The Self-employment Income Support Scheme - what you need to know

Self-employment can be financially precarious at the best of times; in a crisis, such as the current coronavirus pandemic, the potential for catastrophe is ever-present. The self-employed are finding that, through no fault of their own, their income has dried up and there is no prospect in sight of things improving. What can they do to protect their income and their businesses from the effects of the pandemic?

Fortunately, one initiative in the government’s package of emergency measures is intended to answer just this problem – the Coronavirus Self-employment Income Support Scheme.

rradar tax expert Caroline Lamyman looks at the scheme, what it involves and how to access it.

What is the Self-employment Income Support Scheme?

This scheme can be used if you are self-employed or a member of a partnership and have lost income due to the coronavirus outbreak.

The scheme will provide a taxable grant to eligible self-employed individuals, worth 80% of their average monthly trading profits, paid out in a single instalment covering 3 months up to a cap of £7,500 altogether.

If you receive the grant, you can continue to work, start a new trade or take on other employment including voluntary work.

The grant will be subject to Income Tax and self-employed National Insurance.

HMRC will calculate the average profits entered on tax returns in the 2016-17, 2017-18 and 2018-19 tax year to work out the size of the grant that can be claimed. Trading profit is calculated by taking the turnover or sales figure, then deducting any allowable business expenses and capital expenditure. Losses carried forward from previous years will not be deducted.

When is this scheme opening?

The scheme opened on 13th May to those who are eligible. This is where more than 50% of the individual’s income comes from self-employment or partnership income and their profits are less than £50,000.

You can use HMRC’s online tool to find out if you are eligible to make a claim. You will need your Self-Assessment Unique Taxpayer Reference (UTR) number and National Insurance number.

The scheme will be open for an initial three months.

Who can apply for the Self-employment Income Support Scheme?

An individual can apply if they are self-employed or a member of a partnership and they have:

• submitted an Income Tax Self-Assessment tax return for the tax year 2018-2019,

• traded in the tax year 2019-2020 and are still trading when they apply, (or would been trading except for COVID-19),

• intend to continue to trade in the tax year 2020-2021 and

• have lost trading/partnership trading profits due to COVID-19.

The individual will be asked to confirm to HMRC that their business has been adversely affected by coronavirus when they make the claim. It is expected that HMRC will use a risk-based approach to compliance.

Unfortunately, if you were not self-employed in the 2018/19 tax year and so did not submit a 2018/19 tax return showing any self-employed income then you are not eligible for this scheme, but you may qualify for other government support detailed later.

Are there any conditions that need to be met?

Yes, at least one of the following conditions must be met:

• Having trading profits or partnership trading profits in 2018-2019 of less than £50,000 and these profits constituting more than half of their total taxable income.

• Having average trading profits in 2016-2017, 2017-2018, and 2018-2019 of less than £50,000 and these profits making up more than half of their average taxable income in the same period.

Taxable total income consists of:

• income from earnings,

• trading profits,

• property income,

• dividends,

• savings income,

• pension income,

• and some miscellaneous income such as social security income.

If they have more than one trade in the same tax year, they must add together all profits and all losses for all these trades to work out what their trading profit is.

How much will be received from the Self-employment Income Support Scheme?

The individual will get a taxable grant which will be 80% of the average profits from the tax years of 2016-2017, 2017-2018 and 2018-2019.

It will be up to a maximum of £7,500 altogether over the 3 months.

HMRC will pay the grant directly into a person’s bank account, in one instalment usually within 6 working days of the claim being approved.

What about if they have not completed tax returns for the last 3 years?

If they have not submitted a Self-Assessment tax return for all 3 years, HMRC will only use those years for which they filed a Self-Assessment tax return, but they must have submitted their Self-Assessment tax return for the tax year 2018-2019 by 23rd April 2020.

HMRC have stated they will use data on 2018-2019 returns already submitted to identify those eligible and will risk assess any late returns filed before 23rd April 2020 deadline in the usual way.

They will not take into account any changes made to already submitted returns after 26th March 2020, when working out the eligibility or amount of the grant.

Are there any self-employed individuals where HMRC might calculate their profits differently?

Self-employed farmers who claim Farmers’ averaging relief will need to use the amount of profit before the effect of the averaging claim to work out if they can claim the grant and how much they will receive. The grant will still be based on the profits before averaging over the tax years 2016-2017, 2017-2018 and 2018-2019.

Many businesses are struggling at the moment, so where can they get help between now and June 2020?

The self-employed will still be eligible for other government support including Universal Credit, deferral of income tax and VAT payments, business rate grants and Business Continuity Loans including the new Bounce Back Loan that was launched on 4th May. All businesses and self-employed people in financial distress must remember that if they have outstanding tax liabilities they cannot pay, they may be eligible to receive support with their tax affairs through HMRC’s Time to Pay service.

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Looking for more advice or guidance on this matter, or any other business-related issue?

rradarstation (link) gives you 24/7 access to guidance, videos and on demand webinars answering frequent questions and downloadable templates to use in the day-to-day running of your business, each written and verified by our legal professionals. You will find the answers you are looking for at rradarstation.