Further in our series of update notes regarding the Coronavirus and government interventions to assist Employees and the Self Employed we have today heard from the Chancellor regarding measures put in place for the self-employed just short of a week after he announced the Job Retention Scheme (the Scheme). The following commentary is taken partly from the announcement published on official government website. We have also included some of our own commentary which we hope you find useful.
Yesterday the Chancellor announced:-
A direct cash grant of 80% of a self-employed persons profits, up to £2,500 per month.
The Chancellor introduced the new Self-Employed Income Support Scheme, with those eligible receiving a cash grant worth 80% of their average monthly trading profit over the last three years.
This purportedly covers 95% of people who receive the majority of their income from self- employment and brings parity with the Coronavirus Job Retention Scheme and concept of Furlough for employees.
Effectively, self-employed individuals such as cleaners, plumbers, Joiners electricians, musicians, hairdressers, dog walkers etc who are eligible for the new scheme will be able to apply directly to HMRC for the taxable grant, using a simple online form, with the cash being paid directly into people’s bank account.
The scheme will be open to those with a trading profit of less than £50,000 in 2018-19 or an average trading profit of less than £50,000 from 2016-17, 2017-18 and 2018-19.
To qualify, more than half of their income in these periods must come from self-employment.
To minimise fraud, only those who are already in self-employment and meet the above conditions will be eligible to apply. HMRC will identify eligible taxpayers and contact them directly with guidance on how to apply.
The self-employment scheme will cover the three months to May 2020 (so effective from March 2020).
Grants will be paid in a single lump sum instalment covering all 3 months and will start to be paid at the beginning of June.
HMRC will use existing information to check potential eligibility. HMRC will contact individuals directly if they are eligible for the scheme and invite individuals to apply online once the scheme is operational.
Individuals do not need to contact HMRC now and doing so will only delay the urgent work being undertaken to introduce the scheme.
Those who pay themselves a salary and dividends through their own company are not covered by the scheme but will be covered for their salary by the Coronavirus Job Retention Scheme if they are operating PAYE schemes.
The guidance notes from the official statement add:-
- further information and details of the scheme will be shared shortly by HMRC;
- HMRC will use the average trading profits from tax returns in 2016-17, 2017-18 and 2018-19 to determine the size of the grant;
- this scheme also applies to members of partnerships;
- before grant payments are made, the self-employed will still be able to access other available government support for those affected by coronavirus including more generous universal credit and business continuity loans where they have a business bank account.
This scheme will allow you to claim a taxable grant worth 80% of your trading profits up to a maximum of £2,500 per month for the next 3 months. This may be extended if needed.
An individual can apply if they are a self-employed individual or a member of a partnership and they:
- have submitted an Income Tax Self-Assessment tax return for the tax year 2018-19;
- traded in the tax year 2019-20;
- are trading when you apply, or would be except for COVID-19;
- intend to continue to trade in the tax year 2020-21;
- have lost trading/partnership trading profits due to COVID-19.
Self-employed trading profits must also be less than £50,000 and more than half of the income must come from self-employment. This is determined by at least one of the following conditions being true:
- having trading profits/partnership trading profits in 2018-19 of less than £50,000 and these profits constitute more than half of total taxable income;
- having average trading profits in 2016-17, 2017-18, and 2018-19 of less than £50,000 and these profits constitute more than half of average taxable income in the same period;
If an individual started trading between 2016-19, HMRC will only use those years for which he/she filed a Self-Assessment tax return.
If any individual has not submitted your Income Tax Self-Assessment tax return for the tax year 2018-19, they must do this by 23 April 2020.
HMRC will use data on 2018-19 returns already submitted to identify those eligible and will risk assess any late returns filed before the 23 April 2020 deadline in the usual way.
To work out the average HMRC will add together the total trading profit for the 3 tax years (where applicable) then divide by 3 (where applicable) and use this to calculate a monthly amount.
The Government has issued a fraud warning as follow:-
Fraud warning – You will access this scheme only through GOV.UK. If someone texts, calls or emails claiming to be from HMRC, saying that you can claim financial help or are owed a tax refund, and asks you to click on a link or to give information such as your name, credit card or bank details, it is a scam.
The government is also providing the following additional help for the self-employed:
- deferral of Self-Assessment income tax payments due in July 2020 and VAT payments due from 20 March 2020 until 30 June 2020;
- grants for businesses that pay little or no business rates;
- increased amounts of Universal Credit;
- Business Interruption Loan Scheme. If you’re a director of your own company and paid through PAYE you may be able to get support using the Coronavirus Job Retention Scheme. This information is taken from the official government website and publications and we hope you find it useful.In terms of commentary my initial thoughts are as follows:-
- Individuals who run a business through a limited company are not eligible and the only means of support for those people appears to be a loan or a grant relating to business rates (if eligible). Otherwise if they are unable to work they must seek universal credit.
- Directors in a limited company could claim Furlough pay but only to the amount they process through payroll at 80% which for a lot of small business owners will be around £700 per month.
- Loans at present are requiring personal guarantees and extensive paperwork and other warranties which are making them very hard if not impossible to secure.
- The Chancellor made reference briefly in his speech to taxation increases as a result of the measures, but no further information has been provided.
- If an individual has not been declaring actual income in a proper and legitimate way they will now be suffering a reduction in reclaiming this benefit – for example if they have reduced profits in order to reduce taxation exposure and/or has taken and not declared cash.
- We are unclear as to how an individual demonstrates that they have been adversely affected by the virus and /or whether, if their profits have not been affected in their next tax return there will be any claw back.
- Please note – this guidance is not intended to be taken as legal advice – for individual situations you will need to take specific legal advice.
- The information in this guide is correct as of 27th March 2020.
- All advice given should be read alongside the Government Guidance https://www.gov.uk/guidance/claim-a-grant-through-the-coronavirus-covid-19-self- employment-income-support-scheme
Marie WalshDirector, Employment Solicitor and Mediator
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