Government introduce a financial package to support the self-employed
Friday 27 March, 2020
Vishal Gulrajani Financial Planner in North London, Cheshunt and Goff’s Oak reviews the new financial packages introduced to support self-employed workers.
Firstly, if you are reading this, I hope you’re well and keeping safe. On the 26th March the newly appointed Chancellor Rishi Sunak announced further packages to help support the country through these difficult times as he introduced a support package for the self-employed.
What is the financial package introduced for the self-employed?
After coming under serious pressure, Chancellor Sunak has delivered a package to help the self-employed battle against the economic hardship we are currently facing. The message to the self-employed who are losing approximately £800 p/m on average and with the majority still working is that you have not been forgotten.
How will the new measures support the self-employed?
The package enables self-employed workers to apply for a grant worth 80% of their average monthly profits assessed over the last 3 years to help them cope with the impact coronavirus is having on their business. The money will be paid in a single lump sum up to a maximum of £2500 per month but will not begin to arrive until June at the earliest. This could mean that some companies will not be able to survive due to the delay in payment and others where they are eligible will have to apply for universal credit to help them get by in the meantime. To apply for the grant at least half of your earnings have to come from self-employment, and you must have submitted a 2018/19 Tax Return which should have already been done as the deadline was the 31st January 2020.
What if your business started in the 2019-20 tax year?
The Government will average your trading profits for the longest period possible up to the three tax years - 2016-17, 2017-18 and 2018-19. This means if you were only trading for the 2018-19 tax year, they will use these profits only. If your business started in the last 11 months and you did not file a tax return for the 2018-19 tax year, you will not be covered by this scheme.
The headlines of SEISS are:
- It will support self-employed individuals (including members of partnerships) whose income has been negatively impacted by COVID-19.
- The scheme will provide a grant to self-employed individuals or partnerships, worth 80% of their profits up to a cap of £2,500 per month.
- HMRC will use the average profits from tax returns in 2016-17, 2017-18 and 2018-19 to calculate the size of the grant.
- The scheme will be open to those where the majority of their income comes from self-employment and who have profits of less than £50,000.
- The scheme will be open for an initial three months with people able to make their first claim by the beginning of June.
- The grant will be paid in one lump sum in June for the months of March, April and May. So, the maximum you can get is £7,500.
Who is eligible?
The following groups are eligible. You need to:
- be self-employed or a member of a partnership
- have lost trading profits due to coronavirus (Covid-19)
- have filed a tax return for 2018/19
- still be trading now, not just in 2018/19
- take more than half your total income from self-employment
- have trading profits under £50,000. That means 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.
How will you prove you have made a loss due to coronavirus?
- The Treasury has not set a figure on how much of a loss allows you to claim. In theory you could claim once you've lost £1.
- However, tax officials will be able to check you did actually make a reasonable loss when you eventually file your 2020/21 tax return.
- People are being asked to take a "responsible approach".
- Officials declined to say what the penalties might be if you don't.
How will it work?
- HMRC is designing a "bespoke web portal" through which people apply, a bit like filing your tax return online.
- You will apply through this portal and make several declarations, including that you've lost funds as a result of coronavirus.
- You will then complete a tax return in due course showing both whether you did actually lose money and showing the taxable grant you received from the government.
- The cash grant from the government will be paid directly into your bank account. Is the grant taxable?
‘If you have not submitted your tax return you still have 4 weeks to do so which is more than generous. Unfortunately, the grant won’t help all the self-employed as the scheme is only open to those that earn under £50,000 a year but this should still help over 3.8 million people and unlike the employed scheme the self-employed can receive the grant and still work. Finally, the money will be backdated from March but company owners who pay themselves a dividend are not covered.’
‘Overall this is a multi-billion-pound support scheme for most self-employed workers and reflects the difficult period we are living in. Although, it is not perfect it is a good result and something on this scale has never been introduced before. One thing to note is if you have just recently become self-employed it does not cover you as you must have one year’s accounts or a tax return to qualify, so some individuals will have to rely on others forms of benefits such as universal credits.
Businesses will have to wait approximately 10 weeks before payment so will need to rely on overdrafts, business loans and other support packages the government has brought in. Although not every business will survive, I can’t stress how good this package is as it is very difficult to come up with a solution for the self-employed.
There is one issue and probably a fair one, you must expect self-employed taxes to rise in the future. These are likely to increase in line with employed workers given they are now receiving the same benefits. Finally, it is not yet clear how to apply for the grant, but the chancellor said the HMRC will be in contact to let you know if you can apply in the coming weeks and once these details are announced I will review support package. Until then stay safe and stay home.
If you are self-employed and you require more information about how these new financial measures will affect you please contact one of our Thomas Oliver financial advisers who work with clients in North London and Hertfordshire on 01707 872000.’