The Chancellor Rishi Sunak has finally announced the measures the UK Government is to take, to help self-employed business people cope with the financial impact of the Coronavirus. This comes a week after the financial assistance package for employed workers was announced, but clearly any scheme to help the self-employed was bound to be more complicated due to the variations in business profits from year to year.
Are you eligible ?
The scheme the Chancellor has announced is expected to cover about 95% of current self-employed business people, but there are a number of self-employed who will not be covered. These are:-
- Directors or owners of Limited companies. This scheme is only for sole traders, partnerships and LLPs
- Those who are newly self-employed and haven’t yet submitted a Tax Return *(1)
- Those who have not yet submitted their 2018/19 Tax Returns (but there is still time to do this within the next 30 days and this will give eligibility to the scheme – by 23 April 2020.)
- Those with a taxable trading profit of over £50,000 in 2018/19, or more than £50,000 on average for the past three years *(2)
- Those whose self-employment income forms less than 50% of their overall income
*(1) HMRC have clarified this position and suggest if you are self employed or a member of a partnership you can apply if:
- have traded in the tax year 2019/20,
- are trading when you apply, or would expect to be be if not for Coronavirus,
- intend to continue to trade in the tax year 2020/21,
- have lost trading profits due to Coronavirus.
*(2) Illustration. Bill is a self employed domestic plumber who has been trading for over 10 years. Bill has self employment income and his trading profits over the last three years have been as follows; £30,000 in 2016/17, £51,000 in 2017/18 and £42,000 in 2018/19. His average trading profits for the three years are £41,000. Bill has a small amount of interest and some dividend income of £100 and therefore as his income is more than 50% of his average taxable income.
What you will receive ?
For those that are eligible, the Government will pay a grant, in June but back-dated to March, of 80% of their average monthly profits for the past three years, or their profits in 2018/19. There will be a cap of £2,500 per month.
*(2) Illustration. Bill has average trading profits of £41,000 which is a monthly average of £3,416. He is eligible for a grant equal to the lower of £2,500 or 80% x £3,416. In this case £2,500 the cap is lower than £2,733 (80% x £3,416).
For Partners the income test will be based on their share of the Partnership profits.
This income will be taxable and therefore will need to be shown on individuals 5 April 2021 income tax returns. It will also form part of your income for tax credit purposes.
The scheme will be open for an initial three months, and will then be reviewed.
When will you receive the money ?
The government have suggested that the system will be open in June 2020 and then payments will be made in a single lump sum payment. There is no indication how long the payment will take to process.
How to apply
No doubt if you fall into the eligible category, you will want to know how to make a claim under this scheme, formally known as the Coronavirus Self-Employment Support Scheme. HMRC will invite applications using information they already hold on the Tax Return system to identify those eligible. Therefore, if you are eligible, you do not need to contact HMRC, as they will be in touch with you. Once the application has been made, HMRC will pay the due amount into your bank account; you will need to give HMRC your bank details when you complete the application form.
HMRC point out that you will access the scheme through the .GOV website and that people should avoid calls, texts, emails as scams.
For all our clients, we will have all your Tax Return data on our files, so if you are anxious to know if you would be eligible for a payment through this scheme, we can calculate the relevant income figures for you – please get in touch by calling your normal contact point at our firm.
If you are not eligible for a payment under this scheme, then you will need to consider the other “safety-nets” in place such as Universal Credit, interest-free bank loans, payment holidays etc and if you are a Director of a company taking income as a mix of dividends and salary you may need to consider the Coronavirus Job Retention Scheme for your PAYE amount, but more guidance is expected soon about whether a Director can be furloughed.
For further coronavirus business support, visit our Coronavirus Advice Guide.