Coronavirus update 4 – 30 March 2020
The Self Employed Income Support Scheme
BUSBYS NEWS – FURTHER UPDATE
As mentioned in our newsletter on Wednesday last week, our office and telephone will now only be manned on a regular basis from 9.00am to 3.00pm, Monday to Friday. If you call outside of those times, please email if you do not get through to anyone.
We had the announcement of the new Self Employed Income Support Scheme (SEISS) last Thursday, and this newsletter is concentrating on that – it is long enough as it is! I will be sending a separate newsletter (hopefully tomorrow) on the Coronavirus Job Retention Scheme (CJRS), as a lot more detail was published on that late on Thursday as well. So the direction of travel on these two initiatives is now rather more clear.
However it is also clear that there is negligible support for those clients who operate through limited companies, and just take a nominal salary (most commonly £719 per month, which is the National Insurance threshold) and then take the rest of their income in dividends. In essence, those clients can use the CJRS to a limited extent, but if they do not have business premises that are subject to business rates, there is no other direct support. Universal Credit is the only other benefit to investigate.
SUPPORT FOR THE SELF EMPLOYED
The Chancellor announced the new SEISS initiative to help the self-employed, having weathered significant pressure from MPs and the small business lobby during the previous few days. Actually, he announced this help for the Self-Employed just 6 days after announcing the CJRS for employees, but in this climate, 6 days seems like six months.
In terms of the amount involved (a maximum of £2,500 per month for three months) it is similar to the employee support scheme, but thereafter it is quite different. So the key points are:
Do I qualify?
You must be able to agree with all of these statements:
- You must be registered as self-employed. So that means that you either run your own business as a sole trader, or you are a partner in a trading business. If your business is a limited company, you are not self-employed. Likewise, people operating buy to let businesses are not self-employed.
- You must have started trading before 5 April 2019. If you commenced trading after that date, you will not qualify.
- You must still be trading, or would have been, had you not been subject to the recent business closure rules.
- You must be intending to continue to trade in the forthcoming tax year, 2020/21.
- Your trading profits must be below £50,000 per annum. See below for how this is calculated.
- More than half of your total taxable income must come from trading profits. This will be calculated in the same way as point 5.
- You must have filed your 2018/19 self-assessment tax return in order to qualify under the scheme. If you have not yet filed your 2018/19 tax return, you have until 23 April to do so.
- Finally, you must have lost trading profits due to Covid-19.
The calculation referred to in points 5 and 6 can be met by reference to one of the following:
- Your trading profits and total income figures for the tax year 2018/19.
- Your average trading profits and total income across the three tax years of 2016/17, 2017/18 and 2018/19.
If you started trading after 6 April 2016, then any part years must be considered on a pro-rata basis to the limits for the full year(s). We can help you calculate this if you are affected, but here is a simple example:
Daisy Rose runs a gardening business, and has made profits of £42,000 in 2016/17, £48,000 in 2017/18 and £54,000 in 2018/19. Covid-19 is now preventing her doing much of the normal work, but she is still able to fulfil a couple of commercial contracts and plans to continue trading. She also has buy to let properties generating profits of £20,000 each year, and an Army pension of £25,000 per annum.
If we look at 2018/19, her profits are greater than £50,000, so she will not qualify under the first reference point above. But her average profits are £48,000 over the last three years, so she will qualify under the second reference point. And her other income (on average) is £45,000, so her trading income, on average, is greater than half of her total income.
A few comments on the rules:
- Point 2: The qualifying date of 5 April 2019 will seem harsh on those who have only started trading recently, but I feel it is mainly driven by practicality – HMRC only need information that has already been submitted in order to administer this scheme.
- Point 4: I think an intention to trade (after the crisis has passed) is sufficient to qualify. Ultimately if you do not restart trading for legitimate business reasons, or because of some other factor like health, I cannot believe that HMRC would try to reclaim the money. Likewise, if you try to restart trading, but fail to generate any new income, then that also should not disqualify from the grant. We think you will just have to make a declaration that you intend to restart trading, when you complete the application form.
- Point 5: We think it most likely that it will be the taxable profits that are taken into account, but this is not clearly stated in the guidance. In a business that has high entertaining costs, then the taxable profit can be a lot higher than the accounts profit. It is also not clear whether “trading profits” are before or after the deduction of capital allowances, but we would expect capital allowances to be deducted to arrive at the relevant trading profits.
