Following the Chancellor’s update yesterday, 26 March 2020, that predominantly centred around government support for the self employed during the COVID-19 crisis, here’s what you need to know…
The Self Employed
For the purposes of this support ‘the self employed’ people in question are sole traders and partnerships – this does not apply to single director limited companies. I’ll touch more on those later on.
What you can claim?
- 80% of your trading profits to a maximum of £2,500 (per month)
- For 3 months
- This is a taxable grant; this means you will be taxed on the amount you receive
This is similar to the 80% Coronavirus Job Retention Scheme launched at the end of last week for employed people.
Who can claim?
- Self employed individuals – sole traders
- Members of a partnership
There are a few rules as to who can claim:
- You must have submitted a self assessment tax return for 2018/19 tax year – the deadline for this was 31 January, so hopefully you will have
- You must have traded, operated your business, in 2019/20 tax year – so since 6th April 2019 to now, so you can’t have wound up your company in January 2020 and claim this
- You must still be trading now, if it weren’t for the COVID-19 outbreak
- You must have the intention of continuing to trade in 2020/21 tax year – which begins 6th April 2020 (a couple of weeks away)
- You must have lost trading profits as a direct result of the current measures being taken around COVID-19
- If your trading profit is less than £50,000 you can claim
- More than half of your income must come from self employment, so if you have a main job and run a self employed business on the side you can’t claim
Why £50,000 Profit?
Because the scheme is designed to be comparable with the one for employed people.
The Chancellor did say that those excluded from the scheme had average income of about £200,000, therefore they believe it will cover circa 95% self employed people.
What conditions are being used to determine trading profit and self employed income being more than 50%?
- 2018/19 trading profits being less than £50,000
- 2018/19 trading profits being more than 50% of your total taxable income
- Having average trading profits in tax years;
- 2016/17
- 2017/18
- 2018/19, of
- Less than £50,000 and that being more than 50% of your average taxable income in those years
How do I apply?
- You can’t apply for the scheme yet
- You don’t need to contact HMRC – if you’re eligible HMRC will contact you
- HMRC will invite you to apply online for the grant
How much will I get, and when?
- The grant, a maximum of £7,500 will start to be paid out at the beginning of June, the word start is key – it will take time for HMRC to work through everything, so it’s likely that they grant payments will trickle through from the beginning of June
- The grant is to cover March, April and May
- HMRC will add your trading profit together for tax years 2016/17, 2017/18 and 2018/19 and divide the figure by 3 to work out the average
- The average will be split into monthly amounts
- You’ll get 80% of that monthly amount up to £2,500 for three months
- It will paid directly into your bank account in one lump sum
What if?
- If you haven’t been trading for 3 years yet? HMRC will only use the years that a self assessment has been filed to calculate the amount
- If you haven’t submitted 2018/19 tax return yet? Firstly, why not? 😉 Secondly, you have a grace period until 23 April 2020 to do this to still be included in the scheme – so do it NOW!
- If you didn’t make a profit? The likelihood is that you won’t be able to claim anything here, as they’re not looking at current year profits, only the past three years
- If you began self employment since 6th April 2019, so 2019/20 tax year; you can’t apply I’m afraid. This is to minimise the risk of people claiming this grant fraudulently
- While waiting for this scheme to be up and running, those struggling can still take advantage of the other government help available:
- Universal credit
- Coronavirus Business Interruption Loans
- Coronavirus Job Retention Scheme
As well as:
- Mortgage holidays
- Other help being made available through your bank
- Some local authorities are offering council tax holidays and money off council tax bills
For Directors of Limited Companies & Furloughed Workers
If you’re a director of a company, even if it’s your own company, the above support isn’t available to you. Instead, you fall into the pool of ‘employees’, and the Coronavirus Job Retention Scheme is the one for you.
This scheme is based on your salaried wage only, the amount paid to you through payroll. If you’ve taken advantage of tax efficiencies in the past by taking the majority of your income through dividends, unfortunately those dividend amounts can’t be classed as salary.
So, if you employ yourself, or others, here’s some information on that.
Who’s it for?
- UK businesses unable to operate or that have limited work because of COVID-19
- Employees of those businesses unable to work for those businesses as a result of little or no work due to COVID-19
- With employees on payroll at 28 February 2020; if an employee is put on payroll after 1 March 2020 they’re not eligible under this scheme
- Employees on any kind of contract; including temporary workers and those on zero-hour contracts
- Includes directors of limited companies
What to watch out for?
- Employment law still applies! Contact a HR professional if you’re unsure of any of the rights and laws involved
- The employer and the employee must both agree to put the employee on furlough
- If you don’t agree to furlough, you could be at risk of redundancy or employment termination, again all the laws and right apply there
- You can be made redundant while on furlough, redundancy rights apply to though
- This isn’t for those off work ill because they have COVID-19 – statutory sick pay applies there
- The government grants are to offset the amount of salary paid to employees, so they’re taxable as income received by the business
- An employee cannot do any work for the employer while on furlough, they can’t do anything to make money or provide services
- Employees must be put on a minimum of 3 weeks furlough, they can be placed on more than one furlough period, and straight after another one has ended, while the scheme is open
What can you do?
- You can work for more than one employer, be put on furlough with one and continue working for the other (if your employment contact allows it)
- You can be put on furlough by two companies, and receive payments from them both
- If you were made redundant after 28 February 2020 you can be re-employed and put on furlough
- You can undertake training while on furlough
- You can volunteer while on furlough, subject to public health guidelines
What else?
- The grant payable to employers is 80% up to £2,500 of salary, or if pay varies;
- The higher of the same period last year
- Average monthly earnings 2019/20 tax year
- It doesn’t cover commission and bonuses
- The grant starts the day the employee was put on furlough, and can be back dated to 1st March
- The scheme is operational for 3 months, but this can be extended if necessary
- Employees will still pay tax, national insurance and other deductions from wages
- The scheme should be up and running by the end of April; HMRC are developing a new portal that the claims will be made through
Again, the other schemes are available to support companies in the meantime.