HUGE FLAW IN SELF-EMPLOYMENT GRANT SCHEME

bobbooo

There's a huge flaw in the SEISS calculation that no-one is talking about. HMRC will be using the mean average of the last 3 (or 2) years’ profits for the self-employment grants, regardless of whether any of those years were partial and so not full-year profits. 

This means for example that someone who started being self-employed on the last day of the 16/17 tax year would only receive approximately 50% of their true yearly profits (80% of what is effectively two years’ profits averaged over three years, so 80% of 66% ~ 50%), whereas someone else who started their business a day later, on the first day of the 17/18 tax year, with exactly the same yearly profits, would receive the 80% that everyone should be getting.

This is absolutely absurd, unfairly and arbitrarily punishing those who started their business partway through the tax year for no logical reason whatsoever, except to limit the government’s pay-out. It's scandalous. I really don’t understand why this hasn’t had any media attention. 

This problem could easily be solved by instead of using the mean average of the last three yearly profits for the grant calculation, to use the median of these profits (i.e. the middle value when ordered in size), and if there are only two years of tax returns available, to use the higher of the two profits.

Please MSE and Martin Lewis can you call the government out on this and campaign for change just as you commendably did with the furlough/rehire issue. We need your help!

unholyangel

I'm not sure that you understand what penalising someone means. Being given free money that you are only entitled to because they brought in this scheme, even if it's less than you think you should get, is not punishing you. What you need to do, is compare it to what you would have received if the government hadn't put this scheme in place (which probably would have been about £300 a month). 

You might feel hard done by, but you're not. There are people who aren't entitled to any help at all - not the job retention scheme, not self employed income support and not even universal credit. 

Also, someone who traded for only a day is unlikely to have any profits due to the allowances

Jeremy535897

This was known about and raised in March. It is nothing new. The scheme is designed to be as automated as possible or it would  be overwhelmed. The easiest way to achieve this was to design it so it just has to look at two figures on each of three returns. Altering it to take account of months of trading would make automation impossible.

Biscuit49

A lot of people feel hard done to, I do feel for people that are struggling however legislation like that introduced to help people financially was done at break neck speed, normally these sort of plans would take months if not years in planning, debate and introduction.

There was always going to be people who fell one side of the line or the other, people who feel hard done by. Lots of people are (in my opinion) wrongly feeling hard done by having to work while colleagues get paid 80% to stay at home, some of those people also on reduced salary.

There will be people putting under more hardship by what is likely to be a reduction in the furlough payments in the coming weeks or months, but there has to be a line drawn somewhere.

I received little financial support when i was made redundant, only being able to claim JSA, I could if i wanted argue why should i and my family survive on JSA for what was 6 months while others now get 80% for 3 months, if im sick i could claim ESA also nowhere near what those on 80% are receiving ? I am not complaining though,no i think the finance support offered is incredible and will no doubt have saved thousands if not millions of jobs. Yes I am sorry for those that fall between the gaps and the hardship they are under but i just dont see how you were going to get something in place in such a small amount of time that ticked every single box for everyone.

bobbooo

Jeremy535897 said:

This was known about and raised in March. It is nothing new. The scheme is designed to be as automated as possible or it would  be overwhelmed. The easiest way to achieve this was to design it so it just has to look at two figures on each of three returns. Altering it to take account of months of trading would make automation impossible.

Using the median instead of mean average yearly profit would not have to take into account the number of months of trading per year. It uses exactly the same figures as the mean, but is in fact a simpler 'calculation' - you just order the yearly profits in ascending size and take the middle value. There is absolutely no logical reason whatsoever to use the mean average here, when the median is fairer, and actually simpler to calculate.

This is a flaw in the scheme that will unfairly impact many people, yet can be easily fixed with this simple change in the calculation.

Jeremy535897

Any calculation that can be automated is equally "simple". Using the median could give rise to massive differences in grant paid to people with the same overall taxable profits over the three year period. Whatever method you pick, there will be winners and losers.

bobbooo

Jeremy535897 said:

Any calculation that can be automated is equally "simple". Using the median could give rise to massive differences in grant paid to people with the same overall taxable profits over the three year period. Whatever method you pick, there will be winners and losers.

