Saving jobs in a Covid-19 world: what the Self-Employment Income Support Scheme means for the self-employed

If you’re self-employed in the UK and you fit the following criteria, then the government’s latest emergency Covid-19 measures, which guarantee 80% of a self-employed person’s monthly net earnings, up to a maximum cap of £2,500 per month, are applicable to you:

• you’ve lost trading profits due to Covid-19
• you submitted a tax return in January 2020 (i.e. you were trading in the last tax year 2019–20)
• you made a trading profit (not revenue) of £50,000 or less in 2018–19, or of £50,000 or less per year on average over the last 3 years
• during those past 3 years, the majority of your taxable income (i.e. more than half), on average, has been from self-employed work
• you're still trading (or would still be trading if not for Covid-19) and you intend to continue to trade in the tax year 2020–21, when you apply for the relief
• you're a sole trader

The relief will be backdated to 1 March 2020. And the government has said that, if necessary, it will extend the support under this scheme to after that period also.

You can’t apply yet. The government currently expects that the scheme will be operational by the start of June, and that the entire sum will be directly paid to your bank account all in one go at that stage.

Note that this is a taxable grant (not a loan), so tax will still be payable on it. You will need to account for this.

There is recognition that this is going to leave some self-employed people in financial difficulties, either because they’ve not been self-employed for long enough to apply to the scheme, or because they’re struggling financially already.

The Chancellor has said that those in this position should apply for Universal Credit and the other welfare system and hardship allowances, as well as the 12-month interest-free business interruption loan (for which it is now confirmed that self-employed people will be eligible) that the government has made available.

These other measures and options include:

• Talking to their bank to explore overdraft and loan options – a number of short-term solutions have been made available

• Contacting lenders, especially mortgage providers; the government have provided funds to enable residential mortgage providers to offer mortgage repayment holidays, taking away the pressure to pay installments in the next few months

• If you’re renting, as many of us are, the government’s banned residential landlords from evicting anyone from social or private rented accommodation while the Covid-19 emergency measures are in place (i.e. for at least 3 months); (Landlords are getting a 3-month mortgage payment holiday too, so that they can cope with their own financial obligations if tenants can’t pay their rent for this period and the government’s urgent landlords and tenants to put in place sensible payment plans as soon as possible, to discuss how they’ll manage repayments, once this period is over. (You can use Farillio’s Covid-19-friendly template plan for this.) More on this from the government here

• From April, the local housing allowance rate is also being increased, by up to £1,800 per month, for private renters who are new or existing Universal Credit housing element claimants and to existing housing benefit claimants. More here

• Commercial landlords have also been told by the government that they can't evict tenants who are unable to pay due to Covid-19 circumstances – meaning that up to 30 June (currently), if you’re renting premises for your business and you miss a payment, you'll not be treated as having breached/forfeited your rights to the lease. (The government has said that it may extend this eviction protection period.) All commercial tenants in England, Wales and Northern Ireland are protected by this new emergency rule. Scotland’s position can be found here

• Local councils and local authorities have been given funds to provide hardship relief in certain circumstances, and

• There is relief from having to pay business rates too

• VAT has been deferred for 3 months, and while still payable, doesn't have to be paid before the end of the 20/21 tax year

• Not having to pay ‘payment on account’ income tax due on 31 July 2020; individuals who pay on account can defer July’s installment and pay it at the end of January 2021 instead. No penalties or interest will be charged to those who defer

• Relief is also available on other taxes under HMRC’s Time to Pay Scheme (call them on 0800 0159 559 if you’re struggling to pay any other tax that is due)

Find out more about all these various measures here.

People who'll not be eligible

If:

• you made average profits (not revenue) above £50,000 over the last 3 years, you'll not be eligible (the chancellor’s conclusion is that 95% of the self-employed in the UK will be eligible and that the average earnings of those in this non-eligible 5% bracket amount to £200,000

• you have only just become self-employed and can't file a tax return for last year, you're not eligible for the scheme. The government has said you need to rely on the welfare system solutions instead (see above) and other measures that they've put in place and that may be available (see further below).

The scheme covers casual workers, i.e. those on zero-hours contracts and gig workers, but only if they're making over half of their income from this activity and they are not on payroll/under PAYE. If they're on payroll/PAYE, then the intention appears to be that the job retention scheme is appropriate. More clarity is being sought on this. For now, those who aren't eligible are being advised to look at the other reliefs, increased allowances and finance options.

There's also an unhappy area around the position of sole directors of limited companies who take both a salary and dividends out of their businesses. These individuals are not covered by the Statutory Self-Employment Pay Scheme and they fall under the Job Retention Scheme instead.

Although in principle, these sole directors are usually ‘employees’ as they’re taking a salary, it is hard to argue reasonably that ‘furloughing’ themselves, to save the business’ cashflow, while it endeavours to carry on, is actually feasible. Who is carrying on the business while they have laid themselves off? There is nobody. In addition, those managing their finances in this manner typically only take an exceptionally low salary and supplement it with a dividend; the latter not being included in the job retention scheme income calculation.)

People who have not been self-employed for a full 3 years

If you haven't been self-employed for 3 years, your eligibility and entitlement will be calculated on the period of time you've been self-employed and submitting tax returns. Provided that you've submitted at least 1 tax return so that HMRC has you on its records as someone who's self-employed currently, you will be eligible.

People who didn’t submit their tax return on time by 31 January 2020

If you did not submit a tax return by the 31 January 2020 deadline, the government allowed a grace period of 4 weeks, expiring on 23 April 2020, to submit one. If you were not able to submit a tax return by that deadline, you will not be eligible to apply under the first, or the second scheme.

You apply online via HMRC's gateway). Once you have completed their online form and your claim has been processed, they will pay the entire sum of money, all in one go, directly into your bank account.

The government’s reporting that money is being paid out within 6 days of completing the application process.

Yes. Unlike furloughed employees under the government’s Job Retention Scheme, the self-employed can continue to work during this period.

If you’re self-employed and a sole trader, then for more guidance on how to manage money risks in your business, take a look at our guide on this topic.

If you’re running your business as a limited company, then your guide on taking money out of your business and your options is this one.

And of course, Aaron and the wonderful team at Boffix can help you too.

Please note: The contents of this blog are not tailored business advice or legal advice. This is guidance and information, which we do our best to keep current, relevant and helpful. If you need business or legal advice, please use our Speak To An Adviser service or you can get in touch via our LiveChat