us this “… is a tricky situation, but I think very difficult for the Government to address, given that people do need to have some proof of their income and a tax return”.
56.IPSE suggested that people who are newly self-employed could be allowed to “ … get their tax return for the last year, which ended just a couple of weeks ago, done and in, so that the Government could calculate a grant under the SEISS scheme … ”. They acknowledged the legitimacy of fraud risks to the scheme but encouraged the Government to think about how that risk could be mitigated to ensure that people could benefit.
57.ONS data indicates that 3 per cent of all self-employed in the UK have become self-employed since April 2019 which, roughly estimated, suggests that around 150,000 newly self-employed are unlikely to be eligible for support under the SEISS. The Institute for Fiscal Studies estimate of those ineligible for support is much higher. It has reported that “… between 2014–15 and 2015–16 (the most recent years for which tax data is available), there were 650,000 sole traders starting up”.
58.The Government needs to quickly find a way of supporting the many people who have started a new business, or built their business up in the last year, but are unable to qualify for support because they cannot fulfil the eligibility criteria required by the SEISS.
59.The Committee recognises the challenges of offering support to those who need it while implementing the safeguards required to mitigate the very real risk of fraudulent claims for support. However, we encourage the Government to undertake an urgent review to see how it can extend support to those newly self-employed who are unable to benefit from the SEISS.
60.As well as the five issues we have highlighted above, the Committee has identified the following area where steps should be taken by the Treasury to provide additional support to households. Payments made to employees through a PAYE tronc system—for example employees in the hospitality industry whose tips are collected electronically and included in their pay slips—are not currently considered as wages in an employee’s furloughed pay calculations, despite these payments potentially making up a significant proportion of such employee’s regular reliable income, and being subject to income tax.
62.In the initial stages of the Government’s response to the coronavirus, the Chancellor told us that he would do whatever it took to protect people and businesses from the effects of the pandemic.
63.The Government’s paper on 11 May, OUR PLAN TO REBUILD: The UK Government’s COVID-19 recovery strategy, set out the main factors and overarching principles that the Government would consider. One of its overarching principles is “Fairness. The Government will, at all times, endeavour to be fair to all people and groups.”
64.The Chancellor has acknowledged the frustrations of those who had not been supported, telling them that they had not been forgotten. But he has not offered them any hope of income replacement saying that “Introducing new measures to the schemes at this point would not be possible or desirable because it would just delay their operation”. When the Chancellor announced the SEISS, he said:
… I must be honest and point out that in devising this scheme–in response to many calls for support–it is now much harder to justify the inconsistent contributions between people of different employment statuses. If we all want to benefit equally from state support, we must all pay in equally in future.
65.When challenged about gaps in support the Chancellor has often cited the administrative difficulties in addressing issues given the speed with which he has to act. However, he has now extended the schemes and therefore has more time to tackle these complexities.
66.The Government must adapt its existing schemes or develop new support mechanisms to help these people if it is to completely fulfil its promise of doing whatever it takes to protect people and businesses from the impact of the pandemic. The Chancellor has indicated that he may, in future, reform the tax arrangements for self-employed people, in part justifying this on the basis of the Government’s fair treatment now of those self-employed people affected by the crisis. Any lack of fairness in these support schemes may undermine this.
28 Gov.uk, , accessed 29 May 2020
29 Gov.uk, , accessed 29 May 2020
31 Entitlement to Universal Credit is dependent on the level of household savings. For household savings above £6,000, every £250 incremental increase in savings reduces entitlement. Households have no entitlement to Universal Credit if savings exceed £16,000.
32 , Institute for Fiscal Studies, accessed 28 May 2020
33 Oral evidence taken on 8 April 2020, HC 271,
35 Equity (EIC0032)
36 The Advertising Producers Association (EIC0492)
37 The Creative Industries Federation (EIC0493)
38 UKHospitality (EIC0495)
39 Gov.uk, , accessed 2 June 2020
40 HMRC requires that employers share payroll data on or before employees are paid via RTI submissions.
41 Oral evidence taken on 21 April 2020, HC 271,
42 Oral evidence taken on 8 April 2020, HC 271,
43 Oral evidence taken on 8 April 2020, HC 271,
44 Oral evidence taken on 8 April 2020, HC 271,
45 HMRC, , 14 May 2020
46 Oral evidence taken on 21 April 2020, HC 271,
48 Bectu (EIC0494)
49 Oral evidence taken on 31 March 2020, HC 271,
50 Oral evidence taken on 8 April 2020, HC 271,
51 , Institute for Fiscal Studies, 2 April 2020
52 Oral evidence taken on 21 April 2020, HC 271,
54 Oral evidence taken on 8 April 2020, HC 271,
55 Oral evidence taken on 21 April 2020, HC 271,
57 Oral evidence taken before the Liaison Committee on 27 May 2020, HC 322, [Mel Stride]
59 Oral evidence taken on 21 April 2020, HC 271,
60 Freelancers who were not on a contract covering either 28 February 2020 or 19 March 2020 are not eligible for CJRS.
61 Bectu (EIC0494)
62 The Advertising Producers Association (EIC0492)
63 Bectu (EIC0014)
64 Office for National Statistics, , accessed 28 May 2020
65 The National Union of Journalists (EIC0496)
66 Oral evidence taken on 31 March 2020, HC 271,
67 Oral evidence taken on 21 April 2020, HC 271,
68 Office for National Statistics, , accessed 28 May 2020
69 , Institute for Fiscal Studies, 26 March 2020
70 Gov.uk, accessed 1 June 2020
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73 HC Deb, 12 May 2020, col 146 [Commons Chamber]
74 Gov.uk, , accessed 4 June 2020
Published: 15 June 2020