COVID-19 Support for the Self Employed

30 March 2020

SELF-EMPLOYMENT INCOME SUPPORT SCHEME

Last week, the Chancellor announced a new support package for the self employed (i.e. sole traders, freelancers, etc) which offers parity with the deal offered to employees receiving 80% of their salary under the Coronavirus Job Retention Scheme.

The scheme for the self employed is a taxable grant based on 80% of the average of the past three years self employment profits, as per previously submitted tax returns (for clarity, 16/17, 17/18 and 18/19). If you have submitted less than three years returns, the calculation will be based on an average of two years, or just one year if applicable. If you set up your business very recently i.e. in the later stages of the 2018/19 tax year, and only earned income for part of the year, unfortunately HMRC will not pro-rate that figure – they will take the sum as your full year earnings. If you have not yet filed your 2018/19 tax return (which was due on 31st Jan 2020) then HMRC are allowing a 4 week period of grace for submissions so that this income can be taken into consideration.

The grant will pay up to a maximum of £2500 per month, and is classed as taxable income.

There is no formal application process – HMRC will contact those eligible in due course, although we are advised that funds may not be released until June.

You will be eligible if you’re a self-employed individual or a member of a partnership and you:

have submitted your Income Tax Self Assessment tax return for the tax year 2018-19
traded in the tax year 2019-20
are trading when you apply, or would be except for COVID-19
intend to continue to trade in the tax year 2020-21
have lost trading/partnership trading profits due to COVID-19

PLUS

your self-employed trading profits are less than £50,000, and
more than half of your income comes from self-employment.

In terms of timescales, we expect that a lump sum equivalent to three months support under this scheme will be paid in one payment in June 2020.

FREQUENTLY ASKED QUESTIONS IN REGARD TO SELF-EMPLOYMENT INCOME SUPPORT SCHEME

I am a Company Director – which support can I claim?

– If you are the sole Director of a Limited Company, you are a classed as an employee, not self employed; you are therefore not eligible for the Self-employment Income Support Scheme but in most cases are eligible for the Coronavirus Job Retention Scheme, which will refund 80% of salary of those employees who were listed on the Employers Feb 2020 RTI submission. See our blog post in relation to this scheme here.

I am the only Director of my Limited Company so I don’t operate a payroll system – how does this affect me?

– There is currently a flaw in the system in that companies must have a PAYE scheme in place (as at 28/2/20) to benefit from the Coronavirus Job Retention Scheme because the rebate mechanism will essentially be a reverse-PAYE transaction – however, as sole Director companies have no obligation to operate a PAYE scheme, many will not be registered as employers, and therefore, per the current guidance, cannot apply for the 80% salary rebate scheme. We are awaiting further guidance in this regard.

Can I also claim 80% of the dividends I have taken over the past 3 years?

– The 80% salary rebate scheme applies to salary only, not dividends. Historically, to be as tax efficient as possible, most Directors will have posted the basic salary of £8632, which means under the Coronavirus Job Retention Scheme you can expect to receive 80% thereof i.e. circa £600 per month.

I set my business up in Summer 2019, so it falls in the 2019/20 tax year – am I eligible?

Unfortunately not; the cut off date is the 2018/19 tax return, although if you haven’t yet submitted that return and should have done so, the Government are offering a 4 week window to file so that earnings from that year form part of the calculation. The reason for the cut off date is to prevent fraud, otherwise there is nothing to stop any individual claiming to have set up a sole trader or freelancer business to access the Self-Employed Income Support Scheme.

Can I still work if I am claiming this grant?

Yes, you can still claim this grant if you are working on self employed projects. This is a key point of difference with the Coronavirus Job Retention Scheme, where if an employee is furloughed, they cannot work at all during the period in question.