• Coronavirus: Statutory self-employment pay scheme

    COVID-19 Self-employment income support scheme (SEISS). The Chancellor announced the following new measures on 26 March 2020.

     

    Support for the self-employed during the coronavirus crisis:

     

    • A taxable grant of 80% of average monthly profits over the three years 2016/17, 2017/18 and 2018/19.*
    • Capped at £2,500 per month.
    • Initially payable for three months.
    • Applies to self-employed individuals with trading profits up to £50,000 per year whose majority of income comes from being self-employed.
    • If you receive the grant you can continue to work or take on other employment including voluntary work. HMRC will however ask you to confirm that your business has been adversely affected by COVID-19.

     

    *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.

     

    Note that:

     

    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 4 May 2020 HMRC announced that claims would commence from 13 May 2020, with the first payments expected from 25 May 2020.

     

    Qualifying conditions

     

    You:

     

    • Have submitted your Income Tax Self Assessment tax return for the tax year 2018-19 or you will submit your return 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.
    • You have lost trading/partnership trading profits due to COVID-19.
    • Your self-employed trading profits must also be are between £0 - £50,000.

     

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

     

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

     

    • 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
    • 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
    • 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.

     

    HMRC have included examples in their guidance of the circumstances in which they might consider a business to be "adversely affected by coronavirus":

     

    • You are unable to work because you are shielding, self-isolating, on sick leave or have caring responsibilities
    • You have had to scale down or temporarily stop trading due to:
      • interruptions to your supply chain
      • a reduction or complete lack of customer, clients and/or staff.

     

    There are special rules for those 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.

     

    The profits conditions rules are different for loan charge payers:

     

    • 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
    • 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.
    • You do not have to file your 2018/2019 Self Assessment tax return by 23 April 2020 as the 30 September 2020 deadline still applies.

     

    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.

     

    What is total income?

     

    Total income means the total of:

     

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

     

    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.

     

    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

     

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

     

    • It indicates that claims cannot be made by taxpayers' agents and must be made by the individual businesses themselves.
    • 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.
    • HMRC expects to be in a position to start contacting taxpayers about making claims from 13 May 2020.

     

    How will the grant be calculated?

     

    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.
    • 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.

     

    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.

     

    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.

     

    If you have not submitted your Income Tax Self Assessment tax return for the tax year 2018-19, you must do this by 23 April 2020.

     

    HMRC will use 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 is now a four week period in which to file one.
    • Any amendments made to 2019 tax returns after 26 March 2020 will not be taken into account.
    • The scheme is expected to commencing paying out in June 2020. The grant will be paid directly into your bank account, in one instalment.
    • HMRC will contact registered taxpayers by mid-May, ask you to fill in a simple online form and the grant will be paid directly into your bank account.
    • The scheme may be extended if necessary.

     

    The comparable Employee Job Retention scheme for employees will apply to furloughed workers laid off during the crisis and has a cap of £2,500 per month.

     

    Check eligibility

     

    Confused by the rules?

     

    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: Claim a grant through the coronavirus (COVID-19) Self-employment Income Support Scheme

     

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

     

    Chancellor's statement 26 March 2020

     

    Coronavirus Bill 23 March 2020

    2016 to 2017 2017 to 2018 2018 to 2019 Average for the 3 tax years
    Trading profit £50,000 £50,000 £(10,000) £30,000
    Pension income £15,000 £15,000 £15,000 £15,000
    Total income £65,000 £65,000 £5,000 £45,000
    Trading profit are more than half of your total income Yes Yes No Yes

COVID-19: Statutory self-employment pay scheme - Updated: 4 May 2020

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