COVID19: Self-Employed Income Support Scheme

One of the measures introduced by the Government as support during the COVID-19 pandemic is support for the self-employed.

There is no need to identify as a potential claimant as HMRC will use the information currently held and contact anybody considered to be eligible. The whole process will be by and online service.

This service is not available yet. HMRC will aim to contact potential claimants by mid May 2020 and will make payments by early June 2020.

This scheme will allow a claim for a taxable grant worth 80% of your trading profits up to a maximum of £2,500 a month. It will be available for 3 months but may be extended.

The grant will be subject to Income Tax and National Insurance contributions but does not need to be repaid.

If you receive the grant you can continue to work or take on other employment including voluntary work.

Self-employed individuals or individual members of a partnership may claim provided they:

  • have submitted their Self Assessment tax return for the tax year 2018 to 2019
  • traded in the tax year 2019 to 2020
  • are trading when they apply, or would be except for coronavirus
  • intend to continue to trade in the tax year 2020 to 2021
  • have lost trading profits due to coronavirus

HMRC will seek confirmation that the business has been adversely affected by coronavirus. HMRC will as usual use a risk-based approach to compliance.

The trading profits must also be no more than £50,000 and more than half of your total income for either:

  • the tax year 2018 to 2019 or
  • the average of the tax years 2016 to 2017, 2017 to 2018, and 2018 to 2019

If you have not submitted Self Assessment tax returns for all 3 years HMRC will base the grant accordingly depending on the information held.

If the Self Assessment tax return for the tax year 2018 to 2019 has not been submitted, this must be done by 23 April 2020 or you will not be able to claim. HMRC will review any late returns in the usual way

HMRC will use data on the 2018 to 2019 tax returns already submitted to identify those eligible.

HMRC will not take into account any amendments made to submitted returns after 26 March 2020, when working out your eligibility or amount of the grant.

The trading profits to be taken into account will be calculated as follows:

HMRC will use the figures on the tax returns for the total trading income (turnover), then deduct any allowable business expenses and capital expenditure.

Allowable expenses include:

It also includes:

  • any business expenses deducted through the trading allowance
  • capital allowances, used to buy assets used in your business
  • qualifying care relief
  • flat rate expenses

We will not deduct from your trading profits:

  • any losses carried forward from previous years
  • your personal allowance

It may be possible that taxable profits for 2018-19 may be low or minimal following a claim for Annual Investment Allowance, for example. The temptation may be to weigh up the associated cost in terms of tax and national insurance against a higher grant being available by increasing the taxable profits by amending the return to disclaim the allowance. However, as stated previously, any amendments after 26th March 2020 will be disregarded for this purpose.

Self-employed individuals who have received payment for work or services in the form of a loan or other form of credit covered by the loan charge, may be able to claim the grant, however eligibility and average trading profits will be based on either:

  • the average of the tax years 2016 to 2017 and 2017 to 2018
  • the tax year 2017 to 2018 if you were not self-employed in the tax year 2016 to 2017

Also, in these circumstances, the 2018 to 2019 Self Assessment tax return may be filed by the 30 September 2020.

In the case of a self-employed farmer claiming farmers’ averaging relief HMRC will use the amount of profit before the impact of the averaging claims to work out:

  • Eligibility to claim the grant and
  • The quantum of the grant

No mention has been made regarding authors and individuals deriving profit from literary works. It is possible to average profits in a manner similar to farmers in these cases.

The grant will be based on the average trading profit over the 3 tax years:

  • 2016 to 2017
  • 2017 to 2018
  • 2018 to 2019

To work out the average trading profit HMRC will add together your total trading profits or losses for the 3 tax years then divide by 3.

Alternative methods will be used if a full 3 years profits/losses are not known for whatever reason.

The grant will be 80% of the average trading profit, adjusted to give a monthly amount. This will be paid up to a maximum of £2,500 a month and will be paid directly into the claimant’s bank account, in one instalment.

Claims currently cannot be made.

HMRC will aim to contact those involved by mid May 2020 and, if eligible for the scheme, invite a claim using the GOV.UK online service.

Alternative ways to claim will be available. Further information is expected in due course

The scheme will be driven by HMRC. However, any individuals who believes they are entitled and have not been invited should question this with HMRC.

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