The basic details of this scheme were released at the end of last week. In broad terms, those who are self-employed (and have suffered a loss in income) will have their income (as reported on their tax returns); totalled for the three tax years ending 5 April 2017, 2018 and 2019, then averaged out by month and 80% of the monthly average will be paid to those individuals (there is a cap of up to £2.5k per month). The payments will be made for three months, in a single lump sum, expected to be paid in June.
Below are some finer details of the scheme but please note that only basic details are currently available and we are aware there will be some clients who; have been self-employed for less than three years or who ceased self-employment during that time and perhaps transferred into a limited company. As well as other variations and we wait to have clarification on how the scheme will be (if it is to be) applied in those circumstances.
• You can’t yet apply for the scheme. HMRC will contact you if you are eligible (they will be looking at your tax returns for the three years ended 5 April 2019)
• Eligibility – self-employed individuals and those who are members of a Partnership
• Those eligible must have more than 50% of their income from self-employment
• The scheme does not take into account non self-employed income e.g rental income, dividends, interest, pension income.
• You must have been trading in the tax year 2019/20 (this is the current tax year, about to end of 5 April 2020)
• You must be trading when you apply (or would have been, were it not 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 trading profits must be less than £50k per annum
• If you started trading between 2016-19, HMRC will only use those years for which you submitted at tax return.
• HMRC are building a new online service to deal with claims; this will take time and that is why they are expecting to pay out from June.
A few of our thoughts (some of these have not yet been confirmed – we await the detailed rules)
• It’s likely that there will be a series of questions on the online application including what sector of business you operate in and an explanation of why you have lost income; in many cases this will be straightforward to answer.
• We don’t yet know exactly how the 80% will be calculated for those who have less than three full tax years of self-employment. There are various ways they could tackle this but it’s likely the payout is going to be less than it would have been for at least 3 years self-employment.
• We think the 80% support calculation will be based on ‘taxable profits’ from self-employment as reported on your tax return. Taxable profits, for many clients are quite varied from year to year; especially for a business who regularly invests in equipment, the effect of which can sometimes make taxable profits much lower or even reduce them to zero. This would have a significant adverse impact on the 80% support calculation and we wait for clarification on exactly what HMRC mean by ‘trading profits’ and whether they will be taken after capital expenditure (which if the case would seem unfair for being penalised because you invested in the future of your business).
• We don’t think it will be possible to have a situation where you are furloughed from e.g a part time employment (with your employer claiming 80% wages grant) and you, as a self-employed person also claiming 80% on self-employed average profits.
• Importantly, you can still continue to do self-employed work and claim the 80% income payment.
• Any payments received under the scheme we expect to be subject to tax and NIC in the way normal profits would be (these will go onto your tax return for 2020/21).
• What about support between now and June?
The Government have nothing specific for the self-employed to bridge this gap and are asking individuals to look to other support measures such as; VAT deferral, Universal Credit, business interruption loans, mortgage repayment holidays. Each of these need careful consideration. There is also the grant scheme for some with business premises registered with their local authority for business rates.
What you can be sure of is that creating a scheme to help the self-employed is very complicated for the Government and HMRC and not every self-employed person is going to be eligible for support.
Please be mindful that should you receive a letter from HMRC suggesting you are eligible, do not assume that you are; please check with us upon receipt. Remember that HMRC’s initial letter round is based purely on what went on tax returns up to 5 April 2019 which was a whole year ago and peoples circumstances can change within 12 months which is where some of the difficulty in applying the rules will come.
We recommend that in the meantime you don’t attempt to ring HMRC about this yourself (ask us instead) since they need all the time and resources they can muster to get this system up and running as quickly as possible!