Source – AJC Admin
Coronavirus (COVID-19) Self-employment Income Support Scheme – Explained
To all my fellow self-employed comrades out there, I totally appreciate that all of this information the government is providing about their new self-employment support scheme is becoming increasingly confusing for many people and so I wanted to just outline all of the key information in one, simple article. My hope is that, having read this, you will have a better idea of everything instead of scrolling through hundreds of different web pages to find all of the information!
What is the Coronavirus (COVID-19) Self-employment Income Support Scheme?
In simple, it is a new scheme that the government are implementing to help the majority of self-employed individuals get through this hard time of losing work due to the effects of coronavirus. The amount you receive is on a per-case basis and it will be a taxable grant, meaning the government will give you the money, it does not need to repaid at all, but it is taxable, so you’ll have to list it as income in your tax return for 2020-21. So bearing this in-mind be sure to put the usual 20% aside to cover your tax, just in-case.
Granted, as with most things this scheme is unfortunately not a ‘catch all’ type of deal and there will of course be individuals out there who are not eligible, or are eligible but due to the way their businesses are setup, won’t benefit very much from the scheme.
How Much is the Grant?
If you are eligible (more on this further-on) and your claim is accepted, the scheme provides you with a taxable grant equal to 80% of your trading profits for the next 3 months. This 80% is deemed via the government looking over your past 3 years of tax returns (or less if you haven’t been running 3 years, but you MUST have submitted at least one self-employment tax return in 2018-19) and taking the average profit amount. Before we get into brass tacks there is a huge caveat here – although you’ll be able to apply for the grant in the near future, HMRC aren’t paying these grants until June 2020…I know! So please bear in mind this amount will be paid in one lump ‘in arrears’ for the value of 3 months covering March, April, May 2020 – not paid monthly into your account from now.
On top of this, the issue for many will be the word ‘profits’, it is not based on the turnover (total amount) you’ve earned each year, so this is the amount after you have deducted all of your allowable expenses etc, so for many of us this figure is usually a lot lower than the actual amount of money we’ve technically earned, since one perk of being self-employed is the amount of allowable expenses we’re allowed to offset, the only down-side to this comes with schemes like this, when it’s calculated on your profit, not turnover.
The figure you submitted on your tax return is your taxable profit, that means with all the allowable expenses deducted.
As a self-employed person your own wage is NOT a deductible expense. If you have deducted your wages to arrive at your NET profit, this should be added back to get your taxable profit. The figure that appears on the tax return.
So in principal the government will look at your past 3 years self-employed tax returns, take the average amount of profit you have made, divide this by 12, then pay you 3 months worth of this value in a lump sum in June 2020.
So let’s look at a working example:
Your past 3 years of tax returns:
2016-17 – Profit = £10,000
2017-18 – Profit = £12,000
2018-19 – Profit = £15,000
The average of all your profits (£10,000 + £12,000 + £15,000)/3 = £12,333.33
This calculates as £1027.77 per month (£12,333.33 divided by 12)
80% of £1027.77 = £822.22
Therefore in this instance the government will pay you 3 months worth of £822.22 = £2,466.66
For ease I have created a simple Excel Sheet in which you can type your yearly figures in and it auto-calculates your 80% valuation for you. This can be downloaded via the link below:
This is of course an approximation and HMRC may change these figures for different circumstances, but it’s good to have a rough idea beforehand for your own reference.
Then one other key aspect to bear in mind is that this monthly value is going to be maxed at £2,500 – so the top figure any one person will be given in June is £7,500 for 3 months income. This means if your profits average out to anything over £37,500 then you’ll not receive the equivalent 80% of anything over this amount.
Who is Eligible for the Grant?
