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Support for UK freelancers: Close, but no cigar

Following the introduction of the job retention scheme (JRS) to provide support for employers and employees during the pandemic-induced downturn, the UK’s chancellor of the exchequer, Rishi Sunak, faced mounting pressure to introduce similar measures for the UK’s self-employed. Voila, on 26 March, the chancellor announced the self-employed income support scheme (SEISS), purportedly covering at least 95% of the UK’s 5 million self-employed workers.

While this is a massive handout from the government which will likely serve as a lifeline for thousands of freelancers in the coming weeks, the scheme’s limitations has raised concerns. The government will effectively be withholding substantive support from significant sections of the freelance population in the live music industry, many of whose livelihoods have effectively dried up overnight, including any freelancer who runs a loan-out company (ie a personal service company, whereby they are both the owner-director and sole employee) and takes their profits out by way of both dividend and salary.

The lack of government support could potentially have a significant negative impact on the UK’s creative industry, given the prevalence of this model in the sector.

The level of state support provided under both the JRS and SEISS is unprecedented. Those freelancers who meet the qualifying criteria for the SEISS will be able to claim a grant of 80% of their monthly profits based on a calculation of their average monthly earnings over their last three years’ of tax returns, up to a cap of £2,500 per month.

The scheme is initially set to run from 1 March for three months (although may well be extended depending on the length of the lockdown), with a lump payment scheduled to be made to qualifying freelancers in June. However, the qualifying conditions are quite stringent, including that the freelancer’s annual trading profits must be less than £50,000; the individual must have been self-employed prior to 6 April 2019; have suffered a trading loss as a result of Covid-19; and that over half their earnings must have been from self-employed work.

The government will effectively be withholding support from significant sections of the live industry whose livelihoods have dried up overnight

The policy rationale for some of these criteria seems logical. For example, the profits criterion will mean that many successful freelancers, such as senior camera operators, lighting directors and talent on TV and film productions, may not qualify. Arguably, this is a reasonable outcome for a scheme intended to provide a safety net for those freelancers who need it most. Indeed, the chancellor has suggested that the individuals excluded on this basis have an average income of £200,000.

On the other hand, a few of the remaining criteria appear to mean that there is no safety net available to certain classes of freelancers, which may also include those who need it most: First, those freelancers who move regularly between pay-as-you-earn (PAYE) and self-employed engagements have been omitted from the scheme and may not qualify for the JRS if they were not under an employment contract as of 28 February. Second, any new business, ie any freelancer who was not self-employed as of 6 April 2019 will not receive any benefits under SEISS.

Finally, those freelancers running loan-out companies which operate PAYE systems have also been excluded: The government has tried to offer reassurance by stating that these individuals could ‘furlough’ up to 80% of their PAYE income via the JRS (which provides up to £2,500 of ‘wages’ per month to employees).

While this may be genuinely helpful to some, it is unlikely to be a silver bullet in the majority of cases. Most freelancers with loan-outs pay themselves a low salary and take the majority of their income out as dividends. This is the most tax-efficient way of taking their money out of the company and is permitted under the UK’s tax system.

In the context of the UK government’s Covid-19 measures, however, this means that these individuals will not qualify for SEISS and will only receive government support under the JRS calculated by reference to their low salary, not their loan-out’s overall profits. This simply may not be enough for some.

Clearly, both the JRS and SEISS are schemes designed in days that would usually have taken months to develop and launch. Equally evident in the detailed provisions of the scheme is the government’s concern that the benefits available will be abused by some. Nonetheless, neither of these factors should result in schemes that unnecessarily penalise individuals acting within the existing tax rules, as the impact on British industries could be long-lasting.

The scheme unnecessarily penalises individuals acting within the existing tax rules

The short-term and time-bound nature of the live music industry means it is particularly dependent on freelancers. It is therefore important on an individual and sector level that those using loan-out companies are given the financial support they need over the next few months to survive. Some industry commentators believe there will not be a full return to normal in respect of live music events until early 2021, and so this sector may be more impacted than others. It is hoped that the government would continue to provide support for those who need it for so long as there is a business case for it.

When announcing the SEISS, the chancellor made it clear that it had been challenging to provide equivalent protection for employees and self-employed workers given the differences in tax contributions currently. He also indicated that the efforts to compensate both self-employed individuals and employees equally during the Covid-19 pandemic might lead to a renewed focus on tax standardisation in the UK – meaning there are likely to be changes made to the UK’s tax system following the current crisis to even out the tax treatment between the employed and self-employed.

This would certainly be a better time to take considered measures to align the effective tax rates of employees and freelancers; however, any measures that involve increasing the effective tax rate for the self-employed should be designed with care and with their potential impact across all industries, including the media sector, taken into account.

It seems that a post-Covid-19 world will see many changes in working practices and, potentially, how parties contract. For now, however, the enormous efforts made by the British government to provide support for both employed and self-employed individuals during an unparalleled time should be recognised.

At Wiggin we are doing our part to support both the policy initiatives and the industry, collating responses to the scheme from stakeholders across the creative sector and submitting a series of questions and suggestions directly to HMRC’s Covid-19 team. It is to be hoped that, with further consideration and clarification, both the SEISS and JRS can fully achieve their aims.

 


Ceri Stoner is a partner at media, technology and IP law firm Wiggin LLP.

