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Coronavirus: What's Changed - Self-Employed Income Support Scheme
Coronavirus - Self-Employed Income Support Scheme

On 26th March the government announced its proposal for supporting the self-employed during the Coronavirus pandemic. They are introducing a Self-Employed Income Support Scheme.

The government will pay self-employed people - who are eligible for the scheme - a taxable grant worth 80% of their average monthly profits over the last three years*, up to £2,500 a month.

Where someone has not been in self-employment that long a shorter period will be used.

This scheme will be open for at least three months although could be extended if necessary. Initially the payments were not due until early June, but HMRC announced on 4th May that the scheme would be open on 13th May with payments made by 25th May (click here for announcement).

Those entitled will receive a taxable lump sum to cover March, April and May.

More advice is available on the government's business support website - click here.
And there is an online checker for people to check if they would qualify - click here

And there are details of how HMRC will work out the payment on the gov.uk website - click here.

Who will get this help?

The scheme will be open to:

  • Those who are already in self-employment, who have a tax return for 2018/2019*,
  • Who are trading on the day of applying - or would be but for the Coronavirus outbreak,
  • Who have lost trading / profits due to COVID-19,
  • Those who have average annual trading profits of less than £50,000 pa,
  • Whose self-employment makes up the majority of their income.
HMRC will contact those eligible directly, ask them to fill out a simple online form, then pay the grant straight into their bank account.

* To make sure no one who needs it misses out on support, the government has decided to allow anyone who missed the filing deadline in January, four weeks from 26th March to submit their tax return.

Do you have to have stopped trading?

It appears not, The Chancellor also said whilst announcing the scheme 'You’ll be able to claim these grants and continue to do business.'

But it is expected that it will only be payable to those who have lost trading / profits due to COVID-19.

How to apply

Those eligible will be contacted directly by HMRC "once the scheme is operational". They will be asked to complete an online form, and the grant will then be paid directly into their bank account.

Who can't get help?

The following self-employed workers will not be able to receive the grant:
  • Those who started their self employment on or after 6th April 2019 - as they will not have submitted a tax return for 2018/19. However in Scotland there will be grants of £2000 for the newly self-employed who are ineligible for SEISS because their business began too late.
  • Those with average annual trading profits (loosely your taxable profits) of £50,000 or more.
  • Those who are also employed and their employed income is higher than their self-employed income.
  • Company directors who pay themselves a salary or dividends won't be covered by this scheme, but they could get support through the Coronavirus Job Retention Scheme for employees if they operate a pay-as-you-earn scheme*.

Why aren't Company Directors covered by this scheme?

On the government's business support website it states:

'Self-employed individuals who are owner-managers and pay themselves a salary through PAYE will be eligible for support through the Coronavirus Job Retention Scheme.

SMEs can also access support through the temporary Coronavirus Business Interruption Loan Scheme. This supports SMEs with access to loans, overdrafts, invoice finance and asset finance of up to £5 million and for up to 6 years.

This new Self-Employment Income Support Scheme is open to anyone who reports trading profits through Income Tax Self-Assessment. Self-employed individuals who work through a company do not report their trading profits in this way.'

Martin Lewis has said: "I have now had it absolutely confirmed by both the Treasury and HMRC that self-employed limited company directors CAN be furloughed as employees on their PAYE element, even if they’re the sole employee. Technically they can't then work for the firm, but can continue to perform their statutory obligations as directors, eg, official legal filings."

Not claimed Universal Credit yet?

Where a self-employed worker has not made a claim for Universal Credit yet, but is thinking of doing so, they may be better off waiting until they have received the payment. This is because, if they claim Universal credit now, the lump sum payment will be taken as income for their first Assessment Period, and mean a low or nil award. But if they wait until after the payment has been received the DWP will not be able to take it into account at all.
NOTE: If they are on Tax Credits and/or Housing Benefit already, then they may be better off staying on these rather than making a new claim for UC - they should speak to a Benefits Adviser to discuss their options.

The Minimum Income Floor has been suspended during the Coronavirus outbreak therefore their UC award will be based on their actual income and allowable expenses (click here).

Impact on benefits

The grant payment will be treated as earnings for benefit purposes. 

On the government's business support website it states:
The grant is recognised as income for the purposes of Universal Credit and Tax Credits and may impact the amount claimants are entitled to.

For Universal Credit

It will be treated as

self employed income (a ‘receipt’) for the monthly assessment period during which it is received.

This is confirmed by New Regulations from 21 May 2020 

So it will not result in any overpayment (ie no need to reassess entitlement for March, April and May to include the payment as income.

If the claimant has been reporting a loss* every month up to then. then this can be offset against the grant and only the difference will be treated as earnings. 
But for some it may mean that the claimant's UC award reduces to nil (and will need to reclaim) and/or the 'surplus earning' rules may then apply.

For Tax Credits
As it is taxable payment, it will be treated as an income payment so it will form part of the claimant's self-employed income for 2020/21 and will be able to be offset by allowable expenses. So the grant payment will only affect their Tax Credits if they expect their total profits for 2020/21 to be more than £2,500 greater or lower than their profits for 2019/20. 

For Housing Benefit
The payment will be treated as income so it will form part of their self-employed income and will be able to be offset by allowable expenses. If their projected income is now higher than the income the HB Office has been using then they should inform the HB Office who may adjust their ongoing HB award.

This was confirmed in LA Direct 04/2020
'No changes to HB regulations are required as the SEISS grant remains a payment of taxable income received from self-employment. The SEISS payment is part of the self-employed income assessment for the tax year in which it is received.'