The program will initially be available for three months, but could be extended if necessary, Chancellor Rishi Sunak said late Thursday. The grants can replace up to 80% of a person's average income. The exact amount of the grant will be determined by the self-employed person's reported earnings over the three fiscal years starting in 2016 and ending in 2019.
The Conservative government's initial plan to protect workers' incomes had come under heavy criticism from the opposition Labour Party for failing to extend to self-employed workers idled by the coronavirus lockdown the same level of income support available to company employees.
"The government doesn't seem to have the same sense of urgency that's needed to provide the right level of support for many desperate self-employed workers," John McDonnell, the Labour shadow chancellor, said in a statement Tuesday.
"The self-employed deserve the same support and urgency as all other workers in our economy," McDonnell said.
To work out a person's average income, HM Revenue & Customs will add together the total profit in the normal course of business for the tax years since 2016 and divide by the number of years, the government said. Normal profits would exclude some exceptional capital gains, such as property sales, where they are not a core feature of the business.
HMRC will pay the grant directly into the taxpayer's bank account, in one installment, most likely in June, the government said. Taxpayers are being urged not to contact HMRC directly.
The grant will be included in the recipient's taxable income next time that person comes to be assessed, and has to be declared as income when calculating welfare benefits, the government said.
To qualify for assistance, the self-employed person must either have had operating profits in the fiscal year ended April 6, 2019, of less than £50,000, and those earnings must make up more than half of the person's taxable income, or the average profit made in the 2017, 2018 and 2019 fiscal years must be less than £50,000 and constitute more than half of the person's taxable income.
It is "reasonable, proportionate and fair" to exclude those with taxable profits above £50,000 a year, Sunak said.
Social security contributions for the self-employed may have to rise after the crisis, Sunak said, because it is harder to justify the group's special tax treatment now that the state has looked at them in the same way as those with direct employment contracts who pay a higher rate of social security taxes.
"If we all want to benefit equally from state support, we must all pay in equally in future," Sunak said.
The Institute for Fiscal Studies, a U.K.-based economic think tank, said in a statement that it expected "almost everyone" who gets more than half of their income from self-employment and earns below the threshold would take up the offer of assistance, because
"very few businesses will have been unaffected by coronavirus and because it would be extremely difficult for HMRC to know if people were misreporting a negative impact."
"The policy does not disincentivize people from continuing to work, either in their original trade or by taking a new job. This is a welcome feature," the IFS said.
--Editing by Vincent Sherry.
Update: This article has been updated with a statement from the Labour Party.
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