On 26 March the Chancellor announced his plan to help self-employed individuals who are at risk of losing their livelihoods due to the Coronavirus.
There is already a job retention scheme in place for the UK’s 28 million employees, as well as a number of schemes to support businesses. The government has been pressured to introduce similar measures to protect the 5 million self-employed in the UK.
The new self-employed income support scheme is targeted at those on lower incomes who have faced a large fall in demand for their services due to government ordered closures and social distancing. It is expected that it will help about 95% of self-employed individuals in the UK.
Whilst further information and details of the scheme are yet to be shared by HMRC, we have set out a summary of the initial guidance and answered some key questions below.
Who qualifies for the scheme?
You will be eligible for the scheme if:-
- you are a self-employed individual or member of a partnership in the UK;
- you traded in the tax year 2019-20
- you are trading when you apply (or would be except for Covid-19) and you intend to keep trading in the tax year 2020-21
- you have lost trading/partnership trading profits due to Covid-19
- you had trading profits of less than £50,000 in 2018-19 or average trading profits of less than £50,000 from 2016-17, 2017-18 and 2018-19;
- more than half of your income comes from self-employment; and
- you have filed a self-assessment tax return for 2018-19 (more info on this below).
What am I entitled to?
You will be entitled to a taxable grant worth 80 per cent of your net monthly trading profits, averaged over the last three years. The grant will be capped at £2,500 per month.
What if I have been self-employed for less than 3 years?
You will still be eligible for the grant if you have been self-employed for less than 3 years. HMRC will simply look at the accounts that you do have available and work out your net monthly trading profits from that. It is acknowledged that accounts can be volatile from year to year, which is why it was considered fair to average trading profits over 3 years, where available.
How long will the scheme be in place for?
The scheme will be open for at least 3 months, and will be extended if necessary.
Can I continue to work?
Yes, you can claim the grant and continue to do business alongside that.
What do I need to do to apply?
You do not need to do anything to apply. HMRC will contact you directly if you are eligible and will send you a form inviting you to apply.
What if I have not filed my self-assessment tax return for 2018-19?
The deadline for filing self-assessment tax returns for the period 2018-19 was 31 January 2020. Anyone who missed this deadline will be given 4 weeks to complete their tax return and you should do this as soon as possible.
When will the grant be made available and how will I be paid?
It will take some time for HMRC to put formal arrangements in place. The Government hopes that the grant will be available no later than the beginning of June, with payments being backdated to March. Grants will be paid directly into your bank account in a single lump sum.
What if I am struggling with cash flow at the moment?
The Chancellor announced that the rules for Universal Credit have been amended so that self-employed individuals can access Universal Credit in full. Applicants normally need to wait around 5 weeks for their first payment, but the Chancellor advised that self-employed individuals will be able to apply for an advance payment. If you are eligible, you should apply as soon as possible to avoid a delay in payment.
Self-employed individuals may also be able to access the Coronavirus Business Interruption Loan Scheme (CBILS) and will be able to make deferred income tax payments. There is more information about these measures available on our Covid-19 Information Hub.
I pay myself a salary and dividends through my own company, can I apply?
No, you will not be eligible for the self-employed income support scheme. However, you will be covered by the job retention scheme if you operate a PAYE scheme.
Was there a sting in the tail?
Sort of! The Chancellor indicated that once the current crisis has passed, that he will look to equalise the tax system between the employed and the self employed. Which probably means that there is at least a rise in NI for the self-employed to look forward to once this crisis is over.
This note is based on information as at 26 March 2020 and will be updated as and when further information is provided.
Insight from Pamela Muir, Corporate,Insolvency, Restructuring Partner and Chris Allan Corporate Partner at Thorntons. For more information contact Pamela or Chris on 03330 430350, alternatively email email@example.com or firstname.lastname@example.org