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:
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 up to five taxable grants.
1. Grant one: April 2020 – June 2020
The first grant was worth 80% of average monthly profits over the last three-years, up to a maximum £2,500 per month for a three-month period
The deadline to apply for the first grant was 13 July 2020.
2. Grant two: August 2020 – October 2020
The Chancellor announced on 29 May that this scheme was to be extended and those who are self-employed and eligible, would be able to claim a second grant covering three months’ worth of profits in August 2020.
This grant was worth 70% of three months’ average trading profits, capped at £6,570 in total and was paid out in a single instalment.
Applications for the second grant closed on 19 October 2020.
3. Grant three: November 2020 – January 2021
The Chancellor announced on 24 September that the scheme would be extended for a further six months. Originally, it was stated that the amounts available would be lower, and claimants would only be eligible if they were actively trading at the time the grant is claimed, and intend to continue to trade. Claimants must also have been impacted by reduced demand due to the Coronavirus during the qualifying period.
The amount of the third grant was 80% of three months’ average trading profits, capped at £7,500.
Claims for the third grant had to be made by 29 January 2021.
4. Grant four: February 2021 – April 2021
Details of the fourth grant were announced on 3 March 2021.
The fourth grant will again be set at 80% of three months’ average trading profits, capped at £7,500. The fourth grant will take into account 2019 to 2020 tax returns and will be open to those who became self-employed in the year ended 5 April 2020, provided they had filed their 2019/20 tax return by 2 March 2021.
5. Grant five: May 2021 – September 2021
There will be a fifth and final grant covering the period from May to September 2021.
The amount of the fifth grant will be determined by how much your turnover has been reduced in the year April 2020 to April 2021, and will be worth:
- 80% of three months’ average trading profits, capped at £7,500, if turnover has been reduced by 30% or more
- 30% of three months’ average trading profits, capped at £2,850, if turnover has been reduced by less than 30%.
Further details about the fifth grant will be provided in due course.
Criteria for grant four:
The eligibility criteria for the grants is the same as for earlier grants and individuals do not need to have claimed the first,second or third grant in order to receive a later grant. However, the fourth grant will take into account profits for the tax year 2019/20.
Claims for these grants will need to be made on HMRC’s website, and applicants should ensure they have their Unique Taxpayer Reference (UTR), National Insurance number along with their Government Gateway user ID and password with them. Applicants will also be required to enter their bank account number and sort code on the claim.
The online service to apply for the fourth grants will be available from late April 2021 to 31 May 2021.
The grants will be subject to Income Tax and National Insurance contributions but do not need to be repaid.
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 2019/2020 of less than £50,000.
- Having average trading profits in 2016/17 to 2019/2020 of less than £50,000.
If you started trading between 2016-2020, HMRC will only use those years for which a tax return was filed.
Only those in self-employment with a filed tax return for 2020 will be eligible for the Scheme, and you must have filed your return by 2 March 2021.
You must also have traded in both 2019/2020 and 2020/2021. You must be trading when you apply or would be except for Coronavirus. You must have lost trading/partnership trading profits due to Coronavirus and must declare that you intend to continue to trade, but reasonably believe that there will be a significant reduction in your 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.
Once the claim has been submitted, you will be instantly notified if the grant has been approved. The grant will be paid within six working days directly into the recipient’s nominated bank account in one instalment. In the meantime, the self-employed can continue to earn and this will not affect their ability to receive these grants under the Scheme.
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 31 March 2021 to pay any liabilities that have accumulated during the deferral period. VAT refunds and reclaims will be paid by the Government as normal.
On 24 September, the Chancellor announced that businesses who deferred their VAT payments will be given the option to make payment in 11 interest-free instalments during the 2021-22 financial year. The deferral scheme is now open and will remain available until 21 June 2021.
Self-Assessment Income Tax deferments
The Government 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. However, the tax should have been paid by now unless you have agreed a Time to Pay arrangement.
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. This will continue to be available to all taxpayers, but for those with up to £30,000 of Self-Assessment liabilities due, a self-service Time To Pay facility will be available to enable payments to be made over an additional 12 months. For those taxpayers, the self-assessment liability due in July 2020 will not need to be paid in full until January 2022.
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.
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.
You can make a claim for Universal Credit while you wait for the grant under Self-Employed Income Support Scheme, but any grant received will be treated as part of your self-employment income and may affect the amount of Universal Credit you get. Any Universal Credit claims for earlier periods will not be affected.
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 insights and sign up here to receive important Practical Guidance updates delivered directly to your inbox.