A guide to the Self-Employment Income Support Scheme

By  

Nichola Ross Martin

The government has accelerated the launch of its Self-Employment Income Support Scheme, and the first applications will be taken between May 13 and May 18, with payments following six working days later.

Applications can only be made by the individual, but agents are encouraged to coach their clients on how to add the correct data.

The government has also indicated that it will accept a passport or driving licence number if the applicant does not have a Government Gateway account.

Further announcements and updates are expected. For the latest developments see the coronavirus hub on AAT Comment.

The Chancellor announced the following new measures on 26 March 2020.

·         A taxable grant of 80% of average monthly profits over the three years 2016/17, 2017/18 and 2018/19.*

·         Capped at £2,500 per month.

·         Initially payable for three months.

·         Applies to self-employed individuals with trading profits up to £50,000 per year whose majority of income comes from being self-employed.

·         If you receive the grant you can continue to work or take on other employment including voluntary work. HMRC will however ask you to confirm that your business has been adversely affected by Covid-19.

* To work out the average HMRC will add together the total trading profit for the three tax years, or less, if you have been trading a shorter time and then divide by three or the number of months and use this to calculate a monthly amount.

Note that company directors are employees for PAYE purposes and not self-employed.

On 1 May 2020 HM Treasury published The Coronavirus Act 2020 Functions of Her Majesty’s Revenue and Customs (Self-Employment Income Support Scheme) Direction. This confirms the details of the scheme.

On 4 May 2020 HMRC announced that claims would commence from 13 May 2020, with the first payments expected from 25 May 2020.

Qualifying conditions

·         You have submitted your Income Tax Self Assessment tax return for the tax year 2018/19 or you will submit your return by 23 April 2020.

·         You have traded in the tax year 2019/20.

·         You are trading when you apply or would be except for Covid-19.

·         You intend to continue to trade in the tax year 2020/21.

·         You have lost trading/partnership trading profits due to Covid-19.

·         Your self-employed trading profits are between £0 and £50,000.

·         More than half of your total income comes from self-employment.

·         One of the following conditions must also be met:

·         your trading profits/partnership trading profits are between £0 and £50,000 for 2018/19 and those trading profits are more than half of your total taxable income for that year, or

·         your average trading profits/partnership trading profits for the three years 2016/17, 2017/18, and 2018/19 are between £0 and £50,000 and your average trading profits for those years are more than half of your total taxable average income for those same years, or

·         if you did not trade in 2016/17, your average trading profits/partnership trading profits for the two years 2017/18 and 2018/19 are between £0 and £50,000, and your average trading profits for those years are more than half of your total taxable average income for those same years.

Examples of a business “adversely affected by coronavirus”

HMRC has included examples in its guidance of the circumstances in which it might consider a business to be “adversely affected by coronavirus”:

·         you are unable to work because you are shielding, self-isolating, or on sick leave or have caring responsibilities

·         you have had to scale down or temporarily stop trading due to:

·         interruptions to your supply chain

·         a reduction or complete lack of customer, clients and/or staff.

Who’s subject to the loan charge

A person is subject to the loan charge if:

·         on 26 March 2020 the person is chargeable to income tax on any amount by reason of Schedule 11 or 12 to the Finance (No. 2) Act 2017 (loan charge) as enacted as at that date, or

·         the person would be so chargeable but for entering into a contract settlement on or after 20 December 2019.

Profits conditions for loan charge payers

Loan charge payers must meet a different profits condition. One of the below must apply.

·         If you were not trading in 2016/17, your trading profits/partnership trading profits are between £0 and £50,000 for 2017/18 and those trading profits are more than half of your total taxable income for that year.

·         Your average trading profits/partnership trading profits for the two years 2017/18 and 2016/17 are between £0 and £50,000 and your average trading profits for those years are more than half of your total taxable average income for those same years.

·         You do not have to file your 2018/2019 Self Assessment tax return by 23 April 2020 as the 30 September 2020 deadline still applies.

Non-UK residents and non-domiciled individuals claiming the remittance basis must self-certify that their UK trading profits are at least equal to their other worldwide income.

What is total income?

Total income means the total of:

·         income from earnings

·         trading profits

·         property income

·         dividends

·         savings income

·         pension income

·         miscellaneous income (including social security income).

If you started trading in the years 2016 to 2019, HMRC will only use those years for which you filed a Self Assessment tax return.

HMRC gives the following example (14 April 2020).

  2016/17 2017/18 2018/19 Average for the three tax years
Trading profit £50,000 £50,000 £(10,000) £30,000
Pension income £15,000 £15,000 £15,000 £15,000
Total income £65,000 £65,000 £5,000 £45,000
Trading profit is more than half of your total income Yes Yes No Yes

So even if you made a loss in the tax year 2018/19, you would still be eligible for the grant because your average trading profit for the three tax years:

·         is £30,000, which is less than £50,000

·         is more than half of your total income of £45,000.

