COVID-19: Statutory self-employment pay scheme - Updated: 29 September 2020

  • Coronavirus: Statutory self-employment pay scheme

    At a glance

     

    Support for the self-employed during the Coronavirus crisis:

     

    • Under the original scheme two separate taxable grants ('the initial grants') were claimable:
      • First grant for the period ending 13 July 2020.
      • Second grant for the period from 14 July 2020.
    • The grant payable is the lower of:
      • £7,500 (if claiming for the first grant), or £6,570 (if claiming for the second grant) and
      • 80% of your average monthly profits over the three years 2016/17, 2017/18 and 2018/19* for the first three months, reducing to 70% of the same average profits for the second three months.
    • The grant was initially capped for three months and has subsequently been extended twice.
    • An variation of the second grant was announced on 23 June and applies to new parents.
    • The grant is available to self-employed individuals:
      • With trading profits up to £50,000 per year whose majority of income comes from being self-employed.
      • Who have been adversely affected by the Coronavirus crisis.
    • If you receive the grant you can continue to work or take on other employment including voluntary work.

     

    • You do not have to have claimed the first grant to be able to claim the second.

     

    Claims for the first three months commenced on 13 May 2020, with the first payments arriving from 25 May 2020 and within 6 working days of claims being made.

     

    The deadline for claiming under the first round was 13 July 2020. Claims for the second round of grants at the lower rate may be made from 17 August with a deadline of 19 October 2020.  See How to claim under the SEISS.

     

    Note that: Company directors are employees for PAYE purposes and not self-employed, see COVID-19: Company directors

     

    If you fail to qualify for the SEISS, it may be possible to apply for funding via the Coronavirus Discretionary Grant Fund. This is administered by Local Authorities and currently is only open for applications between 29 May and 9am 15 June 2020.

     

     What's new?

     

    SEISS Grant Extension

     

    • An extension ('the extended scheme') to the scheme was announced on 24 September 2020. This provides for two additional taxable grants payable for the three months from 1 November 2020 to 31 January 2021 and 1 February 2021 to 30 April 2021:
      • The first grant will be based on 20% of average monthly trading profits, capped at £1,875. It will be paid in a single instalment.
      • The government will set the level of this second grant and provide details in due course.

     

    See Economy Statement by Rishi Sunak: At a glance

     

    Overview

     

    Eligibility

     

    You can claim one or both of the initial grants, only if your business is 'adversely' affected by the Coronavirus.' To claim the second grant your business must have been adversely affected on or after 14 July 2020.

    Your business may be adversely affected if any of the following apply:

     

    Restrictions on trading:

     

    • Government orders have meant that your trade or industry had to close or to be restricted in such a way that your trade closed or is otherwise adversely affected.
    • You cannot organise your work or workplace to allow your staff to work safely.
    • You cannot serve customers due to social distancing.
    • Restrictions have affected your customers or staff.
    • Your supply chain is interupted due to shortages of product, PPE etc.
    • One or more of your contracts have been cancelled.
    • You have fewer or no customers or clients.

     

    Restrictions on you personally:

     

    You have been ill or self-isolating or shielding.

    You have had to care for others and this disrupted your work.

     

    HMRC provides examples of situations were a business affected here.

     

    You should keep records to show that you have been adversely affected to include:

     

    • business accounts showing a reduction in turnover or increase in expenditure
    • confirmation of any COVID19-related business loans received
    • the dates your business had to close due to lockdown restrictions
    • the dates you or your staff were unable to work due to coronavirus symptoms, shielding or caring responsibilities

     

    Qualifying conditions

     

    The same conditions apply to both rounds of grant funding. These conditions relate to eligibilty for the grants and not to the amounts you will receive if you do qualify, details of which are set out at 'How will the grant be calculated?' below.

     

    You are self-employed and you:

     

    • Have submitted your Income Tax Self Assessment tax return for the tax year 2018-19 on or by 23 April 2020.
    • Have traded in the tax year 2019-20.
    • Are trading when you apply or would be except for COVID-19.
    • Intend to continue to trade in the tax year 2020-21.
    • Have lost trading/partnership trading profits due to COVID-19. You should keep records to support this.
    • Average self-employed trading profits between £0 - £50,000.

     

    Additionally, more than half of your total income comes from self-employment.

     

    One of the following conditions A to C must be met to be eligible for the scheme:

     

    1. Your trading profits/partnership trading profits are between £0 - £50,000 for 2018-19 and those trading profits are more than half of your total taxable income for that year, or
    2. Your average trading profits/partnership trading profits for the three years 2016-17, 2017-18, and 2018-19 are between £0 - £50,000 and your average trading profits for those years are more than half of your total taxable average income for those same years, or
    3. If you did not trade in 2016-17, your average trading profits/partnership trading profits for the two years 2017-18, and 2018-19 are between £0 - £50,000 and your average trading profits for those years are more than half of your total taxable average income for those same years.

