why the lifeline of SEISS may bankrupt us next year...

At the start of the pandemic, roughly 5 million of us were self-employed.

At the start of the pandemic, government made financial support available to business owners (in the form of grants linked to business rates) and employees (in the form of the furlough scheme).

Only after what seemed an eternity of panic and doubt, did government make an equivalent scheme for us in the form of the SEISS (except about half of us aren't actually eligible to apply for it!).

At the time, may argued that this was further evidence that despite their rhetoric about entrepreneurship, the current administration don't actually understand or care about us unless we're employing lots of people (despite the fact that we pay more tax than our employed counterparts, and other types of business owners). And this led to lobbies, campaigns, and the formation of #ExcludedUK to try and challenge this discrimination.

For those of us who are eligible, the SEISS grant was a lifeline (because even if we can land paying work, we all know it can sometimes take months to get paid which means weeks of little, if any, income to keep the lights on with).

But for those of us who began breathing sighs of relief, having gone through the small print and talked with others who haven't, we may actually be worse off next year for having received it, than if we'd not been eligible for it in the first place...

Unlike the business rate grants and employee furlough schemes, the SEISS grant carries a clause that says we may have to pay it back if HMRC deem that we managed to end this current financial year in a better place than we feared we would (perhaps because in the last few weeks of it, we suddenly land a large contract or finally get paid those back-invoices we never thought would be honoured). But we don't know exactly what the threshold for that looks like, or might be, beyond terms and phrases that are as equally vague as "substantial meal" is for pub landlords.

We'll only know if this is the case after we've done our tax returns, and as the SEISS grants are taxable, we'll have already paid about 20% of them back as tax. 

So if HMRC deem that we shouldn't have received the grant after all, the SEISS amount will magically transform from a grant into a very short-term loan that carries at least 20% interest - 20% being the amount we've already paid in tax on it, and then there's additional interest on the full amount again unless we repay it straight away. It's cheaper to take a bounce-back loan, or arrange  (and you have more time to repay it).

But there's more...

Lets say that you also pay child maintenance through the Child Maintenance Agency. They calculate what you should pay annually, based on your last tax return. Which means that for next year, the SEISS grant(s) you received will be counted as part of your income/earnings (because it's taxable income), pushing you into paying a higher amount of child maintenance. But if you've had to pay the grant (plus at least 20% interest) back, then they've fixed your amount too high. You're already facing the threat of legal action from HMRC to repay money that you no longer have, and now are also being forced to pay levels of child maintenance that haven't been worked out properly that will stretch you even further than you are now.

The pandemic and lack of government support for the self-employed has already seen nearly half a million of us giving up our enterprises, with many more seriously considering doing the same by the end of this year.

My concern is that the SEISS grant that initially seemed like a lifeline to some, actually shows that the government who've designed them have a contempt for people who are self-employed based on larger business owners and salaried workers not facing any such fears, because of the grant support they've received has no such risks attached.

All we've ever asked for as the self-employed is parity with our employed counterparts (who already enjoy far greater privileges than us in terms of lower taxes, pension contributions, better pay, and such like). Initially this parity was about making sure we can all have access to some form of support, but maybe we should also be asking for this support to be equally non-discriminatory in the risks it forces us to take when/if accepting it?

UPDATE AS AT 10 MAY 2021

and so the panic of having to repay these grants begins (but still with very unclear guidance...): https://www.gov.uk/government/publications/penalties-for-not-telling-hmrc-about-self-employment-income-support-scheme-grant-overpayments-ccfs47

sources and references

https://www.statista.com/statistics/318234/united-kingdom-self-employed/ 

https://thirdsectorexpert.blogspot.com/2018/02/who-in-their-right-mind-would-be-self.html

https://www.accountancyage.com/2020/08/07/self-employment-income-support-is-it-payback-time/

https://www.excludeduk.org/excluded-uk-an-inclusive-alliance-for-the-excluded 

https://www.lse.ac.uk/News/Latest-news-from-LSE/2020/K-November/Hours-and-incomes-of-self-employed-workers-stayed-low-over-summer 

https://www.altfi.com/article/5997_uk-smes-now-wait-an-average-of-23-days-for-late-payments

https://www.bbc.co.uk/news/uk-55129828 

Why the government's latest scheme to encourage start-ups will lead to generation of failed entrepreneurs...

The current government seems to have a somewhat lopsided approach to encouraging entrepreneurship – while making speeches about how much they admire and how much they want to support people to set up their own businesses, legislation and policies are passed that make it harder for small businesses to be able to afford to employ people, for local authorities to be able to offer rate relief, and tax regimes that favour large international corporations over local enterprises...

 

But its their latest initiative that perhaps gives me cause to be most concerned – not because it affects 'us' (people currently setting up new enterprises), but our children: the next generation of entrepreneurs...

As a parent, I'm constantly trying to make sure my boys are best equipped to get on in the world, and develop resilience to be able to deal with the inevitable adversity and set-backs that we all face. Part of this is about appreciating the true value of money, and the need to earn it. But the governments' latest scheme is to offer primary school children 'loans' of £5 to set up their own businesses as a means to help them learn about being an entrepreneur – all well and admirable on the face of it, as it will offer some children an opportunity they might not otherwise have enjoyed, but there are 2 key issues with this that make me upset:

1)      in the 1980's, there was a short-lived scheme that gave unemployed people small grants to set up their own businesses as a means to move out of unemployment: 30 years on, and this government policy has so impacted the collective consciousness that most people I meet who are thinking of setting up their own enterprise expect that they're automatically entitled to such a hand-out without having to do anything to merit it – if this is the legacy of a scheme targeting unemployed adults, then this £5 'loan' will surely engender at least the next generation of entrepreneurs to expect that there'll always be government cash to help them out and so become less resilient...

2)      what about all the work of encouraging entrepreneurship amongst school children of all ages that already takes place through national bodies such as Young Enterprise and Live Unltd? Their approaches seem to work very well without the need to be offering 'financial incentives' to participants, and are based on developing long-term supportive relationships – much more beneficial to any enterprise than a quick cash hand-out...

 

If government really is serious about encouraging entrepreneurship amongst children, then it needs to make some more informed choices about how it does this: investing in existing, proven national programmes rather than wasting money on new schemes and managing them would be a good start; teaching financial literacy from an earlier age would be good too – I can't tell you how much I despair when start-ups I'm walking alongside deliberately avoid wanting to understand how the money in their enterprise is working and as a result, many I haven't been able to 'win over' have subsequently gone bankrupt, racking up greater personal debt and making people unemployed, and yet could easily have been prevented but for their being more comfortable with some basic financial literacy...

So – the government’s latest great idea to stimulate and encourage business growth and entrepreneurship seems to not only be doomed to fail (like so many before it), but will so do in such a way that it'll drag down the next generation and limit the future potential of our children.