Updated 22 April 2020
On Thursday 26 March, Chancellor Rishi Sunak made his long-awaited statement about the Covid-19 government support scheme for the self-employed, called the Self-employment Income Support Scheme (SEISS). Reports suggest that the announcement had been slow to arrive because of the greater difficulty in structuring and running a scheme that relied on annual information (via tax returns) and could not operate via the PAYE system.
SEISS provisions
The SEISS will pay a directly payable taxable grant to the self-employed (including members of partnerships) based on 80% of profits averaged over the last three tax years (or shorter periods if self-employment started after 2016/17), subject to a maximum of £2,500 a month.
- The initial payment term of the SEISS grant will be “at least three months”.
- The payment of the grant will not prevent the claimant from continuing to work.
UPDATE
Restrictions on the SEISS
The SEISS will be restricted in five ways:
- Self-employment must provide the majority of the claimant’s income (based on the period used for the £50,000 test set out below).
- Trading profits either:
- were no more than £50,000 in 2018/19; or
- trading profit were no more than £50,000 averaged over the three tax years from 2016/17. If trading started between 2016-19, HMRC will only use those years for which a Self-Assessment tax return has been filed.
According to the Chancellor, these thresholds mean the scheme covers 95% of the self-employed. The corollary is that it creates a cliff edge at £50,000, a figure that appears elsewhere in the tax system (e.g. the higher rate tax threshold).
- The claimant must have submitted a 2019 tax return (covering the 2018/19 tax year). As a concession, any later filer will have four weeks to submit their overdue return if they wish to be included in the scheme.
- The claimant must have traded in 2019/20 and still be trading when making the application (unless affected by Covid-19)
- The claimant must have lost trading profits due to Covid-19.
HMRC will use their existing information to assess eligibility and contact individuals directly, requesting completion of “a simple online form”. A gov.uk webpage gives more details, but is somewhat confusingly headed “Claim a grant through the coronavirus (COVID-19) Self-employment Income Support Scheme”. The “don’t call us, we’ll call you” approach is aimed at preventing HMRC being overwhelmed with telephone queries, as has happened with the DWP’s Universal Credit system. HMRC are aiming to contact eligible people “by mid May 2020”.
Timing of payments
Payments from HMRC should start at the beginning of June. The initial sum will represent three months’ cumulative payments. Until then the self-employed can claim Universal Credit. In his statement the Chancellor said Universal Credit could give a self-employed person with a non-working partner and two children, living in the social rented sector, support of up to £1,800 a month.
Anyone whose self-employment started after 5 April 2019 and thus has no self-employed earnings recorded with HMRC cannot benefit from the scheme and must rely on Universal Credit.
One-person companies
Those who operate through one person companies are not covered by the scheme as, despite the media label often given to them, they are not self-employed. The Treasury press release states that such people “will be covered for their salary by the Coronavirus Job Retention Scheme if they are operating PAYE schemes”. The use of the word ‘salary’ is key here, as many one person companies route the bulk of their employee’s remuneration via dividends to reduce National Insurance liabilities (see CJRS above).
In his closing remarks the Chancellor noted that “…in devising this scheme … it is now much harder to justify the inconsistent contributions between people of different employment statuses”. This was a subtle way of suggesting that National Insurance contributions will have to rise for the self-employed once the crisis is over.
UPDATE
Recent reports have suggested that the Small Business Minister is lobbying for a change on the approach to dividends, but meeting Treasury resistance. One potential problem appears to be that HMRC cannot easily distinguish between ‘remuneration’ dividends and dividends originating from normal investment.
If you need any assistance interpreting any of the latest self employed announcements from the government contact one of our Accounting & Business Advisory on 01142 664 432 or info@smhca.co.uk
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