     

    From July 2020: proposed modified extra condition for parents, including adoptive ones, who took time out of trading to care for their children within the first 12 months of the birth of the child or within 12 months of an adoption placement:

     

    • If your trading profits dipped in 2018-19 due to parenting, you will now be able to use either their 2017-18 or both their 2016-17 and 2017-18 self-assessment returns as the basis for their eligibility for the SEISS.

     

    Loan charge payers

     

    The qualifying profits conditions are modified for persons who are subject to the loan charge:

     

    A person is subject to the loan charge if:

     

    (a) on 26 March 2020 the person is chargeable to income tax on any amount by reason of Schedule 11 or 12 to the Finance (No. 2) Act 2017 (loan charge) as enacted as at that date, or

     

    (b) the person would be so chargeable but for entering into a contract settlement on or after 20 December 2019.

     

    If you are a Loan Charge payer, one of the following conditions D or E must be met.

     

    D. If you were not trading in 2016-17, your trading profits/partnership trading profits are between £0 - £50,000 for 2017-  18 and those trading profits are more than half of your total taxable income for that year, or

     

    E. Your average trading profits/partnership trading profits for the two years 2017-18, and 2016-17 are between £0 - £50,000 and your average trading profits for those years are more than half of your total taxable average income for those same years.

     

    In addition (for loan charge payers only) you do not have to file your 2018/2019 Self Assessment tax return by 23 April 2020 as the 30 September 2020 loan charge settlement deadline still applies.

     

    Non-UK residents

     

    Non-UK residents and non-domiciled individuals claiming the remittance basis:

     

    Must self certify that their UK trading profits are at least equal to their other worldwide income.

     

    Scottish taxpayers: newly self-employed

     

    If you are not eligible for the SEISS because  you are newly self employed you may be eligible for the Scotland's: Newly Self-Employed Hardship Fund.

     

    New parents - added 26/6

     

    • Self-employed parents whose trading profits dipped in 2018/19 because they took time out to have children will be able to claim the SEISS.
    • Parents, including adoptive ones, who took time out of trading to care for their children within the first 12 months of birth of the child or within 12 months of adoption placement, will now be able to use either their 2017-18 or both their 2016-17 and 2017-18 self-assessment returns as the basis for their eligibility for the SEISS.
    • They will also need to meet the other standard eligibility criteria for support under the SEISS.
    • Further details of the change for self-employed parents will be set out by the start of July in published guidance. This measure was announced on 17 June according to the treasury website.

     

    FAQs

     

    Who is self-employed?

     

    • Anyone running their own business as a sole trader or partner and who reports their taxable profits or losses on the Self-Employment or Partnership pages of their Self Assessment tax return.
    • Those who run property-based businesses and report their profits in the Land & Property pages of their return are not eligible for the SEISS.

     

    What is trading income?

     

    Trading income is your trading income less allowable expenses, less capital allowances and current year losses.

    Carried forward losses from another year are not deducted.

    A 'trade' includes a trade, profession or vocation chargeable to income tax.

     

    What is total income?

     

    Total income means the total of:

     

    • income from employments
    • trading profits
    • property income
    • dividends
    • savings income
    • pension income
    • miscellaneous income (including social security income).

     

    It does not include losses. ADDED 20/7/20

     

    Farmers, market gardeners and authors: averaging

     

    • Where an averaging claim has been made, the figures should be adjusted to exclude the averaging adjustment, this applies for both trading income and total income.

     

    Trading periods

     

    If you started trading between the years 2016 to 2019, HMRC will only use those years for which you filed a Self Assessment tax return.

     

    Profit tests

     

    HMRC give the following example (14 April 2020):

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    So even if you made a loss in the tax year 2018 to 2019, you would still be eligible for the grant because your average trading profit for the three tax years:

     

    • Is £30,000 - which is less than £50,000.
    • Is more than half of your total income of £45,000.

     

    Making a claim

     

    1. HMRC's online eligibility checker checks what has been reported under self assessment.

     

    • Agents can use the online checker which will indicate from what date a claim may be made if the outcome is positive.
    • The checker requires the taxpayer UTR and NI number to verify if an individual is eligible for the grant.
    • If the result of the online checker is negative there is an option to ask HMRC to review eligibility.

     

    2. HMRC's SEISS claims portal went live on 13 May 2020.

     

    • Claims cannot be made by taxpayers' agents and must be made by the individual businesses themselves. If the taxpayer's agent attempts to make a claim on their behalf this will delay the claim as it will trigger a fraud alert. However request for a review as to eligiblity or the amount of the claim may be made by the agent.

