Self-Employment Income Support Scheme

The Self-employment Income Support Scheme (SEISS) will support self-employed individuals (including members of partnerships), who have lost income due to the Coronavirus pandemic.

This scheme will allow registered self-employed individuals, who have submitted a Self Assessment tax return for 2018/19, to claim a taxable grant worth 80% of the relevant trading profits figure, up to a maximum of £2,500 per month for the next three months. This may be extended, if needed.

Key points to consider

  • The scheme is aimed at individuals whose “majority” of total income comes from a self-employed trade.
  • It will not cover the small minority of self-employed individuals whose trading profits are £50,000 or more (see below on how this is determined – e.g. average basis in some cases).

How do you apply?

Those eligible for the Scheme will be contacted by HMRC and invited to apply online through the GOV.UK website. HMRC has requested that individuals do not call them at this stage, but refer to their website for further details: https://www.gov.uk/guidance/claim-a-grant-through-the-coronavirus-covid-19-self-employment-income-support-scheme.

Do you qualify?

HMRC will invite you to apply if you’re a self-employed individual, or a member of a partnership, and you:

  1. Have submitted your Income Tax Self Assessment tax return for the tax year 2018-19.
  2. Traded in the tax year 2019-20.
  3. Are trading when you apply, or would be, except for COVID-19.
  4. Intend to continue to trade in the tax year 2020-21.
  5. Have lost trading/partnership trading profits due to COVID-19.

Your self-employed trading profits must also be less than £50,000 and more than half of your total income (from all sources) comes from self-employment. This is determined by at least one of the following conditions being true:

  1. You had trading profits/partnership trading profits in 2018-19 of less than £50,000 and these profits constitute more than half of your total taxable income.
  2. You had average trading profits in 2016-17, 2017-18, and 2018-19 of less than £50,000 and these profits constitute more than half of your average taxable income in the same period.

What if you do not have three years trading profits history?

If you started trading between 2016-19, HMRC will only use those years for which you filed a Self-Assessment tax return.

What if you have not yet filed your 2018-19 return?

If you have not submitted your Income Tax Self-Assessment tax return for the tax year 2018-19, you 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.

How much will you receive?

You’ll get a taxable grant which will be 80% of the average profits from the tax years (where applicable):

2016 to 2017
2017 to 2018
2018 to 2019

To work out the average trading profits figure, HMRC will add together the total trading profit for this period (which must include 2018-19), then divide by the number of tax years it was earned in. This figure will then be used to calculate a monthly amount.

The maximum amount of the taxable grant you can receive will be £2,500 per month for three months and should be paid directly into your bank account, in one instalment.

HMRC will contact you

As mentioned previously, if you’re eligible for the scheme, HMRC will contact you and invite you to apply online. Individuals do not need to contact HMRC now and doing so will only delay the urgent work being undertaken to introduce the scheme.

It’s important to note that this process is driven by those truly self- employed people who are on HMRC’s radar by having filed Self Assessment Tax Returns, and 2018-19 tax year is the key year. Furthermore, it is designed for those who continue to rely on self-employed work as their main source of income (including all other sources).

Beware of HMRC scams

You can only access this scheme through GOV.UK. Therefore, 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.

Timing

Although some HMRC staff who are setting up the Job Retention Scheme for employees will also be involved with the Self Employed Income Support Scheme set up, the Chancellor explained that there are inevitable differences between the two systems, and this is one reason why, having only just introduced the employee scheme, the self-employed scheme will take some time to be up and running, with the first payments expected to be made in June.

Source: https://www.gov.uk/government/publications/guidance-to-employers-and-businesses-about-covid-19/covid-19-support-for-businesses#support-for-self-employed-through-the-self-employment-income-support-scheme (as at 26 March 2020)

OUR OBSERVATIONS

  • The general reaction from various press and other business bodies and organisations is that, in such unprecedented times, this is a fair and generous measure, and one which strikes parallels with the recently announced Job Retention Scheme for the employed sector.
  • However, the prospect of waiting until June for the grants to arrive will be a huge concern for many, although it will operate alongside other measures which will allow businesses to retain cash and access finance. This crucial sector of the economy will still need some flexibility, tolerance and understanding from others (e.g. banks, suppliers, etc) to get through the next few months. Our Institute will continue to speak to the government, banks and other alternative lenders to see whether there is any way through these issues.
  • It is important to note that self-employed workers can continue to work whilst claiming Income support through SEISS. This is in contrast to the wage support offered by the Job Retention Scheme for employers, which stipulates that employees do not work in order to be eligible.
  • At present, it does not appear there will be any “tapering” of eligibility if someone’s trading profits figure is £50,000, or only just over.
  • Be aware that, if you have not yet filed a 2018-19 return, you need to in the next four weeks to be eligible, and HMRC could well enquire into this late filing, especially if they suspect the profits have been overstated.
  • The idea behind using 2018-19 as the key tax year is to avoid the risk of fraud from someone who has only very recently decided to become “self-employed” and claim the grant.
  • For those who have a fixed term profit share through a professional partnership, for example, there may be scope to reduce your annual profit share by the amount of the grant you'll receive, so that you maintain the same level of income in the tax year 2020/21.
  • One longer term point possibly on the horizon is that the previous debates about whether the self-employed should be subject to the same level of tax and National Insurance (or close to) as employees who are subject to the PAYE system. In particular, the main differentiating factor is Employers National Insurance, which employers pay for employees on their payroll at a current rate of 13.8%. The Chancellor made this “observation” and once the COVID-19 crisis is over, and if businesses etc, have returned to some normality, we might expect some sort of “pay back” through taxes and NIC payable by the self-employed for being supported in a similar fashion here to the employed sector. That debate may well resurface.

Other help

For further information on additional financial support available for the self-employed, including Universal Credit, Income Tax deferrals and Time to Pay, please see our detailed factsheet.

Please note that this is only a summary of the main issues and should not be construed as advice. Every effort has been made to ensure factual accuracy at the time of publication (27 March 2020), however, the government response to the Coronavirus situation is changing 24-7, so it should not be relied upon completely.

For further information or advice on any of the issues raised, or for help with services like bookkeeping, cash flow management or payroll during the Coronavirus pandemic, please call us on 01225 325580, email info@richardsonswift.co.uk, or contact your usual client director.