The government’s much-anticipated help for the self-employed was announced on Thursday 26 March by Chancellor, Rishi Sunak.
The ‘Self-employment Income Support Scheme’ (SEISS) broadly mirrors the Job Retention Scheme (JRS) previously announced for employees on PAYE, although the eligibility criteria are a little more restrictive.
The help available
HMRC will pay self-employed individuals who have suffered a loss of income owing to the Covid-19 pandemic a taxable grant of 80% of monthly profits, up to a cap of £2,500 per month. HMRC will take an average of the individual’s profits over the three tax years to 5 April 2019 (or trading period, if shorter) in calculating the monthly profit upon which the 80% grant is based. The grant will need to be included in taxable business profits of the period in which it is received.
The SEISS will initially run for a period of three months. A single lump sum payment will be made to those eligible. HMRC is to start contacting taxpayers they have identified as potentially eligible for the SEISS in the week commencing 4 May 2020. Taxpayers will be able to claim from 13 May 2020, with the first payments reaching claimants’ bank accounts from 25 May 2020.
Who is eligible?
The SEISS is open to individuals who were self-employed or a partner in a partnership (including a member of a limited liability partnership) in the 2018/19 tax year, whose profits have been affected by Covid-19, and who continue to be self-employed in the current tax year.
Individuals must also have filed a tax return with HMRC for 2018/19 in order to be eligible. Returns for 2018/19 were due on 31 January 2020, but those who have yet to file their 2018/19 tax return have been given a four week grace period to 23 April 2020 in which to submit their returns. Late filing penalties will still apply.
The SEISS will only apply to those with trading profits of less than £50,000 in 2018/19, or where average trading profits over the tax years 2016/17, 2017/18 and 2018/19 were below £50,000. This will assist those with variable profits, as a ‘good year’ in 2018/19 where profits are above £50,000 may be smoothed out to below the threshold over the three year averaging period. A shorter period of averaging will be used where the self-employment commenced after 6 April 2016.
Note the issued guidance refers to ‘trading profits’, and broadly means ‘taxable trading profits’.
HMRC have produced an eligibility checker and this can be found at https://www.tax.service.gov.uk. To use the checker, taxpayers will need their 10-digit Unique Tax Reference (UTR) and national insurance number.
To be eligible, the individual must derive more than half of their income from the self-employment in 2018/19, or more than half of their income on average across 2016/17 to 2018/19. This requirement may penalise those who are both employed and self-employed.
For those whose self-employment started after 6 April 2019, there is currently no help available under the SEISS.
How to Claim
HMRC will use information from taxpayers’ 2018/19 tax returns to identify those eligible for SEISS and contact individuals directly with an online claim form. Contact will be made using details held on the taxpayer’s personal Government Gateway account. It is therefore extremely important that information is up to date. Taxpayers who do not have a Government Gateway account should set one up by visiting the Gov.UK website and searching for ‘set up a personal tax account’.
Applicants will need to confirm that they meet the scheme’s eligibility criteria, and as with the JRS, it is expected that HMRC will audit applications in due course. Taxpayers will be given a specified date between 13 and 18 of May on which they may submit an application.
Agents are not able to claim on taxpayers’ behalf, although we will of course be happy to guide those wishing to claim through the process.
Those eligible for a grant under SEISS will receive a lump sum payment directly into their bank account within around six days of submitting a claim. HMRC aims to make all payments under the scheme by 25 May 2020.
The delay in payments under the SEISS until the beginning of June may cause difficulty for some taxpayers. Other measures which may assist are:
- Deferral of income tax payments on account due on 31 July 2020 until 31 January 2021;
- Deferral of VAT payments due between 20 March and 30 June 2020;
- The extended Universal Credit scheme
- Loans under the Coronavirus Business Interruption Loan Scheme
Overall, the SEISS is relatively generous, like its employee-focussed sister scheme, JRS. There are some who will fall between the cracks though, like those who operate via personal service companies or who have only recently commenced self-employment. There was also a sting in the tail in the Chancellor’s comments about levelling the playing field between employment and self-employment, which may be a hint that a rise in Class 4 national insurance contributions is on the cards.
If you have any questions, please get in touch for any specific queries.