26th March 2020

This evening (Thursday 26 March) the Chancellor announced the latest financial support in response to the coronavirus outbreak. The support announced is for the self-employed and follows a week of pressure to do something for the self-employed after the Job Retention Scheme for employees was announced last Friday.

As soon as the announcement was made there was a deluge of commentators on the internet giving their views on whether the scheme is enough and its flaws. We will not comment on those aspects other than to say that the government had an enormous challenge trying to devise from scratch, in a very short period of time, a scheme to deal with individuals with a very wide range of circumstances. HMRC now faces a big challenge to deliver the scheme.

Further details will be published shortly by HMRC however the key aspects of the scheme which have been announced are summarised below.

Direct cash grants equal to 80% of profits, up to a maximum of £2,500 per month, for three months

The headline amounts that an individual may receive mirror the headline amounts in the Job Retention Scheme which applies to employees.

The 80% of profits will be calculated by reference to average monthly trading profit over the last three years.

The three months covered by the scheme are March, April and May. The announcement says the scheme may be extended beyond three months.

Available even if continuing to work

Although the headline figures are the same as the for the Job Retention Scheme which applies to employees, a key difference is that whilst the Job Retention Scheme applies to employees who are furloughed and not allowed to work whilst they are furloughed, the self-employed are able to continue to work.

Only available to those with trading profits of less than £50,000 per year

The grant will only be available to those with 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.

Presumably these periods have been chosen because tax returns showing self-employed income for 2018-19 should have been submitted by 31 January 2020. Therefore, the figures should be fixed and readily available to HMRC (see below in relation to process). A separate HMRC announcement states that anyone who has not yet submitted their tax return for 2018-19 must do so be 23 April 2020 in order to be eligible.

There are likely to be some anomalies which will lead to outcry. For example, if Person A has an average profit of £49,000, he/she will be able to receive £7,500 over the three months whilst it appears someone with an average profit of £51,000 will receive nothing.

Even though the profits which are used to determine the average are for periods up to 2018-19 the business must have continued in 2019-20 and the intention must be to continue in 2020-21.

Only available to those whose self-employed income is more than 50% of their income

A further condition is that to qualify, more than half of person’s income in those periods must come from self-employment.

Only available to individuals who are already self-employed

Only those who are already in self-employment and meet the above conditions will be eligible to apply. The government announcement states that this is to reduce fraud.

Presumably there will be some unannounced provisions in relation to individuals who became self-employed on or after 6 April 2019 and have already registered with HMRC.

Also available to partnerships

Individuals who are members of a trading partnership may qualify for the grant (if all other conditions are satisfied).

Process

HMRC will identify eligible taxpayers from existing information and contact them directly with guidance on how to apply.

The announcement states that individuals should not contact HMRC now and that HMRC will invite applications once the scheme is operational.
Those eligible will be able to apply directly to HMRC for the grant. The application will be online, and the cash will be paid direct into the applicant’s bank account.

Timing

Grants will be paid in a single lump sum instalment covering all 3 months (March to May) and will start to be paid at the beginning of June. Therefore, the scheme will not provide immediate cashflow.

Presumably it will take some time for HMRC to design the system for applications.

Tax status of the grant

Any grant received will be taxable income.

Depending on the timing of the accounts for a business this may give taxable income in 2019-20 and/or 2020-21.

Other support for the self-employed

The government announcement notes that before grant payments are made, the self-employed will still be able to access other government support for those affected by coronavirus including business continuity loans and more generous universal credit.

It is also worth noting that previous announcements which may also apply to the self-employed include: the deferral of the 31 July 2020 income tax instalment to 31 January; deferral of VAT for periods up to 30 June; the possibility of time to pay arrangements for employer’s PAYE and NIC liabilities; the Coronavirus Job Retention Scheme for employers; and relief in relation business rates.

Sting in the tail

Toward the end of his announcement the Chancellor thanked various organisations who had helped in developing the plans for the income support scheme and then went on to say:

“But I must be honest and point out that in devising this scheme – in response to many calls for support – it is now much harder to justify the inconsistent contributions between people of different employment statuses.

If we all want to benefit equally from state support, we must all pay in equally in future.”

Presumably this is reference to future changes to the national insurance rules for the self-employed or possibly wider changes.

We have tried to highlight the key points from this evening’s announcement – if you would like to discuss in more detail please get in touch.

James Bell (Tax Manager)
jamesbell@unw.co.uk

Scott Thompson (Tax Consultant)
scottthompson@unw.co.uk

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