Coronavirus Self-Employed Income Support Scheme
On 26 March 2020, the Government announced a much awaited support package for self-employed individuals and partnership businesses that have suffered a loss of earnings due to COVID-19.
Eligible individuals will receive a grant of up to 80% of their average monthly trading profits, up to a cap of £2,500 per month.
Initially the scheme was set to run for a 3 month period (March to May). However, as this scheme is designed to match the support given to furloughed individuals, it is thought that it will be extended to end of October to match the extension of the Job Retention Scheme announced by Rishi Sunak on 12 May 2020.
So far, only those who work in the construction or manufacturing industry have been encouraged to go back to work, so continued support is needed for those self-employed people who don’t fall within these industries.
To be eligible for the scheme, the following conditions must be met:
- 2018/19 tax return submitted – (the cut off point for this was the 23 April 2020)
- Traded in 2019/20
- Are trading when they apply (or would be but for COVID-19)
- Intend to continue trading in 2020/21
- Have lost trading/partnership profits due to COVID-19
- Trading profits in 2018/19 were under £50,000 and these profits represent more than half of total taxable income; or
- Average trading profits in 2016/17, 2017/18 and 2018/19 were less than £50,000, and these profits represent more than half of total taxable income
For those that commenced trading part way through this period, the test will apply to the years for which returns were filed.
Average monthly profits will be calculated over the period 2016/17 to 2018/19 (as applicable).
The scheme will not benefit all self-employed taxpayers. For example; those who started trading in 2019/20, whose profits exceed £50,000 p/a, or who also have employment income that exceeds 50% of total taxable income in the relevant periods will not qualify.
Nor will the scheme benefit directors who pay themselves a mixture of salary and dividends, although they may benefit from the Coronavirus Job Retention Scheme if they operate a PAYE scheme in respect of their salary.
HMRC have stated that most of the 3.5 million people affected should have been contacted directly; inviting them to make a claim by using the checker tool.
Applications for direct invitees have been open since the 13 May 2020. To make a claim follow this link.
HMRC have stressed that those people who believe they are eligible but have not been contacted should use the checker tool and subsequently make a claim from 17 May 2020. The head of HMRC has also confirmed that there are no plans to close the service.
Grants for the initial 3 month period will be paid in a single cash lump sum (up to £7,500) expected to paid into claimants bank accounts from the 25 May 2020.
The grant does not need to be repaid but it will be taxable and will therefore need to be included on future tax returns. It also needs to be included as income in any tax credit claims.
PD Tax Tip: Covid-19 & Tax Compliance (25 March 2020)