Employment Law Update 2020: The Coronavirus and Self-Employment Income Support

After the Chancellor, Rishi Sunak, made an announcement early in March introducing measures to support employees through the effects of coronavirus, many self-employed individuals had been left waiting on measures to be introduced to help support them through the uncertain economic climate. Many self-employed individuals including cleaners, plumbers, electricians, musicians and hairdressers across the country had been forced to stop working because of the Government’s guidance on self-isolation and are suffering from significant cash flow difficulties as a result.

Last week, the Chancellor introduced the Self-Employment Income Support Scheme to help self-employed individuals cope with the financial impact of coronavirus. The scheme will be open to people across the UK for at least 3 months and will be extended for longer if necessary.

Under the scheme, self-employed individuals will be able to apply to HMRC to get a taxable cash grant of 80% of their average monthly profits from the last 3 tax years, up to a maximum of £2,500 per month, for at least 3 months. The grants will be backdated 3 months from March 2020. The Chancellor announced that the scheme is still currently being set up and the grants will not be begin to arrive until the start of June 2020.

The Government have published some guidance, but this is evolving as the scheme is being set up and there are still many unanswered questions.

How is the grant calculated?

HMRC will add together the self-employed individual’s total trading profits for the last 3 tax years and then divide this by 3, to calculate a monthly amount. Individuals that do not hold 3 years’ worth of accounts can still apply for the scheme and HMRC will look at the accounts that are available.

The Chancellor highlighted that they are covering the same amount of income for self-employed individuals as they are for furloughed employees, who also receive a grant of 80%. Unlike the employee scheme, the self-employed can continue to work and receive support.

Who is eligible for the scheme?

Individuals can apply for the scheme if they are self-employed or a member of a partnership and they:

Have submitted an Income Tax Self-Assessment tax return for the tax year 2018-2019 (the Chancellor has announced a 4-week extension for this tax return to be filed by 23 April 2019, so that any late filers can also benefit from this scheme);
Traded in the tax year 2019-2020;
Are trading when they apply, or would have been trading except for COVID-19;
Intend to continue to trade in the tax year 2020-2021;
Have lost trading/partnership trading profits due to COVID-19; and
Their trading profits must be less then £50,000 in 2018-2019 (or their average trading profits must be less than £50,000 from 2016-2017, 2017-2018 and 2018-2019) and more than half of their income must come from self-employment.
To minimise fraud , only those who are already in self-employment and meet the above conditions will be eligible for the scheme.

How do self-employed individuals access the scheme?

The Government has indicated that the scheme will be run through a HMRC online portal, but this is not yet in place. This will undoubtedly take some time to set up, but it is currently hoped that the scheme should be set up by June 2020. Individuals should not contact HMRC now. HMRC will be using existing information to contact eligible individuals to invite them to apply for the scheme online once it is operational.

Once the scheme is operational, individuals will need to apply using the online portal and the application process will require them to confirm that they meet the eligibility requirements.

After HMRC receives an individual’s claim and has assessed whether they are eligible for the grant, HMRC will then contact them directly and inform them how much they will receive. The grant will then be paid in a single lump sum instalment directly into the individual’s bank account.

Are there any potential downsides?

Whilst the scheme is a welcome support for self-employed individuals during this uncertain time, it is not perfect and has some downsides. The scheme will not cover individuals who earn £50,000 a year, company directors who pay themselves a salary or dividends (although they could access support through the Job Retention Scheme for monies paid via PAYE), or individuals who only became self-employed very recently. These individuals may have to continue working until the grant becomes available, putting their own and others health at risk.

Other measures available for self-employed individuals

The Government has also introduced the following measures to support self-employed individuals during this time:

Self-Assessment Income Tax payments due in July 2020 deferred until January 2021 and VAT payments will be deferred from 20 March 2020 to 30 June 2020;
Cash grants for businesses that pay little or no business rate;
Increased amounts of Universal Credit; and
Business Interruption Loan Scheme.
Need more help?

Given the scheme has only recently been announced, there are still a lot of unknwons, and we await the publication of further details. Our experienced team will post regular announcements and advice for self-employed individuals as soon as new guidance is released, so do keep an eye out – we anticipate many of our unanswered questions will be addressed over the next few weeks whilst the scheme is being set up.

Curzon Green and our experienced Employment Team are able to provide tailored, up to date advice to support your business in navigating the rapidly changing Government guidance and preparing for the uncertainty that lies ahead.