On phone

Chancellor of the Exchequer Rishi Sunak unveiled unprecedented government aid for the self-employed. 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.

Rachael Revesz explores the practical implications: what’s covered, who can apply and how the funds can be accessed.


There are around five million people who are self-employed and freelance across the UK, and many will be relieved to hear that financial support is on the way to help those impacted by coronavirus. After an earlier Government announcement of £350 billion in support for business, some help is now at hand for the self-employed individuals who perform such a vital role in the UK economy.

But what does the new ‘Self-employed Income Support Scheme’ involve, how does it work and when will it be rolled out? And what other options are there in the meantime?

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. The scheme will allow you to claim a taxable grant worth 80% of your trading profits up to a maximum of £2,500 per month for the next three months. This period may be extended.
  • The scheme should be up and running by the beginning of June, if not sooner, across all of the UK.
  • The income support scheme will cover the three months to May. It will last for three months, although the Chancellor said he might extend the scheme if necessary. Currently, the payment would be a lump sum for the three months, so a maximum of £7,500 could land in your account.

More info on the scheme is available on the Government site.

Who can 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.
  • You must be trading when you apply, and intend to continue to trade in the 2020/21 tax year, and have been financially adversely affected by Covid-19.

Who is not eligible?

  • The scheme will not apply to those who operate under a company structure and take dividends.
  • The income support scheme will only be provided for people who have a tax return for 2018/19 — and that tax return 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 scheme calculates average profits over three years. What if I have less than three years’ worth of tax returns?

The Chancellor said HMRC would 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.

More good news is that for anyone who filed their tax return late, after 31 January 2020, the Chancellor is giving you another four-week window, starting 26 March until 23 April, to send in your tax form in order to qualify for the income scheme.

What if I made more than £50,000 in one of the three years?

HMRC will take your average profits over the time period, so as long as your average profits fall below £50,000, you can apply.

How do I apply to the Self-Employed Income Support Scheme?

HMRC will contact self-employed and freelance people directly in due course, asking you to apply to the income scheme. This will include filling in an online form to 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. More details are yet to be announced.

Government advice is not to contact HMRC to apply to this scheme – they will contact you, using data from 2018/19 tax returns – but a new helpline has been set up for any self-employed person who is worried about paying tax, or needs help or advice.

I’m eligible for the scheme but I need money now! What can I do?

In the government budget on 11 March, a package of measures were announced for the self-employed. Since then, the Chancellor has announced more help is available due to the pandemic. They are as follows:

  • The Coronavirus Business Interruption Loan Scheme (CBILS), which opened for applications on 23 March. It provides loans for businesses that make up to £45m turnover and have experienced cashflow problems due to the virus. The government will pay any interest and fees for 12 months, and self-employed people can apply for the loan from 40 lenders. More information can be found on the British Business Bank website.
  • Another option is temporary tax savings. The Chancellor has deferred the deadline for completing your self-assessment 2019/20 tax return until January 2021, which may provide a cash lifeline for a few months. For this, you need to contact HMRC. See below for more tax-related help.
  • Self-employed people can now access Universal Credit up to a level of £94.25 per week. This rate is equivalent to Statutory Sick Pay for employees.
  • The Department for Work and Pensions is increasingly providing advance payments for people who are self-isolating, which can be in your account within “days”, the Chancellor said this week.
  • Councils have also been given extra funding to help those most in need i.e. by suspending debt collection or helping people pay their rent. Contact your local council to find out what support you can claim during this time.
  • For any businesses and self-employed people who are worried about outstanding tax or have financial concerns, ’Time to Pay’ arrangements can be agreed with HMRC, which involve pushing back the time period in which you have to pay your tax. You can phone the new Covid-19 helpline for more information.
  • IR35 – which required self-employed contractors working under a company structure such as an LLP to either operate as a sole trader or join the client’s payroll – has been suspended until 2021.

Further resources

Our partner IPSE (the Association of Independent Professionals and the Self Employed) gives a helpful run-down of the latest financial measures, as well as further help and guidance for the self-employed.

Here is more government information on the new Coronavirus Self Employed Income Support Scheme.

There is a new HMRC phoneline for businesses who may be worried about paying their tax during the virus.

The above is intended as general information and does not constitute advice in any way. You should take independent advice if you have any questions about your specific circumstances.


 

Originally featured on the Starling Bank blog. For more information on the services Starling offer, click here.

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