Support for the Self-Employed.

Article | Stephen Bartlett-Rawlings | 10th July 2020

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Updated: 10 July 2020
COVID-19 Self-Employment Income Support Scheme

Following on from the Chancellor’s unveiling of the initial measure to support the self-employed, with the Self-Employed Income Support Scheme (“SEISS”), the Government has extended the scheme.

The first part of the scheme was for the period up to 13 July 2020 with the second and final part of the scheme covering the period from 14 July 2020 until 19 October 2020 .

What support is being provided?

The SEISS provides a self-employed individual whose business has been adversely affected by COVID-19 with a grant to help support them.  However, this support has been targeted at a narrow range – those with profits of up to £50,000 only.

1. First Grant – Applications are open until 13 July 2020

Qualifying individuals who were adversely affected in this period and made a claim could receive a taxable grant of 80% of their trading profits up to a maximum of £2,500 per month for three months. The maximum qualifying amount is £7,500 and this is paid in one lump sum following a claim being made.

2. Second Grant – Applications will open on 17 August 2020 until 19 October 2020

This covers the period 14 July 2020 to 19 October 2020 and is not as generous as the first grant. The taxable grant will be 70% of the qualifying individual’s average trading profits but capped at a total of £6,570.

These measures are in addition to other support announced including the deferral of the 31 July 2020 income tax payment to 31 January 2021. It is applicable to all taxpayers who have been affected directly or indirectly by COVID-19, to help ease the pressures on their finances.

Who qualifies?

Firstly, your business must have been adversely affected by COVID-19 at any point in either or both of the two periods.  This will be a question of fact and is not simply a financial or economic test.

HMRC have given examples of what this means in the following link. You should document and evidence how you have been adversely affected in case this is queried at a later date.

Unfortunately, although not unexpected, there are a few other 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 they 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.

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 make a successful claim will receive a taxable income grant that is also subject to Class 4 NIC. This will be:

1. First Grant: 80% of the average profits (over the previous three tax years) up to a maximum of £2,500 per month for 3 months. Up to £7,500 in total.

2. Second Grant: 70% of the average profits (over the previous three tax years) up to a maximum of £2,190 per month for 3 months. Up to £6,570 in total.

Each taxable grant will be paid directly into the individual’s bank account in one lump sum, typically within six working days of completing a claim.

Please note that it is possible to claim for only one or both grants, as this will depend on how and when your business has been affected by COVID-19. Supporting evidence of the lost trading profits and intention to continue to trade should be retained in anticipation of any subsequent enquiries by HMRC.

How do I apply?

HMRC have contacted those they think may be eligible for the first grant and invited them to apply online through GOV.UK from 13 May 2020. It is possible to check your eligibility (but have your UTR and NI Number to hand when doing so). Note claims for the first grant must be made by 13 July 2020.

The Government has confirmed the second grant is for those adversely affected on or after 14 July 2020. Claims for the second and final grant can be made from 17 August 2020 and must be made by 19 October 2020.

Please 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 their eligibility with HMRC.

Once confirmed they should ensure that they have a Government Gateway account set up that they can use and collate all relevant 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
  • Your business has been adversely affected due to COVID-19.
Need help?

Please contact us if you are unsure if you qualify for the relief, want to know how much this may be, or need help with the claim.

We will be happy to review your position and discuss your options so you have the 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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