In these challenging and uncertain times, the announcement made by Chancellor Rishi Sunak on 26 March came as welcome relief for the vast majority of the UK’s 5 million self-employed individuals. The proposed grants will help and support the self-employed with fighting Covid-19 and ensure their business comes back stronger in the near future. Whilst further details are being published regularly by the Government, we have summarised the current key aspects of the Self-Employed Income Support Scheme ("the Scheme").
The Government is offering to pay self-employed people, who have been adversely affected by Coronavirus Covid-19, a direct cash grant worth 80% of their average monthly profits over the last three years, up to £2,500 a month, for at least three months. The Chancellor declared the Scheme as “among the most generous and comprehensive packages to support those who are self-employed in the world”.
The three months covered by the scheme are March, April and May. HMRC have indicated that this may be extended beyond the three months if necessary, which we suspect is likely given the current state of affairs.
To be eligible, an individual must:
Although this is described as an “income” support Scheme, it only relates to profits in practice. This might seem a subtle difference but how owners of businesses have historically “paid” themselves could have a significant impact on their eligibility for this Scheme.
Those who trade solely through a limited company and pay themselves a salary and dividends are not covered. But they should be covered for their salary by the Coronavirus Job Retention Scheme if they are operating PAYE schemes. Dividend income is not treated as profits and therefore are excluded from the Self-Employed Scheme (and the Job Retention Scheme for that matter).
Self-employed individuals can claim up to 80% of their average monthly trading profits, up to a maximum of £2,500 per month, provided their trading profits in 2018-19 is less than £50,000. If the individual has been in self employment before 6 April 2018, they must have average trading profits of less than £50,000 in 2016-17, 2017-18 and 2018-19, where applicable.
Individuals can expect to receive a cash grant covering a period of at least three months starting from March. This is to ensure the Government is able to prioritise providing financial support to those that need it most.
Crucially, a person that is both employed and self-employed can be eligible, provided their self-employment profits account for more than 50% of their total income in the year. For many that have recently started working for themselves, they may also continue to be in employment to ensure they have regular inflows of cash to fund and sustain their self-employment business and their personal expenses.
HMRC will contact self-employed people eligible to receive financial support by the beginning of June. Using an online form, an individual can then apply directly to HMRC for the grant, and they will pay a lump sum covering the full period of three months straight into the claimant's bank account.
Given the volume of people that would be eligible for the Scheme and the fact HMRC need to set up a completely new system to process the grant payments, it will take an incredible effort from the Government and HMRC to ensure all eligible individuals receive their grants in full by the proposed date.
Although this Scheme works similarly to the Job Retention Scheme, a key difference is that the self-employed are able to continue to work during Covid-19, whilst the Job Retention Scheme applies to employees who are furloughed and not allowed to work whilst they are furloughed.
As the grant is expected to be paid in June at the earliest, many self-employed people will feel the financial strain in the intervening period. This is likely to be compounded by decreasing levels of their business activity and trading profits between now and June.
Although the Chancellor has promised a Scheme that is fair, targeted and deliverable, inevitably there will be some individuals that are ineligible for the Scheme. These people will have to look at other support packages that are currently available such as the Coronavirus Business Interruption Loan Scheme and grants for those that pay business rates or receive small business rate relief or rural rate relief.
The Institute of Fiscal Studies warns that 2 million people who work for themselves would not be protected because they do not meet the eligibility criteria. These include those that do not earn enough from self-employment whilst also being in employment, they earn more than the £50,000 trading profits threshold, or they only started working for themselves since 6 April 2019 or later.
Take John for example. As a self-employed builder, he has average profits of £49,000 per year, and he will be able to receive £7,500 over the three months period as part of the Scheme. Helen has average profits of £51,000 per year as an IT consultant, and will receive nothing.
As expected, this is likely to raise some key questions as to whether the Scheme in its current form is fair and practical. It could be that further provisions are announced by the Chancellor in the future to 'rebalance' the Scheme, but equally there must be a 'line drawn in the sand' to set the eligibility criteria.
The Government announced that before grant payments are made, the self-employed will still be able to access other financial support for those affected by Covid-19 including business continuity loans and more generous universal credit.
Other key announcements made by the Government include the deferral of the 31 July 2020 income tax instalment to 31 January 2021, the deferral of VAT for periods up to 30 June 2020, and the possibility of time to pay arrangements for employer’s PAYE and National Insurance Contributions liabilities.
In fairness, the Government, and the Chancellor in particular, can not be accused of standing still and being passive. Time will tell though to see if the Scheme, and the other financial support packages available, have helped those self-employed most in need.
It is more important than ever to work closely with your local and business community to help and support each other through these unprecedented times. Take care of one another and remain positive to ensure we can get through these challenges together.
Looking after your finances will help to ensure any cash inflows are utilised effectively and limiting any unnecessary business expenditure. This can be achieved through effective cash forecasting and accessing key Government financial support, which should help make your business leaner and more efficient once we are out of this crisis. Speaking to your professional advisers will help ensure you do this effectively, so please do get in touch and we would love to help.
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