Insights

Updated 27 March with details of support package and eligibility criteria

Further details are now available about the support package available for the self-employed and partnerships who have lost income and will be financially affected by the Coronavirus crisis.

This article explains what is on offer, who is eligible and how the scheme works. The support package appears to closely match what has already been announced for salaried employees, with the Coronavirus Job Retention Scheme.

Subject to eligibility, self-employed workers will be able to apply for a taxable grant worth 80% of their taxable profits, up to a maximum of £2,500 a month. This scheme will be available for 3 months and thereafter may be extended, depending on the economic circumstances in June. Workers will also have the chance to claim the support grant for lost earnings, but continue to trade or do business wherever possible.

The Chancellor has acknowledged this is very generous and said that since the scheme could potentially be abused, some caveats have been introduced to restrict eligibility and address the disparity between earnings within the self-employed sector.

Eligibility for Coronavirus Self-Employed Income Protection

The Coronavirus Self-Employed Income Protection scheme is available to individuals or partnerships who either have trading profits of up to £50,000, or who can show that the average of their profits over the past 3 tax years was not greater than £50,000. This will be calculated by averaging the profits declared on tax returns for the 2016/17, 2017/18 and 2018/19 tax years. Of the 5 million self employed, an estimated 3.8 million people will be eligible to claim, according to Government estimates.

To be eligible, taxpayers must also rely on income from self-employment for at least 50% of their income and they must have submitted a tax return for the tax year ended 5 April 2019, to prove their self-employed status. Eligible individuals who have not submitted their return for that year have until 22 April 2020 to file their return and become eligible for the scheme. Individuals must have traded in the current tax year and must still be trading at the point of application (or would be except for coronavirus) and intend to continue to trade in the tax year 2020/21.

Newly self-employed people and company directors of limited companies who pay themselves with a modest salary and dividend will not be able to apply, but they could be eligible for support through the Coronavirus Job Retention Scheme.

According to the Government, 95% of self-employed people will be eligible for income protection grants, which will become available from the beginning of June and can be backdated to March. This delay may cause financial hardship for many in the short term and the government has suggested the loan schemes as a short term option.

HMRC will be contacting those who are eligible in writing, offering them the chance to apply and have the grant paid directly into their bank accounts. At this stage it is unclear how self-employment is being defined beyond the submission of a tax return, so it would appear that those who have declared themselves as self employed on the necessary tax returns, and fall within the qualifying criteria, will be eligible.

Access to other COVID-19 support measures

In addition to this, self-employed individuals and partnerships will be eligible to apply for the Business Interruption Loans and can also take advantage of the same tax deferral and Time to Pay schemes as other business owners. The welfare system is also being changed to enable them to access Universal Credit in full, subject to eligibility. Depending on an individual’s circumstances, this means they could receive up to £1,800 per month through Universal Credit.

As above, the Chancellor also confirmed that anyone who missed the recent 31 January self-assessment filing deadline can still submit their tax returns without penalties, for the next 30 days.

This appears to be a very generous offer for self-employed workers, although it will be 3 months before any grants are paid out.

Expect parity of tax system for PAYE workers and self employed

Interestingly, the Chancellor ended his announcement of this support package with an appeal to people who do not pay their tax liabilities, stressing that whilst they recognise the changing nature of work, if self-employed workers want to benefit equally from government support policies, they also need to be paying the same taxes as PAYE workers. It is likely that this will mean the end of tax breaks for the self employed and going forward, we can expect the self employed NIC rates to be brought in line with the rates for employed workers.

According to Rishi Sunak, the Government’s aid to UK workers, businesses and the wider population is unprecedented. It now includes tax payments worth £30bn being deferred until end of the year, 17,000 Time to Pay arrangements secured, £300bn in emergency business loans, plus cash grants for SMEs, SSP rebate cover, mortgage holidays and the job protection scheme for payroll-ed workers.

We will continue to monitor these COVID-19 emergency response announcements relevant to taxpayers and business owners, sharing details with you as they become available.

If you would like advice or support, please don’t hesitate to email us via partners@rjp.co.uk.