COVID-19: Government Help for the Self-Employed – extended on 29 May 2020

On 26th March 2019, Chancellor Rishi Sunak announced assistance for the self-employed, intended to be analogous to the help already announced for furloughed employees. The basics of what has been announced are set out below. The scheme is referred to as the Self-Employed Income Support Scheme (“SEISS”). As of 29th May 2020 the scheme is extended and details are included below.

Eligibility

In the first instance there are a number of conditions that have to be fulfilled before you are eligible to claim:-

  • You must be self employed or a partner in a partnership
  • You must have submitted your 2018/19 tax return (in this context note that potential claimants were given until 23rd April 2020 to file their 2018/19 tax returns. That extension is for the purposes of claiming help under this scheme – there is no suggestion that the normal late filing penalties will not apply. Note also that HMRC has indicated that it will apply extra fraud checks in respect of claims where returns were submitted late, but prior to 24th April 2020, in response to the announcement of the COVID-19 SEISS)
  • You must be trading in 2019/20 and be trading at the time of application, or only not trading at that point as a result of COVID-19 (or on a break due to the arrival of a new baby, or due to an adoption)
  • You must intend to trade in 2020/21
  • You must have lost profits as a result of COVID-19
  • Your self-employment profits must be less than £50,000 and constitute more than 50% of your total income

The total income referred to here is presumably that obtained at step 1 section 23 Income Tax Act 2007, although that is not confirmed on the gov.uk website.

Qualification by having self-employed income less than £50,000 for the purposes of these provisions is by meeting at least one of two conditions:-

  1. Trading profits less than £50,000 in 2018/19 but such profits representing more than 50% of total income for that year;
  2. Average trading profits for tax years 2016/17, 2017/18 and 2018/19 less than £50,000 but such average profits representing more than 50% of average taxable income for the same period.

Note that if your return is under enquiry, the originally returned amounts are used. It is apparent that exceeding £50,000 in 2018/19 would not be a bar to a claim if the 3-year average were less than £50,000. Meeting the first but not the second condition, due to historic excessive profits is not well covered in the guidance.

Where the trading history is shorter than three years, the calculations will be by reference to only the last year (where there has been a year of non-trading between two trading years) or an average of, where relevant, two years of continuous trading (2017/18 and 2018/19).

Assistance Available

The grant will be based on average profits for the three years 201617, 2017/18 and 2018/19. Entitlement to the first grant will be to 80% of the average profit (divided by 12) per calendar month, or £2,500 if lower. The first grant is for three months, and will be paid to taxpayers’ bank accounts in a single instalment. Thus, the cap for the first grant is £7,500.

On 29th May 2020 HMRC announced an extension to the SEISS; a second and final grant will be paid in August based on 70% of the average profit (divided by 12) per calendar month, or £2,190 if lower. This too will be paid in a single instalment, of up to £6,570.

No further details of the scheme’s extension are yet available. It is entirely possible that the second grant will be paid automatically based on eligible claims for the first grant so that no further actual claim by taxpayers is needed. However, taxpayers should be on the lookout for updates in this area, since it is also possible that a second claim will be required.

Application

The original and clear message from Government was to do nothing for the time being (other than file your 2018/19 tax return if you have not already done so) – HMG simply could not deal with the volume of enquiries they were getting. HMRC were to contact you if they considered you were eligible and would invite you to apply for the grant online. As of 4th May 2020, this position changed, as taxpayers were encouraged to check their own eligibility for the grant(s).

HMRC has been contacting taxpayers directly since 4th May 2020 regarding eligibility for SEISS. They have also encouraged taxpayers (or their agents) to go online and use an “eligibility tool” to see if they are eligible (you need your national insurance number and UTR to do this. Our experience is that it is easy and simple to do). If you are eligible, HMRC will tell you to a date from which you can submit your claim; claims on-line have been possible since 13th May 2020.

HMRC’s guidance states that when taxpayers do claim on-line, they will be told there and then whether the claim is valid and that payments will be received within 6 working days thereafter, so this is a welcome acceleration to the originally envisaged timetable.

The best approach is pro-activity – i.e. getting on-line and checking, and then claiming at the earliest possible opportunity. Barnes Roffe has already begun the process of checking eligibility for affected clients and has compiled a list of claim dates and times as allotted by HMRC. Barnes Roffe has contacted most, if not all, of those of its clients for whom the eligibility tool confirms that a claim is possible. Note that whilst Barnes Roffe can check eligibility as agent, we cannot actually process the claim: this must be done by the taxpayer concerned.

As before, taxpayers will need to treat any grant received as income if they are claiming tax credits, and for also income tax and national insurance purposes.

Timing of Claims

It is absolutely vital to find out if you are eligible, and to make the appropriate claim. HMRC has indicated that claims MUST be made by 13th July 2020. If you miss this deadline, according to the current guidance, you will miss out. There is also no indication that the extension to the scheme announced on 29th May 2020 would have a separate claims process so that missing the 13th July deadline may will entail missing out on both the first and the second grants available under the scheme.

More Than One Claim?

It appears that, subject to meeting the conditions, a furloughed employee with a self-employment could also be eligible for the help extended to the self-employed. A furloughed employee with a salary of £37,500 and average self-employed profits of £38,500 appears to satisfy the conditions for the assistance for the self-employed here such that they might have a valid claim for £5,000 per calendar month, and a husband and wife in the right circumstances might have a valid claim for £10,000 per calendar month between them. Perhaps this should not come as a surprise since the rules for furloughed employees permit a claim for each furloughed employment, but to the writer it does come as a surprise.

Equally surprising is the lack of access where average self-employment profits exceed £50,000 (subject to the ambiguity in the website presentation), given that there is no similar bar on those with earnings in excess of £50,000 having access to the furloughed employees scheme.

Hints at Future Tax Rises

One thing the Chancellor did was hint very strongly at a future alignment of tax treatment between the employed and the self-employed. The obvious first step here would be raising the class 4 national insurance contribution rate to the class 1 rate of 12%. It is conceivable the Chancellor could go further even that this, although we will have to wait and see on that one!

Links

You can read the full text of the current guidance at the following location:-

https://www.gov.uk/guidance/claim-a-grant-through-the-coronavirus-covid-19-self-employment-income-support-scheme

Last updated: 1st June 2020

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