Making a claim

HMRC’s online eligibility checker became available on 4 May 2020.

·         It indicates that claims cannot be made by taxpayers’ agents and must be made by the individual businesses themselves.

·         Agents can use the online checker which will indicate from what date a claim may be made if the outcome is positive.

·         The checker requires the taxpayer UTR and National Insurance number to verify if an individual is eligible for the grant.

·         HMRC expects to be in a position to start contacting taxpayers about making claims from 13 May 2020.

How the grant will be calculated

On 14 April 2020 HMRC provided additional guidance and examples as to how it will work out trading income for the purposes of the scheme.

·         It will take taxable trading profits after:

·         allowable expenses including flat rate deductions

·         capital allowances

·         business expenses deducted through the trading allowance

·         qualifying care relief.

·         No losses brought forward or personal allowances will be deducted.

Example 1: you claimed trading allowance

Your total trading income (turnover) in each of the tax years 2016/17, 2017/18 and 2018/19 was £20,000 and you claimed the £1,000 trading allowance each year.

This is worked out as follows.

·         From £20,000 deduct the trading allowance of £1,000 = £19,000.

·         Multiply £19,000 by 3 = £57,000.

·         Divide £57,000 by 3 = £19,000.

Your average trading profit would be £19,000.

Example 2: you have more than one trade in the same tax year

Add together all profits and losses for all these trades to work out your trading profit.

If you only traded in the tax year 2018/19 and made a £60,000 profit for your first trade, and then a £20,000 loss for your second trade, your trading profit for that year would be:

·         trade 1: £60,000 profit

·         deduct trade 2: £20,000 loss = £40,000.

Example 3: you’ve traded for more than one year

To work out your average trading profit, add together all profits and losses for all tax years you’ve had continuous trade.

If you made:

·         £60,000 profit in the tax year 2016/17

·         £60,000 profit in the tax year 2017/18

·         £30,000 loss in the tax year 2018/19

Then:

·         add £60,000 and £60,000 then deduct £30,000 loss = £90,000

·         divide £90,000 by three.

Your average trading profit for the three tax years would be £30,000.

Example 4: you didn’t trade in one of the three tax years

You did not trade in tax year 2016/17 but made:

·         £25,000 of profit in the tax year 2017/18

·         £45,000 of profit in the tax year 2018/19.

So to calculate average trading profit:

·         add £25,000 and £45,000 = £70,000

·         divide £70,000 by two.

Your average trading profit for the two tax years would be £35,000.

Averaging relief

If you are a self-employed farmer, market gardener, creative author or artist claiming averaging relief, HMRC will use the amount of profit before the impact of the averaging claims to work out if you can claim the grant and how much you’ll receive.

Members of partnerships

·         Each partner in a partnership must make a claim based on their own circumstances.

·         HMRC will work out eligibility based on your share of the partnership’s trading profits.

·         If the partnership agreement requires the grant to be paid into the partnership pot, the partnership should give it back to you.

If you have not submitted your Income Tax Self Assessment tax return for the tax year 2018/19, you must do this by 23 April 2020.

HMRC will use data on 2018/19 returns already submitted to identify those eligible and will risk-assess any late returns filed before the 23 April 2020 deadline in the usual way.

·         You must be registered as self-employed and have filed a 2019 tax return.

·         For those who missed the 31 January 2020 return deadline, there is now a four-week period in which to file one.

·         Any amendments made to 2019 tax returns after 26 March 2020 will not be taken into account.

·         The scheme is expected to commence paying out in June 2020. The grant will be paid directly into your bank account, in one instalment.

·         HMRC will contact registered taxpayers by mid-May, ask you to fill in a simple online form and pay the grant directly into your bank account.

·         The scheme may be extended if necessary.

The comparable Employee Job Retention scheme for employees will apply to furloughed workers laid off during the crisis and has a cap of £2,500 per month.

External links

·         HMRC online eligibility checker

·         Guidance: Check if you can claim a grant through the Self-Employment Income Support Scheme

·         Guidance: How HMRC works out trading profits and non-trading income for the Self-Employment Income Support Scheme

·         Speech: Chancellor’s statement on coronavirus (Covid-19): 26 March 2020

·         Coronavirus Bill 23 March 2020

·         HMRC published How different circumstances affect the Self-Employment Income Support Scheme. This answers FAQs covering the following topics:

·         If your return is late, amended or under enquiry

·         If you’re a member of a partnership

·         If you’re on or took parental leave

·         If you have loans covered by the loan charge and have not agreed a settlement with HMRC before 20 December 2019

·         If you claim averaging relief

·         If you’re non-resident or chose the remittance basis

·         If you’re above the state aid limits.

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