10 Things to know about the Self-employment Income Support Scheme

After the initial delay, the Government announced an income support scheme in the form of a grant for self-employed people including Sole Traders, Partners (in partnerships) and Freelancers. Whilst the headline figures of 80% of profits capped at £2,500 was welcomed, a research by the Institute of Fiscal Studies suggests that around 2 million self-employed people would miss out.

So here are 10 things to know about the self-employment income support scheme and how to plan for the coming weeks if you miss out on the grant, as told by Jonathan Amponsah from The Tax guys.

1. Are you eligible to claim?

In order to be eligible, you will need to meet all of the following 5 conditions:

• You have submitted your tax return for 2018/19. If not, you have until 23 April 2020 to submit it to HMRC;
• You carried on a trade in 2019/20;
• You are trading when you apply for the Scheme, or would be except for the pandemic
• You intend to continue to trade in 2020/21; and
• You have lost trading profits due to the pandemic.

Whilst there is little information on the last condition above, I expect most self-employment people with profits of less than £50,000 would be eligible to claim 

2. Are you excluded from claiming?

There are two exclusion tests here. A person is excluded from the Scheme where they are a high earner (profits of more than £50,000) or where they have significant other income. This other income test may catch some self-employed people. So, let’s say your profits for 2018/19 (or average profits for the last 3 years) are £23,000 but you have other taxable income of £26,000. This brings your total income to £49,000. Because your profits are not 50% more than your total taxable income, then, unfortunately, you won’t be able to receive the grant if even you’re eligible.

3. Automatic grant or application

HMRC say that you don’t have to do anything and that they will write to you about the grant. Whilst this may suggest that it is an automatic claim, please note that you may have to apply to receive the grant. However, I anticipate that the application process would not be painstaking.  

4. Payable in one instalment

The grant will be paid for each of the three months ended 31 May 2020. The amount of the grant for each month will be equal to 1/12th of your average annual trade profits (based on 2016/17, 2017/18 and 2018/19), capped at £2,500 per month.

The grant will be paid in one instalment in June. So, if believe you will get the grant and cannot wait till June, you can perhaps seek some form of short-term financial help for now

5. Beware of fraudsters 

Please beware of emails and contacts in the coming weeks from Fraudsters asking for your bank or other details for the purposes of payment of the grant. If you have an accountant, do check or speak with them first. If not, call HMRC directly or look at any updates they put out. This is why perhaps getting you to make some application would help because then if you receive a call or an email and you know you have not applied for anything, alarm bells would start to ring to protect you.

6. Defer your taxes

As a sole trader, all the tax deferral schemes announced for the second payment on account and VAT do apply to you so do make sure you hold onto the money. If you are VAT registered and you pay by direct debit, do cancel the current mandate and reinstate it later on.

7. Taxable grant and universal credit

Another thing to be aware of is that the grant is a taxable grant. So, what the Government is doing is replacing part of your lost profits. The wider implication of this is that this amount is likely to be declared later on when you apply for universal credit. HMRC may well clarify this point or make exceptions later on in their updates.

8. Other claims (universal credits, loans and grants)

If you find that you’re excluded or not eligible for the claim, please note that you can also apply for Universal Credit. By way of an example, from 6 April 2020, a single Universal Credit claimant aged 25 or over will be entitled to a standard allowance of £409.89 per month. In addition, and depending on your circumstances, you may also be eligible for the other grants and loans support announced by the Government.

9. Local government initiatives

Please keep an eye on your Council’s website as I know some of them do have specific support for their residents. For example, at the time of writing (Easter Monday) I am aware that Wandsworth Council are helping to cover the cost of tax return services for self-employed people who have missed the 2018/19 tax return. So that is additional cash you don’t have to spend to get your tax return in.

10. Get your 2019/20 tax return done and filed – 3 potential benefits

I will also advise starting preparing to get your 2019/20 tax return done and filed. There are 3 benefits of doing this. Firstly, whilst this is not a requirement for the grant, the longer the pandemic goes on, updates on the rules would emerge and if the 2019/20 tax return submission becomes a criteria, you’re not rushing around. And whilst the tax is not due till 31 Jan 2021, you can start planning or use the time to pay facility.

Secondly, if your profits are less, then you will apply to reduce your tax payments on account. This is the tax you prepay in January and in July.

And finally, if you’ve made a loss because income in the last 3 months to March dropped significantly, then you can carry this loss back into last year and get some tax refund.

Conclusions

Please note that the rules may change and there are some areas which HMRC may clarify later. So do seek further advice and keep an eye on HMRC’s site for regular updates.

More on freelancer tax advice and the SEISS.