The Chancellor, Rishi Sunak, has announced a multi-billion package of support for self-employed people to enable them to carry on doing business. He described it as ‘one of the most generous in the world’. It will help a range of eligible people including musicians, sound engineers, plumbers, electricians, taxi drivers, hairdressers, childminders, driving instructors, and many others.
Self-Employed Income Support Scheme
The Government will pay self-employed people a grant worth 80 per cent of their average monthly profits over the last three years, up to £2,500 a month for three months although it will be extended if necessary. The scheme will cover three months of an individual’s typical profits so an individual could receive up to £7,500. HMRC will use the average annual profits from eligible individuals’ tax returns for 2016-17, 2017-18 and 2018-19 to determine the size of the grant for each person. The grants are subject to Income Tax and National Insurance so will then be reportable on future Income Tax Self- Assessment tax returns.
How will it work?
Self-employed people who are eligible will be contacted by HMRC directly, asked to fill out a simple online form, and HMRC will pay the grant directly into their bank account. We expect people to access the scheme by the beginning of June. HMRC will also ask people to demonstrate that the majority of their income comes from self-employment, and, to minimise fraud, only those who are already in self-employment, and who have a tax return for 2019, will be able to apply.
Who is eligible?
The scheme will only be open to those with trading profits up to £50,000. That means 95 per cent of people who are majority self-employed will be eligible for the scheme.
To qualify they must:
- have lost trading profits/partnership trading profits due to COVID-19;
- have filed a tax return for 2018-19 as self-employed or a member of a trading partnership, although the Treasury will make special provision for those who have not filed their return for 2018-19;
- have trading profits of less than £50,000 across three years and more than half of total income comes from self-employment.
Limited companies
An owner-manager’s legal responsibilities as a company director do not disqualify them from being furloughed under the scheme if they would otherwise qualify because they receive a salary through PAYE and meet the other scheme criteria. A salaried owner-manager can continue to act as a director and fulfil their statutory and administrative obligations such as filing accounts, and will still be considered to be furloughed under the scheme if that is all they are doing. This is because the scheme is providing support for those needing to furlough when the business is unable to provide services to their customers during the COVID-19 outbreak. If you are furloughed you are not able to carry out any other works, including operating your company’s payroll. If you do, you cannot be furloughed. However, you are able to furlough for a minimum period of 3 weeks, so for example if you operate a monthly payroll or need to raise invoices, you could, perhaps, furlough yourself for 3 weeks, return to do the payroll or invoices for one week and then furlough yourself again for 3 weeks. You would need to check with your accountant that this is acceptable within the scheme.
Other support available to self-employed people
- Self- employed people can access loans through the Coronavirus Business Interruption Loans Scheme. This scheme provides loans of up to £5 million, which will be interest free for twelve months.
- The minimum income floor has been suspended for twelve months which means self-employed people can now access, in full, Universal Credit at a rate that is equivalent to Statutory Sick Pay for employees.
- Income tax self-assessment payments for July have been deferred until the end of January 2021.
Treasury priorities
95% of people who receive the majority of their income from self-employment are eligible for this Scheme. It is these individuals who will face sharply reduced income over the next few months. The Government is determined to ensure that only those who need it and qualify can access the scheme. The criteria reduces the opportunity for abuse of the Scheme and ensures those who rely primarily on their trading profits from self-employment receive support. The design of any support must take into account that the self-employed are a very diverse population, including everyone from hairdressers to partners in law firms. They have a wide mix of turnover and profits, with monthly and annual variations even in normal times. Some may see their profits unaffected by the current situation. Some have substantial alternative forms of income. The self-employed can offset losses against profits in other years and other forms of income. The self-employed also pay a lower rate of National Insurance than employees despite receiving almost the same benefits as employees, including the New State Pension.
You can find more information here:
www.gov.uk/government/publications/support-for-those-affected-by-covid-19.
BEIS have also developed guidance specifically for employers and businesses
www.businesssupport.gov.uk/coronavirus-business-support/
For more information for all Government support please visit my website https://www.kevinhollinrake.org.uk/news/business-support-update-through-coronavirus-c
