30th March 2020 / COVID-19 Updates
Government help for the self-employed
There still appears to be a lot of ambiguity about this grant so we thought it would be useful to share our understanding of the proposals that have been set out.
The official announcement can be viewed at: https://www.gov.uk/government/news/chancellor-gives-support-to-millions-of-self-employed-individuals
Please note: If you are a director of a limited company, you are not self-employed so the following information will not apply to you.
Eligibility
- You need to be self-employed either as an individual or a member of a partnership.
- You need to have been trading in the 2019/20 tax year.
- You must be trading when you apply or you would be but for the Coronavirus.
- You have lost trading/partnership income due to COVID-19.
- You either must have already submitted your 2018/19 Tax Return or do so by 23rd April 2020 to be eligible. In the latter case, HMRC will be risk assessing those ‘late’ returns.
- Your self-employed income must represent more than 50% of your total taxable income.
- Your trading profit must be less than £50,000 per year based upon the average of your last 3 years of trading i.e. 2016/17, 2017/18 and 2018/19. If you started trading between 2016 – 2019 then HMRC will only use those years for which a SA Return has been filed.
Mechanics
(the devil is always in the detail)
- You must make sure you have submitted a 2018/19 tax return within the next 4 weeks (if you are late, after 31 January 2020, you will still have penalties).
- HMRC will send you a claim form in late May or early June 2020 after they have performed their review of the 2018/19 tax returns (and probably earlier years as well) to see who might be eligible. They will then contact you and give you access to the scheme through the Government portal where you can then fill in the form (with our help if required).
- Do not contact HMRC. They will contact you if you are eligible.
- Payments will not be made until probably mid/end of June. The payment will be a lump sum.
- HMRC will send you the money to, we presume, your designated bank account, probably in early June.
Take care – lookout for scams from people who may take this opportunity to send emails, texts or direct phone calls asking you to provide bank and credit card detail to get the grant. The grant will only be accessible via the gov.uk website. |
Who it does NOT cover
- Those whose taxable profits are higher than £50,000 on average over the three years to 05 April 2019. There is no taper, it is an all or nothing rule.
- Those who started trading after 5th April 2019. This rule is being challenged - more on this when we have it!
- Those whose self-employed taxable profit, on average over the three years to 5th April 2019, is less than half their total income. (i.e. if you also get a salary and your salary is the larger part of your income). You need to look to your employer, and perhaps the furlough rules.
- Those who have not lost any income due to the Coronavirus.
- Those whose self-employment does not continue through into 2020/21. Therefore, you must restart your trade after the shutdown to claim.
By excluding a number of groups, particularly those who earn through a limited company and those who started trade after 5th April 2019, there will be hardship; if you are in that group all you can do under the current guidelines is look to the benefits system and universal credit… This is being challenged as referenced earlier.
Some of the questions we have been asked that might be useful
What if I don’t have 3 years trading?
If you do not have three years to 05 April 2019, your income will be averaged over the period you actually traded.
What if I started trading halfway through 2017/18?
The strong implication is that they will take the average of the two years where you have submitted tax returns. (i.e. your declared profits for the two years divided by 2). The whole of the year you started will be taken regardless of the exact date you started.
What if I have two self-employments?
The rules do not specifically say, but we would assume it is the average of the two combined.
What if I bought a van in during the period?
If you bought a significant item, such as a van, in one of the relevant tax years, your taxable profits will be lower in that year. This will mean you get less, but since HMRC are taking a three-year average, one significant capital purchase will be diluted over the three year period.
What if my profits average £48,000pa and I also have a £10,000pa employment?
You qualify because your self-employment taxable profit is less than £50,000.
Husband and wife partnerships where you each have taxable profits of £40,000.
You both qualify, although your joint income is over £50,000 this is calculated on an individual basis, not as a couple.
What if I’ve found a job?
The intention is to compensate you for loss of earnings, if you have not lost earnings it is unlikely you can claim in full. This is not specifically addressed in the briefing.
Is the grant taxable?
Yes.
Will all of these changes affect the amount of tax that I will have to pay?
There are no changes planned to the tax rates for 2020/21. It is very likely Class 4 National Insurance for the self-employed will increase from 9% to 12% in the following year.
A note on timings...
The self-employed grant will be released in June. If your finances will not stretch if you can’t last until then government advice is:-
- Take a three-month mortgage holiday.
- Get a government-sponsored loan from your bank.
- You don’t have to pay VAT for the quarterly payment to 30th June 2020 but you will need to catch up by 5th April 2021.
The full government rules on the self-employed are set out here:-
If you would like any further support and advice with the announcements made by the government, please get in touch with us.
M.A.D. Accountants are based in West Bridgford, Nottingham, and are specialists in tax and accountancy assistance for businesses and individuals. We're here to make a difference to your business and your life with no-nonsense, jargon-free advice and help.
