Some of the workers most affected by the Coronavirus are the self-employed. Many have seen their workloads disappear overnight and face an uncertain future regarding their income.
It’s logistically difficult to apply the Coronavirus Job Retention Scheme to the self-employed given the nature of their work, the relative lack of regular reporting around their income and the structure around a method to pay them.
As a result, the Chancellor has announced the Self-Employed Income Support Scheme, as well as a number of other measures that will apply to the self-employed. We explore each of these below:
1. Self-Employed Income Support Scheme
The Chancellor has announced that, like the Coronavirus Job Retention Scheme, Her Majesty’s Revenue & Customs (HMRC) will pay self-employed people a taxable grant worth 80% of average monthly profits over the last three-years, up to a maximum £2,500 per month for an initial three-months. This scheme will be extended if required.
To qualify, your self-employed trading profits must be less than £50,000 and more than half of your income must come from self-employment. This is determined by at least one of the two conditions below being satisfied:
• Having trading profits/partnership profits in 2018/2019 of less than £50,000.
• Having average trading profits in 2016/17 to 2018/2019 of less than £50,000.
If you started trading between 2016-2019, HMRC will only use those years for which a tax return was filed.
Only those in self-employment with a filed tax return for 2019 will be eligible for the Scheme. The Chancellor confirmed that HMRC have set a deadline of 23 April 2020 to file the tax return, if you previously failed to do so by 31 January 2020, in order to qualify for the Scheme.
You must also be trading in 2019/2020 and be trading when you apply, or would be except for Coronavirus. You must have lost trading/partnership trading profits due to Coronavirus.
In addition, for those who are self-employed and have other income, they can only claim if the majority of their income is from self-employment.
The Scheme will be in place by June and HMRC will contact the self-employed directly with details of the payment to be made and will pay directly into the recipient’s bank account with one instalment. In the meantime, the self-employed can continue to earn and this will not affect their ability to receive the grant under the Scheme. In June, they will receive three-months’ worth of payments.
The Chancellor stated on announcing the Scheme that the tax regime for the self-employed will be brought into line with the employed in future budgets, strongly hinting that National Insurance Contributions for the self-employed will be increased.
This does not apply to contractors, personal service companies or business owners who take their remuneration through dividends. For owner-managed companies, this is a significant gap.
Many self-employed people will be VAT-registered and the Government is allowing all UK VAT-registered businesses to defer VAT payments due between 20 March 2020 and 30 June 2020 to the end-of-the-year.
This is an automatic offer with no applications required. Businesses will not need to make a VAT payment during this period.
Taxpayers will be given until the end of the 2020 to 2021 tax year to pay any liabilities that have accumulated during the deferral period. VAT refunds and reclaims will be paid by the Government as normal.
3. Self-Assessment Income Tax
The Government has also deferred the Income Tax Self-Assessment payments for the self-employed due on 31 July 2020 to 31 January 2021.
This is an automatic offer with no applications required. No penalties or interest for late payment will be charged in the deferral period.
Her Majesty’s Revenue & Customs (HMRC) have also scaled up their Time to Pay offering to all firms and individuals who are in temporary financial distress as a result of Coronavirus and have outstanding tax liabilities.
4. Other business measures
The self-employed can avail themselves of a number of measures aimed at businesses, such as the grants for retail, leisure and hospitality business and rates relief, where relevant. This automatically applies with no restriction around the application of the deferral. Our main article on this can be found here.
5. Universal Credit
The Government has scrapped the minimum income floor – a measure which often makes those on low incomes ineligible for help under Universal Credit – and increased the standard allowance by £1,000 per year. This has removed the notional minimum monthly earnings which applied to self-employed people rather than their actual monthly earnings when calculating if they were able to receive Universal Credit. This means that all self-employed people who have no earnings in a month are eligible to receive the standard allowance.
There are further rules around the receipt of Universal Credit, including stipulations about other sources of income or living with those who are higher earners. These can be found here.
Would you like to know more?
If you would like to discuss any of the above guidance or have other queries about how you can make the right decisions for the future of your business and your income, please contact your usual Blick Rothenberg contact or one of the partners to the right.
You can also visit our Coronavirus – Practical Guidance for businesses today Hub for our latest updates and insights.