Earlier today, Rishi Sunak announced additional support will be available for businesses who have been impacted by the Omicron variant. So, what do we know? Businesses…
The Government has published updated guidance on how the the new self-employed income support scheme will operate.
Who is the scheme available to?
The scheme will be available to the self-employed or a member of a trading partnership. Your self-employed trading profits must no more than £50,000 and more than half of your income come from self-employment. This is determined by at least one of the following conditions being true:
- Having trading profits/partnership trading profits* in 2018-19 of less than £50,000 and these profits constitute more than half of your total taxable income
- Having average trading profits* in 2016-17, 2017-18, and 2018-19 of less than £50,000 and these profits constitute more than half of your average taxable income in the same period
No support will be available for those who have commenced trading from 6 April 2019.
For those who are late in filing their 2018/19 tax return, they have until 23 April 2020 to file their return and qualify for the grant. Newly announced for those individuals who have already filed their 2018/19 returns, HMRC will not take any amendments made to the return after 26 March 2020 into consideration when calculating the grant. This means that those whose taxable profits are higher as a result of a subsequent amendment, perhaps by looking to disclaim capital allowances or remove expenditure, will not be eligible for a higher grant under the scheme.
What support is available and how will the grant be calculated?
Broadly speaking, the support available will look to mirror the Coronavirus Job Retention Scheme for employees and will provide a taxable grant worth 80% of the individual’s average monthly trading profits over the last three years, limited to £2,500 per month. Where the self-employed individual has less than three years of trading, the payment will be averaged over the period they have been trading.
HMRC has confirmed all normal tax deductible trading expenditure will be included when calculating taxable income, including:
- Any business expenses deducted through the trading allowance
- Capital allowances, used to buy assets used in your business
- Qualifying care relief
- Flat rate expenses
There will be no deduction for:
- Any losses carried forward from previous years
- Your personal allowance
This may bring some people back into the scheme where they were previously thought to be excluded, for example, those with pre-capital allowances profits in excess of £50,000 which after capital allowances brings them below the threshold and those individuals who had no taxable profits due to losses carried forward.
Individuals with multiple self-employments will have profits and losses combined to test against eligibility.
Finally, HMRC’s guidance seems to suggest that there will be no partial year apportionment for those who started their trade part way through a tax year. For example, for someone who commenced trade in February 2018 will have had two months of trade in 2017/18 and 12 months in 2018/19. Based on current guidance we expect the two years profits will be averaged over 24 months and not 14 months as you may expect. This will have an effect of lowering the grant available. This is being clarified with HMRC.
We’ve also created a simple calculator to help you find out how much you might be able to claim.
Brief guidance has been released for those individuals under the Loan Charge or claiming the Farmers Averaging Relief. You should contact us directly for more information.
How long will the scheme run for and when will the grant be received?
The scheme will run for three months, backdated to March and running initially until June, with the ability to extend if the Chancellor believes it is necessary. HMRC are aiming to make payments to individuals in June 2020 and sooner if possible. They will contact individuals directly where they are eligible for the support. The individual will then need to complete a form to confirm they are still trading and provided they qualify, the individual will at that point receive the three months payment backdated.
What support is available to the self-employed immediately?
The Chancellor recognised the delay there will be to the payment being made and has indicated that as an interim measure the self-employed can access the business interruption loan scheme, universal credit and are able to defer payments due for VAT and the upcoming July payment on account for self-assessment.
A sting in the tail for future contribution rates
The Chancellor made an observation as part of the announcement that the support available to the self-employed is now on a par with the support available to employees. Going on to suggest that when normality returns, there may be the need to revisit the disparity between the national insurance contributions between the self-employed and employees.
This definitely felt as though the self-employed and partners were being put on notice of potential changes, which for those with trading profits above £50,000 will see this as particularly unfair.