     

    3. Claims for the first three months of the grant must be made by 13 July 2020.

     

    4. Claims for the second and final three months commencing in August 2020 and must be made on or before 19 October 2020.

     

    How is the grant being calculated?

     

    The amount of SEISS payment for the first three month period is the lower of:

     

    a) £7,500 (1st grant) and

     

    b) (Average* trading profit/12) x 80% x 3

     

    This means that you need to have made a past average profit of £37,500 in order to expect to receive the full £7,500.

     

    The amount of the SEISS payment for the second and final three month period is the lower of:

     

    a) £6,570 (2nd grant) and

     

    b) (Average* trading profit/12) x 70% x 3

     

    This means that you need to have made a slightly higher past average profit, of £37,543, in order to expect to receive the full £6,570.

     

    *To work out the average HMRC will add together the total trading profit for the three tax years, or less, if you have been trading a shorter time and then divide by three or the number of months and use this to calculate a monthly amount.

     

    On 14 April 2020 HMRC provided additional guidance and examples as to how they will work out trading income for the purposes of the scheme.

     

    • They will take taxable trading profits after:
    • Allowable expenses including flat rate deductions.
    • Capital allowances.
    • Business expenses deducted through the trading allowance.
    • Qualifying care relief.
    • Current year losses
    • No losses brought forward or personal allowances will be deducted.

     

     

    HMRC examples:

     

    Example 1

     

    If your total trading income (turnover) in each of the tax years 2016 to 2017, 2017 to 2018 and 2018 to 2019 was £20,000 and you claimed the £1,000 trading allowance each year:

     

    This is worked out as:

     

    1. £20,000 deduct the trading allowance of £1,000 = £19,000.
    2. Multiply £19,000 by 3 = £57,000.
    3. Divide £57,000 by 3 = £19,000.

     

    Your average trading profit would be £19,000.

     

    Example 2: You have more than one trade in the same tax year

     

    We will add together all profits and losses for all these trades to work out your trading profit.

     

    If you only traded in the tax year 2018 to 2019 and made a £60,000 profit for your first trade, and then a £20,000 loss for your second trade, your trading profit for that year would be:

     

    Trade 1 £60,000 profit deduct trade 2 £20,000 loss = £40,000

     

    Example 3: You have traded for more than one year

     

    To work out your average trading profit we will add together all profits and losses for all tax years you’ve had continuous trade.

     

    If you made:

     

    • £60,000 profit in the tax year 2016 to 2017.
    • £60,000 profit in the tax year 2017 to 2018.
    • £30,000 loss in the tax year 2018 to 2019.

     

    1. Add £60,000 and £60,000 then deduct £30,000 loss = £90,000
    2. Then divide £90,000 by three.

     

    Your average trading profit for the three tax years would be £30,000.

     

    Example 4

     

    If you did not trade in tax year 2016 to 2017 but made:

     

    • £25,000 of profit in the tax year 2017 to 2018.
    • £45,000 of profit in the tax year 2018 to 2019.

     

    1. Add £25,000 and £45,000 = £70,000.
    2. Then divide £70,000 by two.

     

    Your average trading profit for the two tax years would be £35,000.

     

    Grants under the extended scheme

     

    The first grant under the extended scheme will be based on 20% of average monthly trading profits, capped at £1,875. It is expected that average trading profits will be calculated in the same way as for the initial two grants but this has not yet been confirmed by the government.

     

    Details of how the second grant for February to April 2021 will be calculated have not yet been made available.

     

    Averaging relief

     

    If you are a self-employed farmer, market gardener, creative author or artist claiming Averaging relief HMRC will use the amount of profit before the impact of the averaging claims to work out:

     

    • If you can claim the grant.
    • How much grant you will receive.

     

    I think I have been paid too much, what should I do? UPDATED 29 JULY 2020

     

    You must tell HMRC if you think your grant has been overpaid or that you should not have claimed, as if you do not you may be charged a penalty up to 100% of the grant amount. You can do this online here.

    • You will need your UTR and grant claim reference. Once you have completed the online form you will be provided with bank details to make payment.
    • You can also voluntarily pay back some of the grant.

     

    If you received the grant:

    • before 22 July 2020 you must tell HMRC on or before 20 October 2020
    • on or after 22 July 2020 you must tell HMRC within 90 days of receiving the grant.

