Coronavirus: help for the self-employed

26th March 2020

The Chancellor has revealed a multibillion-pound bailout to help millions of self-employed workers hit by the coronavirus crisis, following on from the Job Retention Scheme announced last week where laid off employees would be paid 80 per cent of their wages up to a maximum of £2,500 per month.

A scheme similar to that is being set up by June so that the government can pay money into people’s bank accounts to reimburse them for losses incurred by following instructions to stay at home.

It appears that the bailout will be means-tested to ensure it is correctly targeted at those most in need and will be administered by HM Revenue & Customs.

People will need to provide their bank details, although it appears they won't have to provide proof that their incomes have been reduced by the coronavirus pandemic, but that may need clarification.

This new scheme will be a welcome relief for many.

“Never in our history has the government put its arms around people in the way we are doing now to help them get through this time.” Boris Johnson

Details of the scheme (announced so far)

Self-employed individuals and members of a partnership will get the following support:

  • Self employed Income support scheme - taxable grant of 80% of their average monthly profits over the last three years up to £2,500 per month
  • Where there is less than three years of accounts, HMRC will look at what has been submitted.
  • Where newly self-employed have not filed anything, they will need to access welfare benefits such as Universal Credit..
  • The scheme is open for at least three months
  • Similar to that for furloughed employees
  • It’s only open to those with trading profits of up to £50,000, who make a majority of their income from self-employment.
  • To minimise fraud, only those already in self-employment, who have submitted a tax return for the year to 5 April 2019 can apply.
  • The scheme will be operationally available from June 2020, if not sooner, but payments will be backdated to 1 March 2020
  • To make sure no one who needs it misses out on support, the government will allow anyone who missed the tax return filing deadline in January 2020, four weeks from today to submit their tax return.
  • There will be compliance measures and a form to fill in to access the money. People will have to confirm, for example, that they are still trading.
  • There is available an advance payment of Universal Credit from the DWP for those self employed who need money before the grants flow through. There is further information below on Universal Credit.
  • The Coronavirus Business Interruption Loan is also available to the self-employed.

Further details are being added to the HMRC website.

First thoughts

The scheme is unprecedented for the self-employed, as is the scheme for the employed announced previously. 

The downside is that payments are unlikely to be made before June, though will then effectively be three months' work of grant in one lump sum. In the meantime, those eligible will have to rely on savings, borrowings or benefits to cover the gap.

It appears that in order to qualify, the self-employed will have to get more than half of their income from self-employment and have a trading profit of less than £50,000 in 2018-19, or an average trading profit of less than £50,000 from 2016-17, 2017-18 and 2018-19. So some may not get support where they do not meet the criteria.

Future tax and NIC parity between the employed and self-employed

The Chancellor also indicated that there would in future be a much closer parity between the National Insurance and tax paid by employees and the self-employed, the details for which will follow in due course, probably in the next Budget.

So the 9% NICs for self-employed may be equalised with 12% paid by employees on the basis that they get the same treatment so should pay the same tax.

But the 2019 Conservative Party manifesto did promise that there would be no increase in NICs during this Parliament, so attempting to increase them for the self-employed could result in a re-run of 2017 when the then Chancellor Philip Hammond had to do a humiliating u-turn on increasing Class 4 NICs for the self-employed from 9% to 11%, as the manifesto had promised there would be no increase..

Personal service companies

Those who pay themselves a salary and dividends through their own company are not covered by the scheme, but may be covered for their salary only by the Coronavirus Job Retention Scheme if they are operating PAYE schemes. However, they may have to prove that they have stopped working.

The duties of a director are taxed as an officeholder, not as an employee. Directors have to designate themselves separately as an employee of their own company, though there is conflicting case law on this.

Further details about how the Job Retention Scheme actually works will help clarify the position of those working via their own companies. Many "self-employed" people operate through a limited company, so are not really catered for, it would seem.

Other help already offered to the self-employed

In addition to the above, the following has already been announced for the self employed:

  • No interest on business interruption loans for the first twelve months.
  • Deferring the next quarter's VAT payment - No business will pay VAT from now to mid June. This is automatic. VAT returns still have to be submitted. You'll have until 31 March 2021 to repay those bills. Traders who normally pay by direct debit should cancel their DD with their bank if they are unable to pay. They need to do so in sufficient time so that HMRC do not attempt to automatically collect on receipt of your VAT return.
  • Universal Credit and Working Tax Credit basic element enhanced for the next twelve months - increasing the Universal Credit standard allowance, for the next 12 months, by £1,000 a year. and increasing the Working Tax Credit basic element by the same amount.  
  • Self employed can now access Universal Credit with no floor limit - that means self-employed people can now access, in full, Universal Credit at a rate equivalent to Statutory Sick Pay for employees. Claiming universal credits may also unlock other benefits such as free school meals, a reduction in council tax and help with prescription costs and dental treatment.
  • For the self-employed, (and anyone under self-assessment| the next self assessment payment due 31 July 2020 is deferred until January 2021. However, this could mean massive tax bills next January, so time to pay measures will be needed. Also, as profits may be impacted to 5 April 2021, payments on account in January 2021 could be reduced. See further commentary below.
  • For renters, an extra £1bn of support by increasing the generosity of housing benefit and Universal Credit, so that the Local Housing Allowance will cover at least 30% of market rents in an area. There is a complete ban on evictions.
  • Cash grants under the Small Business Grant Fund (SBGF) for businesses eligible for Small Business Rates Relief (SBRR) and Rural Rates Relief (RRR). 

Tax deferment

A word of warning about the deferment of self assessment tax until January 2021 as this could create large tax bills next year.

There will be a time delay for the self employed before they see any actual reduction in their tax liability as income that falls into the tax year to 5 April 2021 is reported and tax paid in January/July 2022.

Where an accounting year/period ends early in the tax year, that will move to 2023. So there is a long term cash flow issue that will need to be addressed.

The first payment on account for 2020/2021 is 31 January 2021, when submitting your return for 2019/2020. The second payment on account will be on 31 July 2021.

What a self employed person will need to do is apply for reduced payments on account for the tax year 2020/ 2021 in the tax return sent in by 31 January 2021.

HMRC helpline

Any self--employed individual concerned about paying their tax due to coronavirus, can call HMRC’s helpline for help and advice: 0800 024 1222.

Further updates

For the latest, check out the Coronavirus KnowldegeHub.

[Gary Mackley-Smith]

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