‘We need help now’: Calls for support for freelancers

Industry bodies representing touring crew, production staff and other live events freelancers have called for immediate financial support for the sector, amid widespread loss of work and wages caused by the ongoing coronavirus crisis.

In the UK, recent research by Bectu (the Broadcasting, Entertainment, Cinematograph and Theatre Union), which represents more than 40,000 entertainment and media industry members, found nearly three quarters (71%) of freelancers working in the creative industries are afraid they won’t be able to pay their bills because of work lost due to coronavirus.

A survey of 5,600 people (which closed on Monday 16 March, before the British government advised against visiting entertainment venues while not enforcing their closure, in a move that attracted widespread criticism) additionally found that nearly 3,000 people (46%) had already lost money as a result of the virus, with 456 (15%) down more than £5,000.

“We have since had another update from the chancellor but still nothing for freelancers, the self-employed and those on zero-hours contracts,” comments Bectu head Philippa Childs. “These people have literally seen their income stream disappear in the space of a few days. They pay their taxes without fail, contribute to a thriving sector of the economy and don’t have the structure of an employer.”

In Germany, VPLT (the Association for Media and Event Technology) estimates that its members – mainly small and medium-sized enterprises (SMEs) – will have lost a collective €210 million in sales up to 30 June 2020, with that figure increasing to €480m through the end of the year.  Cancelled investments, meanwhile, total €32.6m through 31 December.

Belgium’s Febelux, which represents the conference and trade fair sector, says total loss to event suppliers in Belgium and Luxembourg due to Covid-19 will total €150m in the same period. For freelancers, “temporary unemployment can provide relief for some time, but not for long,” says Febelux chairman Emile De Cartier.

“What people don’t understand is that we need the money now”

When IQ spoke to VPLT’s commerce and international affairs spokesman, VPLT Randell Greenlee, yesterday (19 March) morning, he explained how German live industry freelancers, of which he estimates there are around a quarter of a million, were facing a financial “catastrophe” due to lost earnings.

“What people don’t understand is that we need help, we need the money now,” Greenlee said. “Not in a month, not in two months – we need it next week.”

“We’re a really sexy industry in some ways, but when it comes to asking for money it’s often a different story,” he added. “We’re very good at doing an awful lot with very people. People are compelled to work as much as they can to get the show on, and that can be difficult to explain [to governments].”

In Bavaria, he said, the state government is “already giving cash to small companies [and sole traders] to provide them with liquidity”, with other states thinking about introducing similar schemes. “That’s money that’s not going to come back but it will prevent people from being out on the street.”

Later the same day, German media reported the federal government is planning a €40 billion aid package for the self-employed, taking the form of €10bn worth of direct grants and €30bn in low-interest government-backed loans.

The programme would mark a change of approach for the German government, which would need to borrow to fund the initiative after years of running a budget surplus, reports the Spiegel. Further details of the fund are expected in the coming days.

In France, sole traders are eligible to receive a lump sum of €1,500

Government support is available in France, too, according to Synpase (the National Union of Providers of Audiovisual Services for the Stage and Events), with sole traders or businesses turning over less than €1m a year – or those who have suffered a drop in revenues of at least 70% due to Covid-19 – eligible to receive a lump sum of €1,500.

This indemnity will be financed by a ‘solidarity fund’ of €2bn a month, renewed monthly until the end of the crisis. Requests for funding should be made to the ministry of the economy (DGFiP), with minister Bruno Le Maire promising the system will be “simple and quick”.

In Belgium, the associations’ equivalent, the Belgian Event Supplier Association (BESA), has sent a letter to Nathalie Muylle, Belgian minister for employment, the economy and consumer affairs, and her counterparts in Wallonia, Willy Borsus, and Flanders, Hilde Crevits, asking for “concrete support” for its membership, which includes a substantial number of freelancers.

In partnership with sister associations ACC, Becas and Febelux, BESA has created a coronavirus ‘roadmap’ to update its members on the latest developments, including eight actions they say the Belgian government can take to mitigate the worst effects of the crisis.

These measures include the creation of an emergency fund, interest-free loans for businesses, an 80% discount on income tax, and an extension of the aid already provided to the catering sector (up to €4,000 for businesses which have had to close completely) to the live events industry.

While those in Britain wait for similar good news for freelancers, the trade association for the UK live event production industry, the Production Services Association (PSA), is stepping up: The organisation has created a continuously updated list of temporary work vacancies to support the sector’s “under-employed workforce”.

“Freelancers also have families to feed”

In an email to members and supporters, the PSA explains: “[We’ve] put together a simple page where we’re sharing any hints, tips, articles or links about temporary positions. It’s mainly about the food supply chain, from farm to shelf. Pick, lift, shift, stack, sell. Altogether, there are probably enough jobs for every freelancer in live events. If we got affected first, we should apply first.”

Emphasising that the current crisis “isn’t quite retirement; it’s a temporary removal of our purpose”, the association urges workers to “check yourself, take a moment, make sure you’re alright, then refocus on what you can do, what you can have an effect on. We’re protecting ourselves from a virus; we should also be protecting ourselves from a loss of purpose.”

Bectu, meanwhile, says it’s keeping up pressure on the British government to extend its support for business to freelance and casual workers. “The government can’t ignore them any longer,” says Childs. “Just like those who are employed and receive salaries, freelancers also have families to feed and must pay the bills to keep a roof over their heads.”

“The government must make sure any further protections put in place cover the entire economy’s workforce.”

 


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