- Point 7: Fortunately the vast majority of our clients are up to date with their self-assessment tax returns, and we only have a handful that have not yet been filed. We are contacting all of those affected, but given that the extended deadline is less than 4 weeks away, we will need their tax return information in by this Thursday, 2 April at the latest, if we are to have any chance of filing the returns on time. For these individuals, it is worth adding that the automatic £100 late filing penalty will still be levied, as will the 5% surcharge for late payment of any 2018/19 tax.
- Point 8: We anticipate that it will be sufficient to make a declaration to this effect, when you complete the application. Almost all businesses will lose trading profits as a result of Covid-19, so this will be fairly easy for most traders to agree with. But there may be exceptions – for example anyone working in healthcare.
- And generally:
- You can still carry on working, if you can do so safely under the various restrictions that are in force. This is a big difference to the employee scheme, where furloughed employees cannot continue working.
- You must have completed self-employed or partnership pages on your tax returns to qualify.
- Initially the scheme will run for three months, and notionally we think that this covers the period 1 March to 31 May. But at this stage, it is not entirely clear.
What will I get?
a) The government have promised to pay 80% of your average annual profits as declared on the 2016/17, 2017/18 and 2018/19 self-assessment tax returns.
b) As with the qualifying criteria, if you started self-employment after 6 April 2016, the averaging of profits will take into account the number of days of trading. NB – Correction 27.05.2020 – HMRC amended their guidance, and they are averaging profits over the number of years in which a business traded, and no adjustment is made if a trade only started part way through a tax year after 6 April 2016.
c) The amount payable will be limited to a maximum of £2,500 per month. So for anyone whose average profits exceed £37,500 per annum, they will get the maximum amount.
d) There is no mention of a minimum amount, and you do not need to have paid tax or national insurance to qualify. So, for example, if your profits were only £9,000 per annum (which is below the personal allowance), you will still get £600 per month. But beware of the requirement that your trading income is more than half of your total income. If, in this example, you had a pension of £9,500 per annum, you will not qualify.
It is important to note that any grants under this scheme are going to count as trading profits, so they will be subject to tax and national insurance, and need to be taken into account for tax credit purposes. This is the same treatment that is being applied to employees. What one hand gives……
How do I apply?
- You do not have to do anything now – but see below about opening a Government Gateway account. HMRC already has the necessary information to work out who will qualify, and then they should be contacting qualifying recipients once the scheme is ready.
- They will then invite you to complete a form (we would expect this to be predominantly an online facility, but hopefully there should be a paper based option too), and we presume that you will then make the declarations mentioned under points 4 and 8 above.
- The guidance states that HMRC will then pay the grant for the first three months directly into your bank account.
- HMRC invariably have bank details already (e.g. if you are VAT registered) but at some stage you will need to confirm these, or you may need to provide them. We will carefully check the procedure once more details are published and give guidance on this, given the danger of fraud – see below.
One other point that might help you to get the grant more quickly – it seems possible that you will need a Government Gateway account to apply for the grant. If you do not have one already (and they are useful to find out other tax and national insurance related information in any case), can we strongly recommend that you open one now? Go to https://www.gov.uk/personal-tax-account to apply.
Do not contact HMRC about the scheme now – wait until they contact you. We will let clients know when the scheme starts to operate, and then if you think you should qualify, but have not heard anything, we can advise on the best course of action then.
And when will I get it?
The government guidance says that grants should start to be paid at the beginning of June, and you will get a single payment covering the first three months of the scheme; so a maximum of £7,500 for those with trading profits over £37,500 per annum.
If the scheme is extended beyond three months, then presumably HMRC will pay on a monthly basis thereafter.
AND FINALLY – BEWARE OF SCAMS
This sort of scheme is a godsend to all would be scammers, and we have already heard about emails inviting you to click on a link (which can release a virus onto your computer) or where you are asked to fill in an online form divulging all of your bank details, passwords etc. HMRC will never contact you by email, unless you have signed up for email contact through your government gateway account. Even then, HMRC will never ask you for personal details by email. The only legitimate online applications will be routed through GOV.UK (https://www.gov.uk/).
If in doubt – do not click on any links, but contact us instead.
If you have any questions, please do email your regular contact or firstname.lastname@example.org. Your continued support for these newsletters really is appreciated.