Tom Walker ACA explains the measures from the government to help the self-employed.
The Chancellor's bailouts for the self-employed have been welcomed by many. However, this support is likely to come with longer term tax consequences for this particular group of workers!
According to the Financial Times, there are approximately 5m self-employed people in the UK. This accounts for around 15% of the workforce. Whilst the financial aid packages will prove vital support to many, there are unfortunately plenty of people who don't qualify for the Self-employment Income Support Scheme. We explore and explain this all in more detail in this blog.
What you need to know about coronavirus grants for the self-employed
1. What is the Self-employment Income Support Scheme (SEISS)?
The third self employment grant launched on Monday 30 November 2020. Taxable grants of 80% of historical income, up to £7,500 a month, are being offered to the self-employed where they're already in the self-assessment tax system.
Income has to be below £50,000 and the grant covers November 2020 to January 2021. A fourth grant will cover February 2021 to April 2021 but details on how much this will cover be and when applications need to be made have yet to be released.
Where your income is above £50,000, then you're deemed by the government to have earned enough to see yourself through the economic downturn resulting from the COVID-19 outbreak.
The grant calculation is based on income, not turnover. Therefore, if you have significant expenses you may not have much income left over from the grant once you've covered them.
2. Who the scheme applies to
If you're a self-employed individual or a member of a partnership, you can apply for the support if you fit the following criteria:
You've submitted your self-assessment tax return for the year 2018/19
You're trading in the 2019/20 tax year
You're trading when you apply or would have been but for the coronavirus outbreak
You'll likely to continue to trade in the 2020/21 tax year
You're suffering with lost trading profits as a result of UK coronavirus
The calculation your grant is based on is the average income you have declared in the last 3 tax years. If you don't have 3 years of tax returns then it's based on what you do have. If your average income over that timeframe is higher than £50,000, you won't be eligible.
Finally, a key qualifying criteria is half your income must come from self-employment activities.
3. SEISS extension and a new qualification criteria
The third extension to SEISS opened on 30 November 2020. There is no requirement for an applicant to have claimed the previous 2 grants to be eligible for the scheme’s extension. You'll need to make your claim before 29 January 2021.
For the previous 2 grants the eligibility criteria stated your trade had to have been negatively impacted by the pandemic and/or been you were temporarily unable to trade due to coronavirus. Now for this third grant, to qualify you'll have to declare that demand has decreased because of COVID-19.
This is a more restrictive criteria and means those who claimed the first 2 grants because they were for example, self isolating, or had more costs, won't now qualify for this this latest extension.
4. Who else is missing out?
At present the grant leaves out the newly self-employed. Data from the current 2019/20 tax year doesn't count. This means if you haven't got a historical tax return declaring your income then you won't get paid. You'd then have apply for Universal Credit as your only alternative option.
Of note, the scheme is not designed for owner-managers who, while self-employed, pay themselves via dividends through a limited company. Instead they'd have to go down the route of:
This means it also won't help contractors who use limited companies to work off payroll. The reason being the Treasury have deemed it impossible to decipher if dividends, where they're less than £50,000, have been generated from productive activities through work, or simply from the proceeds of shares in a listed business. The argument is that makes it impossible for HMRC to implement.
Alternatively, if as an owner manager, you pay yourself all or part of your salary through PAYE, you could furlough yourself in the job retention scheme. You'd then receive 80% pay support up to £2,500 per month. This might help to tide things over a bit as you strive to keep your business going.
5. A future of more tax for the self-employed?
The Chancellor has talked openly of the need for taxation of the self-employed to be, "levelled up". Whilst he won't go into any details on this matter, there has been plenty of parliamentary debate, for quite some time, about greater alignment of tax between those on PAYE and off payroll workers.
Given the government has had to bail out this part of the economy, despite the self-employed not receiving the same benefits as those on PAYE, potential tax rises could be coming for this group once the outbreak has finally passed.
The content of this post was created on 31/03/2020 and updated on 09/12/2020.
Please be aware that information provided by this blog is subject to regular legal and regulatory change. We recommend that you do not take any information held within our website or guides (eBooks) as a definitive guide to the law on the relevant matter being discussed. We suggest your course of action should be to seek legal or professional advice where necessary rather than relying on the content supplied by the author(s) of this blog.