Support for the Self-Employed.

Article | Stephen Bartlett-Rawlings | 2nd June 2020

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Updated: 2 June 2020
COVID-19 Self-Employment Income Support Scheme

Following the Chancellor’s unveiling of the measures to support the self-employed with up to 80% of their average trading profits (up to a maximum of £2,500 per month), the Government has confirmed that HMRC will have contacted individuals who may have been eligible.

What support is being provided?

The Government launched the Self-employment Income Support Scheme, which has been extended with the introduction of a second and final grant in August. This is to support those whose businesses have been adversely impacted by COVID-19.

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.

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

This was to cover the period 1 March 2020 to 31 May 2020 by providing qualifying individuals who make a claim with a taxable grant of up to 80% of their trading profits up to £2,500 per month. The maximum qualifying amount is £7,500, which is paid in one lump sum.

2. Second Grant – Applications will open in August 2020

This covers the period 1 June 2020 to 31 August 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 for the 3 month period (£2,190 per month). Further Government guidance on this will be published on Friday 12 June.

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 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. 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 will publish more details on the second grant on Friday, 12 June.

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
  • Have lost trading profits 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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