Last night, the Chancellor announced a range of measures for self-employed people. This follows on from the Chancellor’s announcement on Friday 20th March on Coronavirus Job Retention Scheme (CJRS).
It was right to focus first on employees, who account for the vast majority of the workforce and risked being made redundant immediately without the Government’s swift action through the introduction of the CJRS.
Since then, the Chancellor has been working alongside his officials in HM Treasury and HM Revenue & Customs (HMRC), to address the understandable concerns of the self-employed.
There were a number of very significant policy and operational challenges that the Chancellor had to work to overcome. The self-employed are a very diverse population and include everyone from hairdressers to partners in “magic circle” law firms.
They have a wide mix of turnover and profits, with monthly and annual variations even in normal times. Some may see their profits unaffected by the current situation. Some have substantial alternative forms of income. There were also significant operational challenges that made it more of a challenge to design and deliver support than the CJRS.
The Chancellor and his officials discussed these issues with the Federation of Small Businesses (FSB), the Association for Independent Professionals and the Self-Employed (IPSE), the Trades Union Congress (TUC) and a range of other organisations representing or working with different types of self-employed people.
The new Self-Employment Income Support Scheme:
The Chancellor announced last night that the self-employed will now be eligible for a new Self-Employment Income Support Scheme (SEISS). This will support the self-employed whose income has fallen temporarily due to COVID-19.
The Scheme will provide taxable grants to self-employed individuals, including members of trading partnerships, worth 80% of their trading or partnership profits up to a maximum cap of £2,500 per month. The Scheme will cover three months of an individual’s typical profits so an individual could receive up to £7,500. HMRC will use the average annual profits from eligible individuals’ tax returns for 2016-17, 2017-18 and 2018-19 to determine the size of the grant for each person.
The Chancellor wants to ensure that this Scheme provides targeted support for those who most need it to ensure it is fair. Reflecting this, individuals will be eligible to claim a grant if they:
- Have lost trading profits/partnerships trading profits due to COVID-19
- Have filed a tax return for 2018-19 as self-employed or a member of a trading partnership, although the Government will make special provision for those who have not filed their return for 2018-19
- Have trading profits of less than £50,000 and more than half of your total income come from self-employment. The individual will qualify on this criterion if at least one of the two following conditions applies:
- Individual’s trading profits in 2018-19 were less than £50,000 and more than half their total income in 2018-19 came from self-employment
- The average of individual’s trading profits across the three years 2016-17, 2017-18 and 2018-19 were less than £50,000 and more than half their total income in those three years came from self-employment.
These criteria reduce the opportunity for abuse of the Scheme and ensure those who rely primarily on their trading profits from self-employment receive support. These individuals must be the priority for any taxpayer-funded help to deal with sharply reduced income over the next few months. 95% of people who receive the majority of their income from self-employment are eligible for this Scheme.
For clarity, those who pay themselves a salary and dividends through their own company are not covered by this Scheme. Their status is different to the individuals highlighted above and the CJRS is available to them if they are operating PAYE schemes. It is also not possible to distinguish between dividends derived from their own company and dividends from other sources.
Delivery of the Scheme:
The Government are working with urgency to make this Scheme operational as soon as possible so payments can be paid as quickly as possible. This is an extremely complex operational task but it is believed the first payments can be made by the beginning of June. The challenge to achieve this timeframe is enormous and should not be underestimated.
Individuals do not need to contact HMRC now and doing so will only delay the urgent work being undertaken to introduce the Scheme. Once the Scheme is operational HMRC will use existing information to check potential eligibility and invite applications. Eligible individuals will use a simple online form to verify their eligibility. HMRC will then pay a single lump sum grant covering all 3 months straight into the individual’s bank account.
The grants are subject to Income Tax and National Insurance so will the be reportable on future Income Tax Self Assessment tax returns.
HMRC has published further guidance on GOV.UK at: https://www.gov.uk/guidance/claim-a-grant-through-the-coronavirus-covid-19-self-employment-income-support-scheme
Other Recently Announced Support for the Self-Employed:
This is not the only support for the self-employed the Chancellor has announced.
Alongside support for businesses of all sizes through various other measures, the self-employed will also benefit in particular from the Government’s relaxation of the earnings rule (known as the Minimum Income Floor) in Universal Credit, and the deferral of Income Tax Self Assessment payments due in July 2020 to January 2021.