You can only apply for the scheme/grant if you are a self-employed individual (also can be a self-employed member of a partnership) that has been ‘adversely affected’ by the coronavirus, and you:
- Have submitted your Income Tax Self Assessment tax return for the tax year 2018-19
- You traded in the tax year 2019-20, are currently trading when you apply for the scheme and intend to continue trading in tax year 2020/21
- Your self-employed trading profits are less than £50,000
- More than half of your income comes from self-employment
This ‘more than half of your income comes from self-employment’ aspect will be determined by at least one of the following conditions being true:
- Your average trading profits/partnership trading profits in 2018-19 were less than £50,000 and these profits were more than half of your total taxable income
- Your average trading profits in 2016-17, 2017-18, and 2018-19 were less than £50,000 and these profits were more than half of your average taxable income in the same period
So in principal you are only eligible if you have submitted at least one tax return for the year 2018-19 (if you are still late completing this then the government have extended the deadline until 23rd April 2020 so get that sorted!), are still trading, your profits don’t go over £50,000 and over half your income is from self-employment.
Who is Not Eligible for the Grant?
There are of course some self-employed individuals who will unfortunately not be eligible for this grant and include the following list:
- If you pay yourself a salary and dividends through your own company (this instead will be covered by the ‘Coronavirus Job Retention Scheme’ where the government pay 80% of your salary, if you are operating PAYE schemes. This will be available from the end of April.)
- If you have no accounts or filed no tax returns you will not be able to access this scheme
- If you have any late tax returns to file then you have until 23rd April to file them, otherwise you be ineligible
- If your average trading profits were less than 50% from self-employment income (more on this at the end of the article)
How Can I Apply for the Grant?
If you’re confident you are eligible then currently (as of 27th March 2020) the government haven’t made it possible to apply yet. However the government will contact you directly if you are eligible and direct you to the area in which you can apply online. As with most governing bodies my advice would be to not solely rely on them contacting you and regularly check here – https://www.gov.uk/guidance/claim-a-grant-through-the-coronavirus-covid-19-self-employment-income-support-scheme – since this will be the hub of all information regarding applications.
If you are really struggling right now then please be sure to check out my other blog article here – https://andrewjamescrawford.com/support-options-self-employed-coronavirus/ – which is regularly updated with ‘live’ and ‘coming soon’ government incentives to help self-employed individuals during these awful times.
The most effective option right now is to apply for Universal Credit in the interim, or if you eventually apply and are accepted for this scheme/grant then you can always get a 12-month interest-free loan via the ‘Coronavirus Business Interruption Loan Scheme’, knowing you’ll have ‘X’ amount to pay that back.
PLEASE NOTE: I am not advising in that instance to get into debt, I am advising you know exactly how much you are going to receive from the grant and borrow an interest-free loan during the interim period before being paid the grant amount, knowing that grant will cover the loan amount.
How to calculate if 50% of your income is from self-employment
As mentioned above, one big stipulation of being eligible for this grant is whether your average income comes from over 50% of self-employment work. So if you are completely self-employed, earn no income from dividends, property etc then this is very straightforward for you as you know you’ll automatically qualify!
However if you do in fact have multiple income streams from property, dividends, employment and self-employment etc then I can imagine many of you out there will be panicking right now trying to figure out if over 50% of your average income comes specifically from self-employment.
So to help I’ve created a bespoke Excel document which you can just input your figures and check for yourselves, just download it via the link below:
For reference as to how this all works, I’ve put a breakdown below as an example:
Working Example of Self-Employed Individual with Dividends, Property and Self-Employed Income
As we understand it here’s an example of an individual who has multiple income sources say, property, dividends and self-employed income.
Self-Employed Trading Profit
2017 –
16,400
2018 – 25,990
2019 – 49,500
Average Trading profit – (16,400+25,990+49,500)/3 = 30,630 < 50,000 – Pass
and
Total Taxable Income (includes dividend income & property income & self-employed income)
2017 –
29,390
2018 – 39,408
2019 – 60,500
Average Taxable Income – (29,390+39,408+60,500)/3 = 43,099
Test 30,630 / 43,099 – 71% – Pass
71% is more than half :Overall : Pass (both tests in 2. have passed)
Again, this is an approximation as we don’t know as yet what the HMRC may change, disallow or restrict.