11

The Chancellor has now announced financial support measures for the self-employed (sole traders and partners) to combat loss of income due to the Coronavirus pandemic.

Here’s What We Know – Self-Employed Grant

  • It is based on your taxable profits in the three years to 5.4.19
  • It is available if your profit is less than £50,000 per year
  • You will receive 80% of your average monthly earnings over that period up to £2,500
  • Payment to be made initially for the three months, March to May i.e. 3/12th of your average annual earnings
  • It will be paid in June 2020
  • It comes in the form of a grant by which they mean in effect it is a gift to you, it is not repayable but it will form part of your taxable income

The full government rules on the self-employed are set out here.

Other Help (previously announced) 

Your self-assessment tax payment due on 31.7.20 is optional. You can roll it into the payment on 31.1.21, but you will need to pay it eventually, so it is important that if you defer it you continue to budget for this payment

If you pay little or no business rates and have premises with a £nil rates bill, you should get the £10,000 grant under the Small Business Grant Scheme in April

Business rates holiday for retail, hospitality and leisure businesses.

The self-employed grant will be released in June 2020, between now and then the government advice is:

  • Take a three month mortgage holiday
  • Get a government sponsored loan from your bank
  • You don’t have to pay VAT for the quarterly payment to 30.6.20 but you will need to catch up by 5.4.21. You will need to continue to file your VAT Returns and, if you have an automatic direct debit set up to pay this when you file the return, this should be cancelled (and reinstated once the crisis is over)

 The Mechanics

  • You need to have submitted a 2018/19 tax return and HMRC have provided an extra 4 weeks for you to have done so. If this is submitted after 31.1.20 it will still be treated as a late filed tax return and will be subject to penalties.  Note: your 31 January 2020 tax payment will still be due for payment with only your 31 July payments deferred
  • HMRC will contact you in late May or early June if you are eligible for the scheme inviting you to make a claim online
  • HMRC will credit your bank account with the grant due to you

Who It Does Not Cover 

  • Those whose taxable profits are higher than £50,000 on average over the three years to 5.4.19.  There is no taper, it is an all or nothing rule
  • Those who earn through a limited company – you may be able to furlough your salary if you do no work
  • If you started your trade after 5.4.19
  • If your self-employed taxable profit on average over the three years to 5.4.19 is less than half your total income.  (i.e. if you also get a salary and your salary is the larger part of your income).  You need to look to your employer, and perhaps the furlough rules
  • You have lost no income due to the virus
  • Your self-employment does not continue through into 2020/21.  Therefore you must restart your trade after the shutdown to claim

Questions You May Have

When can I apply for the grant?

There is no facility to do this yet and HMRC will be contacting eligible individuals when the scheme is up and running.

What if I don’t have 3 years trading?

If you do not have three years to 5.4.19, your income will be averaged over the period you actually traded.

What if you started trading half way through 2017/18?

The strong implication is that they will take the average of the two years where you have submitted tax returns.  i.e. your declared profits for the two years divided by 2.  The whole of the year you started will be taken regardless of the exact date you started.

What if I have two self-employments?

The rules do not specifically comment on this but we would assume it is the average of the two combined.

What if I bought a van in 2017?

If you bought a significant item such as a van in one of the relevant tax years your taxable profits will be lower in that year.  This will mean you get less but since we are taking a three year average, one significant capital purchase will be diluted over the three year period.  This may benefit you by bringing your taxable income to below £50,000.

What if my profits average £48,000 pa and I also have a £10,000 p.a. employment?

You qualify because your self-employment is less that £50,000.

Husband and wife partnerships where you each have taxable profits of £40,000

You both qualify, although your joint income is over £50,000 this is calculated on an individual basis not as a couple.

What if I’ve found a job? 

The intention is to compensate you for loss of earnings. If you have not lost earnings it is unlikely you can claim in full.  This is not specifically addressed in the Government briefing.

Can I change my tax return?

They have specifically said they will take the tax returns already submitted and therefore returns already submitted cannot be changed.

Is the grant taxable?

Yes it will form part of your accounts in the accounting year it is received.

Tax increase

There will be no changes to the tax rates for 2020/21.  It is very likely Class 4 National Insurance for the self-employed will increase from 9% to 12% in the following year.

We will bring you more information on the self-employed grant as we get it.

Meanwhile, stay safe and well

The Clear Vision Team