    However if you did not know you were ineligible for the grant when you received it, HMRC will only charge a penalty if you have not repaid the grant by 31 January 2022. ADDED 6/8

     

    The Finance Act 2020 includes details of the powers HMRC will have to deal with incorrect claims. They will be able to:

    • Use their information and inspection powers to check a claim has not been overpaid.
    • Raise Income Tax assessments to recover amounts from the recipient of a payment which they are not entitled to. The usual time limits will apply to these assessments. See Time limits for tax assessments, claims and refunds
    • Charge a penalty where a person deliberately makes an incorrect claim for SEISS and they fail to notify HMRC about the situation within 90 days. Originally a 30 day notification requirement was suggested here.
      • Penalties will fall under the failure to notify rules and, as these will be treated as deliberate and concealed actions, the penalties could be anything between 30% and 100% of the overclaimed amounts.

    The draft legislation also sets out that the circumstances in which a person is not entitled to a coronavirus support payment include where they cease to be entitled to it after they have received it because of a change of circumstances.

    • In this situation the payment becomes taxable at the time that the recipient ceased to be entitled to it, and not when it was received.

     

    Members of partnerships

     

    • Each partner in a partnership must make a claim based on their own circumstances.
    • HMRC will work out eligibility based on your share of the partnership’s trading profits.
    • If the partnership agreement requires the grant to be paid into the partnership pot, the partnership should give it back to you.

     

    Tax and benefit implications

     

    The grants are subject to tax and NIC as self employed income. The legislation for the tax treatment of the grants is included in clause 19 schedule 1 of Finance Bill 2020 which provides that:

     

    • The grants are to be included in taxable profits for the 2020/21 tax year only, and not for 2019/20.
    • The grants are classed as self-employed income for the purposes of universal credit claims.
    • Where a grant payment is received for more than one self-employment business it must be apportioned between them on a just and reasonable basis.
    • Where the business has ceased, the grants are to be taxed as post-cessation receipts.

     

    VAT implications

     

    HMRC have not provided any guidance as to whether the grants will be subject to VAT or count towards turnover for VAT registration limits. Normal principles are expected to apply to mean:

     

    • The grants would be outside the scope of VAT and no output VAT should have to be accounted for.
    • The grant income should be disregarded for VAT registration and deregistration limits.

     

    If you did not submit your Income Tax Self Assessment tax return for the tax year 2018-19 by 31 January 2020, you must have done so by 23 April 2020.

     

    HMRC are using data on 2018/19 returns already submitted to identify those eligible and will risk-assess any late returns filed before the 23 April 2020 deadline in the usual way.

     

    • You must be registered as self-employed and have filed a 2019 tax return.
    • For those who missed the 31 January 2020 return deadline, there was an extension to 23 April 2020 in which to file one.
    • Any amendments made to 2019 tax returns after 6pm on 26 March 2020 will not be taken into account.
    • The scheme commenced paying out for the first three months from 26 May 2020. For the second period claims and payments will be made in August. The grant will be paid directly into your bank account, in one instalment.

     

    The Coronavirus Job Retention scheme for employees applies to furloughed workers laid off during the crisis and has a cap of £2,500 per month to the end of August reducing to £2,187.50 for September.

     

    FAQs: HMRC guidance

     

    HMRC published 'How different circumstances affect the Self-Employment Income Support Scheme'

     

    This answers FAQs covering the following topics

     

     

    HMRC's online checker became available on 4 May 2020.

     

    Additional support for small business

     

    • Employee job retention scheme: if you have other employees.
    • Grant funding: If you have business premises.
    • Small business rate relief: If you have business premises.
    • VAT payment deferral.
    • Emergency bank loans.

     

    See our COVID-19: Financial support Tracker for links.

     

    External links

     

    HMRC online eligibility checker

     

    Guidance: Check if you can claim a grant through the coronavirus (COVID-19) Self-employment Income Support Scheme

     

    Claim a grant through the Self-Employment Income Support Scheme

     

    How HMRC works out total income and trading profits for the Self-employment Income Support Scheme

     

    Chancellor extends Self-Employment Support Scheme

     

    Chancellor's statement 26 March 2020

     

    Coronavirus Bill 23 March 2020

     

    On 1 May 2020 HM Treasury published The Coronavirus Act 2020 Functions of Her Majesty’s Revenue and Customs (Self-Employment Income Support Scheme) Direction this confirms the detail of the scheme.

     

    On 1 July 2020 HM treasury published The Coronavirus Act 2020 Functions of Her Majesty’s Revenue and Customs (Self-Employment Income Support Scheme Extension) Direction confirming details of the extension of the scheme

     

    House of Commons Briefing paper 23 June 2020: Coronavirus: Self Employment Income Support Scheme

     

    Finance Bill 2020 schedule 1 clause 19

     

     

    2016 to 2017 2017 to 2018 2018 to 2019 Total for the 3 tax years
    Trading profit £50,000 £50,000 £(10,000) £90,000
    Pension income £15,000 £15,000 £15,000 £45,000
    Total income £65,000 £65,000 £5,000 £135,000
    Trading profit are more than half of your total income Yes Yes No Yes
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