Support for the Self-Employed?.

Article | Stephen Bartlett-Rawlings | 25th March 2020

If you have any questions or concerns please do not hesitate to speak to your PEM contacts directly

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COVID-19 Self-Employment Income Support Scheme

Following the Government’ announcement to support Employers with up to 80% of their employees’ wages (up to a maximum of £2,500), the Chancellor has finally announced the measures to support those who are self-employed.

What support is being provided?

The Government have launched the Self-employment Income Support Scheme, which will provide qualifying individuals who make a claim with a taxable grant of up to 80% of their trading profits up to a maximum of £2,500 per month. This is anticipated to be for 3 months but may be extended if needed.

However, this support has been targeted at a specific range of people – those with profits of up to £50,000 only – with the Chancellor indicating that it will reach 95% of the self-employed.

The support will also not be paid until June 2020 at the earliest (but back dated from 1 March 2020) and therefore it is not the instant remedy that some were hoping for. This delay is necessary due to HMRC needing time to set up and administer the scheme.

These measures are in addition to other support announced including the deferral of:

  • the 31 July 2020 income tax payment to 31 January 2021, now extended for all taxpayers, to help ease the pressures on their finances; and
  • VAT payments from 20 March 2020 until 30 June 2020 (but please cancel direct debits!)
Who qualifies?

Unfortunately, although not unexpected, there are a few conditions that need to be met to qualify for the support. These are split into two sets of tests for ease, and we have referred to these as the profit threshold test and the Trading tests.

The profit threshold test

You must have trading profits/partnership trading profits of less than £50,000 with more than half of your income coming from self-employment.

This is tested in one of two ways: either:

  • An individual has trading profits/partnership trading profits of less than £50,000 in 2018/19; and
  • These profits constitute more than half of your taxable income.

Or

  • Having average trading profits in the previous three tax years (2016/17, 2017/18 and 2018/19) of less than £50,000; and
  • These profits make up over half of your average taxable income in the same period.

Please note that the average test will be restricted to those years in which you started trading, if after the 2016/17 tax year, where a tax return has been completed.

The trading tests

This will be met where an individual who is either self-employed or in a partnership has:

  • Submitted a 2018/19 personal tax return;
  • Traded in the 2019/20 tax year;
  • Are trading when you apply (or would be except for COVID-19);
  • Intend to continue to trade in the 2020/21 tax year; and
  • Have lost trading profits due to COVID-19.

It is important that if you meet all the above tests other than having submitted a 2018/19 tax return that you do this as soon as possible. A 2018/19 tax return must be submitted by 23 April 2020 in order to qualify for the scheme.

The reliance on using data from submitted tax returns is so HMRC can risk assess any claims and take appropriate action if any fraudulent or inaccurate returns are made.

I qualify but what does it mean for me?

Qualifying individuals who have made a successful claim will receive a taxable income grant. This will be 80% of the average profits (over the previous three tax years) up to a maximum of £2,500 per month for 3 months.

This will be paid directly into the individual’s bank account in one lump sum (backdated from 1 March 2020), which is expected to be in June 2020 at the earliest.

How do I apply?

It is not possible to apply for the scheme yet. HMRC have indicated that they will contact you if you are eligible for the scheme and invite you to apply online through GOV.UK.

Please therefore be vigilant to scam email, texts or calls claiming to be from HMRC and take all necessary precautions before providing any personal or financial details.

What is the catch?

Whilst this is not set as tax policy, many self-employed individuals will have been alarmed at the Chancellor’s comments that it is “much harder to justify the inconsistent contributions between people of different employment statuses”. This suggests that the rate of National Insurance Contributions will increase for the self-employed so that it is aligned more closely with the higher rates that employees incur.

Rather ominously in this regard the Chancellor’s next line was “If we all want to benefit equally from state support, we must all pay in equally in future.”

Next steps?

We recommend individuals who think that they may qualify check that their 2018/19 tax return has been submitted to HMRC. If not, they should seek to do this as soon as possible, but by 23 April 2020 at the latest.

It will also be wise to begin collating documents in anticipation of making the claim. This will be focused on evidencing that you meet the Trading Tests, specifically that you:

  • Traded in the 2019/20 tax year;
  • Are trading when you apply (or would be except for COVID-19);
  • Intend to continue to trade in the 2020/21 tax year; and
  • Have lost trading profits due to COVID-19.

Please contact us if you are unsure of whether you will qualify for the relief or how much this may be. We will be happy to review your position, discuss your options so you have certainty and clarity to help you plan ahead.

About the author

Stephen Bartlett-Rawlings

Stephen has great experience advising individuals on their income tax, capital gains tax and inheritance tax position. He helps to Read more …

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