Exactly, it's at least an equally simple calculation, so is no harder to implement. It's not about winners and losers, it's about fairness, and the median is a patently fairer value in calculations like these, as it is not skewed by extreme outlying values as the mean is (like very low partial first year profits).

The government's choice to use the mean is at best an oversight, and at worst an intentional choice in order to reduce their payout. Either way it's wrong and unfair, and they need to be called out on it and pressured to change to the use the median. Unlike their decision to limit claimants to those who have at least filed 18/19 tax returns in order to prevent fraud, this choice has no valid logical reason behind it whatsoever.

Jeremy535897

I can see why you believe the method should be altered. I can be dispassionate as I do not qualify for the grant, and my experience tells me that any method picked is going to create winners and losers. Why pick three years at all? Why include capital allowances, which penalises those who invest in their business? Why have a cap of £50,000, when there is no equivalent cap on CJRS? Why apply a 50% test at all? Why allow people who were late filing to disclaim capital allowances for 2018/19 and increase their profits, when those who filed on time were not allowed to do so? What I am quite sure about is that, now the process of claiming has begun, there is very little chance of it changing.

bobbooo

Jeremy535897 said:

I can see why you believe the method should be altered. I can be dispassionate as I do not qualify for the grant, and my experience tells me that any method picked is going to create winners and losers. Why pick three years at all? Why include capital allowances, which penalises those who invest in their business? Why have a cap of £50,000, when there is no equivalent cap on CJRS? Why apply a 50% test at all? Why allow people who were late filing to disclaim capital allowances for 2018/19 and increase their profits, when those who filed on time were not allowed to do so? What I am quite sure about is that, now the process of claiming has begun, there is very little chance of it changing.

There's little chance of it changing if people just accept it and it gets no media attention. (The first claims aren't due for submission until tomorrow by the way.) But we've seen previously that pressure from high profile people like Martin Lewis can affect policy. The government's promise to offer 80% of monthly earnings will simply not be the case for a lot of people, and could be closer to just 50%. This will not be enough for many self-employed people to stay in business.

As for the other injustices in the scheme, that's no reason to ignore or accept this one - they should all be challenged if the government does not provide a fair, logical reason for their choices (for which there is none in the case of choosing the mean over the median yearly profit) and there is an easy fix (which there is in this case).

Jeremy535897

The process of claiming effectively started when the online tool was available. As I said, I don't think that any change now is likely. No doubt you lobbied your MP months ago about this? What did they say?

jayzor

bobbooo said:

Jeremy535897 said:

I can see why you believe the method should be altered. I can be dispassionate as I do not qualify for the grant, and my experience tells me that any method picked is going to create winners and losers. Why pick three years at all? Why include capital allowances, which penalises those who invest in their business? Why have a cap of £50,000, when there is no equivalent cap on CJRS? Why apply a 50% test at all? Why allow people who were late filing to disclaim capital allowances for 2018/19 and increase their profits, when those who filed on time were not allowed to do so? What I am quite sure about is that, now the process of claiming has begun, there is very little chance of it changing.

There's little chance of it changing if people just accept it and it gets no media attention. (The first claims aren't due for submission until tomorrow by the way.) But we've seen previously that pressure from high profile people like Martin Lewis can affect policy. The government's promise to offer 80% of monthly earnings will simply not be the case for a lot of people, and could be closer to just 50%. This will not be enough for many self-employed people to stay in business.

As for the other injustices in the scheme, that's no reason to ignore or accept this one - they should all be challenged if the government does not provide a fair, logical reason for their choices (for which there is none in the case of choosing the mean over the median yearly profit) and there is an easy fix (which there is in this case).

If you feel so passionately, why don’t you go and stand outside parliament with a placard and start shouting for justice. Will look forward to you reporting back and letting us know if you got anywhere.