The new Self-employment Income Support Scheme offers a taxable grant worth 80% of trading profits, up to a maximum of £2,500 per month, for the next three months.
Who does it cover and who does it not?
The Self-employment Income Support Scheme targets self-employed people or members of a partnership who have lost trading/partnership trading profits due to COVID-19. There appears to have been much confusion amongst sole director/shareholders of Limited Companies in that they may benefit from this new announcement but to be clear, the scheme will not apply to those who operate under a company structure and take dividends – this is currently only aimed at Sole Traders and Partners in partnerships.
From what we currently understand, the income support scheme will only be provided to the self-employed who have filed a tax return for 2018/19 — and it must show that they made the majority of their income from self-employment during the year.
For those who became self-employed after April 2019, they will not have a tax return and therefore will not qualify for the scheme.
The Self-employment Income Support Scheme
- If you qualify, the scheme will allow you to claim a taxable grant worth 80% of your trading profits but there is a maximum of £2,500 per month for the next three months. This three month period may be extended.
NOTE: The money will form part of a business’s income, a client in receipt of this money will need to declare it in the tax return for the accounting year in which they receive it.
- The scheme should be running by June, if not sooner, across all of the UK.
- The scheme is proposed to cover the three months to May, although it may be extended if necessary. The payment would be a lump sum for the three months, so a maximum of £7,500 could be paid depending on your average profit from self employment.
I’m self employed. Can I apply?
- The scheme applies to people who make more than half of their income from self-employment, up to £50,000 in profit a year.
- It only applies to self-employed people who have filled in a 2018/19 tax return, and they now have until 23 April to do so if they have still not yet filed.
- Your self-employed business must be trading when you apply and intend to continue to trade in the 2020/21 tax year, and importantly – must have been financially adversely affected by Covid-19.
What if I have less than three years of tax returns?
We understand that HMRC will look at one year’s earnings (2018/19) if that is all you have. If you have two years of returns, they will average your monthly earnings across that period. If you have three, they will do the same but across three years.
What if my trading profits were more than £50,000 in one of the three years?
Your average profits over the time period will be used, so as long as your ‘average’ profits fall below £50,000, you can still qualify.
How do I apply to the Self-Employed Income Support Scheme?
The self-employed will be contacted by HMRC directly in due course, in this communication they will ask you to apply to the scheme. There will be an online form for you to complete and prove, for example, your identity, that you are still trading and intend to continue to trade in 2020/21 and that your income has been adversely affected by the virus.
If all is in order, payments will then be made directly into your bank account.
For now, although the news was welcomed by many there are concerns that the need to wait until June for any payment could be too late. We’ll continue to update you as we find out more.