The Chancellor has announced a Self-Employed Income Support Scheme (SEISS) to help self-employed people to get through the coronavirus pandemic. In this article I will do my best to explain who will (and won’t) be eligible, when support will be available and how to access it.
The SEISS will only cover those who paid tax on trading profits of up to £50,000 of income in 2018-19 and filed a self-assessment tax return for that period. This return should have been filed by 31st January 2020, but if you haven’t already done so already you have until 23rd April 2020 to do so. Anyone who has started a business as a self-employed person since 6th April 2019 won’t be eligible.
The Treasury estimates that two-thirds of the roughly 5.75m self-employed will benefit from the Scheme. Approximately 2m will be ineligible. The Chancellor claimed that the Scheme would cover up to 95 per cent of people who receive the majority of their income from self-employment but this must be an over-estimate given the qualifying criteria. He did add “Despite these extraordinary steps, there will be challenging times ahead. We will not be able to protect every single job or save every single business.”
Britain’s self-employed are a disparate group. Analysis by the Institute for Fiscal Studies shows that about a third had taxable income of less than £10,000, while a small number of high-earning partners in professional firms rank among the UK’s top 1 per cent by income. Emma Jones, founder small business support network, Enterprise Nation, said: “There will be some casualties. Those that are new to self-employment for example and those that have mortgages and bills to pay before June.”
What if I’m a self-employed contractor with my own company?
The Scheme does not cover the 1.8m people who probably consider they are self-employed but who are owner-managers of their companies, paying themselves mostly through dividends.
Those who are self-employed from every perspective but provide their services through a limited company, many of whom draw a low salary and top up their income with dividends are legally classed as employed – because they work for a company that they happen to also own – and therefore drop through the cracks.
Tax specialist for freelancers and contractors Qdos, said: “The chancellor may have delivered for millions of self-employed workers, but hundreds of thousands of genuinely self-employed individuals working through their own limited companies have been overlooked. Like employees, these people pay their tax, contribute billions to the economy and are helping the UK through this crisis. So it’s concerning that the Government has ignored them when it matters most.”
The Treasury has suggested that self-employed contractors who work through personal service companies and pay themselves dividends could furlough themselves and apply for the Coronavirus Job Retention Scheme. But although that Scheme offers some cover for employees, directors are unlikely to benefit as they are central to the ongoing operation of the business. If they furlough themselves they are effectively closing down the business they have worked hard to set up.
Although taxpayers who trade through their own company may consider themselves self-employed, these measures do not extend to cover the shareholder directors of a personal trading company.
So what does the Self-Employed Income Support Scheme offer?
The Self-Employed Income Support Scheme will offer a taxable grant (not a loan so it isn’t repayable) of up to 80 per cent of a self-employed person’s income based on their taxable profits over the past three years, capped at £2,500 per month. To be clear that covers the tax return years 2016/17, 2017/18 and 2018/19. I you were only self-employed for part of this three-year period then the monthly amount you are entitled to will be based on that shorter period, but HMRC may want to make additional checks on your income for this period.
The scheme will only become available at the beginning of June and will have an initial three-month lifespan, to be reviewed. HMRC will pay the single lump sum covering three months directly into people’s bank accounts.
The Treasury says that eligible individuals should not contact HMRC now. Instead, HMRC will contact them directly, ask them to apply by filling out an online form, and then pay the grant straight into their bank account.
In my view it is very unlikely that any payments will be made as early as June (which is what the Chancellor promised). HMRC has to build a system from scratch to deliver this Scheme and their record shows that most IT projects they undertake are delivered late. All the guidance tells us is that HMRC will make their online form available in June. Even this is optimistic. If you are relying on getting this grant to support yourself, I suggest you don’t plan to get anything until August or September at the earliest.
In summary the Scheme is intended to provide the same level of support as is being provided to PAYE employees who face redundancy because of coronavirus but it is:
- Capped at £2,500 per month gross but based on your actual declared income on your tax return. Little or no income, then no support.
- Income tax and national insurance is still payable;
- Open to anybody with income up to £50,000 according to their 2018-19 tax return;
- Available to people who make the majority of their income from self-employment, which will disqualify those who have income from other sources such employment, pensions and dividends;
- Only available to those who have made – or are about to make – a tax return for 2018-19 tax return;
What should I do now?
- Check your prior year tax returns to assess whether you are eligible on the majority trading and £50,000 trading profit conditions;
- Get your tax return for 2018/19 filed if you have not yet done so (by 23 April 2020)
- Prepare or update your personal cash-flow forecast. Grants are expected to be paid out in June but as I have said I think this is unlikely, so there will still be some concern around cash-flow until the grant is paid.
- Consider other help you may be eligible for as a self-employed worker such as Universal Credit (see below)
- If you haven’t heard from HMRC in the next few weeks and you believe you are eligible then do make your application to HMRC for the grant. HMRC will be checking your eligibility against its records and there will certainly be some who are in danger of falling through the cracks
And remember, this is not tax-free income. The payments will form part of your trading profit for the year and be taxed along with the rest of your trading profits through your Self-Assessment Tax Returns.”
Applying for Universal Credit in the meantime
The chancellor said that in the meantime self-employed workers can apply for Universal Credit, which has been temporarily increased to match levels of statutory sick pay (£94.25 a week) with the “minimum income floor” scrapped. However those applying for Universal Credit for the first time will usually have to wait for five weeks to receive a pay cheque.
And any self-employed person with savings of £16,000 or more is not entitled to any support via Universal Credit so will have to wait until they have burned through their savings in order to qualify.
Will the self-employed face tax hike when this is over?
Probably. The Chancellor hinted that the self-employed, who traditionally pay less tax than those under pay-as-you-earn (PAYE), will have to pay more tax once the crisis is averted.
According to the Resolution Foundation a self-employed worker on £25,000 pa pays £300 a year less in national insurance than an employee on the same salary. Until now the tax system has recognised that the self-employed have no paid holidays or job security, and so pay less tax as a result.
The Chancellor said the “very significant tens of billions of pounds” being spent to treat self-employed people the same way as employed people during this time of crisis “throws into light that inconsistency and whether that is fair going forward when we’re all chipping in together to right this ship afterwards”.
Emma Jones, founder small business support network, Enterprise Nation, said the chancellor’s words were “a warning shot that this will give the government a very good reason to change employment law and implement something similar to IR35 and other tax measures with renewed vigour as the self-employed, on this occasion, have asked to be treated in the same way as employees. If this applies to tax, there will be more changes ahead for the self-employed down the line.”