Until today, the support for self-employed during this crisis had been minimal. They had been left to survive on less than £100 a week in benefits which led to a call for the Government to bring in measures to help this sector of the economy. 

We had heard rumours earlier this week about the possibility of a self-employed persons version of the Job Retention Scheme and today we had a brief announcement providing us with the details. Although of course, as we are getting used to, these details from the Government are sparse. We have therefore analysed what was said and can confirm our interpretation of that. 

I am sure more details will emerge in coming weeks and as always, we will keep you updated. 

What does ‘Self Employed’ mean?

This is a very broad term which can be used to describe people who:

  • Run sole trades (businesses that are simply reported on an individuals tax returns) 
  • Operate a partnership or LLP 
  • Run their own small businesses 

In tax law, ‘self employed’ usually excludes owners of small limited companies.  Today’s announcement appeared to match this way of using the term so the items below are applicable to people who basically operate a business that is not a limited company.

We hope more details emerge soon to help people running small limited companies. But we may need to make some specific planning for you if we hear nothing more.  If this is you then please email your client manager to arrange a call to run through your options.

Reliefs available for the self employed

1. Statutory self-employment pay scheme

A grant is being made available to the self employed who are unable to work in the current crisis.  Very loosely it matches the “furlough” rules announced on the 20 March 2020.

Although we would expect this to only be available where your income has stopped completely or at the very least has significantly reduced this wasn’t mentioned in today’s announcement.  

However, it was said that only self-employed with reported profits of £50,000 or less will be given this grant. There are many professional partnerships that will lose out. They also said it is only available for those who have the majority of their income from self-employment.

This will be paid as a grant – so it won’t need paying back after you have received it. HMRC will be issuing calculations for the grant based on submitted tax returns to each self-employed person for their specific entitlement and an online form will then be available to confirm details for payment. The grant will be paid monthly for three months but could go on for longer depending on how the crisis progresses.

Payments are set so that the net monthly earnings of an individual do not fall below the lower of: 80% of their monthly earnings (averaged over the last 3 years) or £2,500

We can help estimate your entitlement for you, contact your Client Manager or call us for more details. If you have not been a sole trader for long (you didn’t submit a 2019 tax return) then you do not appear to qualify for this scheme.

The grant will need to be detailed as “income” for your tax return. So, although you don’t have to pay the money back you will end up paying some tax on this income. If you are a subcontractor in the construction industry and are used to having tax deducted, you may need to keep some of this money aside for a future tax bill.

There was a warning that income tax rates are likely to increase to more closely match employees in the future. A problem for tomorrow but still a concern! 

Most significantly, this grant will not be paid until June.

2. Delayed payment on account for July

In July your second payment on account for tax would have become due but HM Revenue & Customs (HMRC) have applied a nationwide payment holiday due to the current pandemic we are facing. 

However, this does mean that this money will instead be due at 31 January 2021 along with any tax due for 19/20 tax year. Therefore, whilst it will help now, there could be greater than normal pain in January 2021 when the balancing payment on account is due.

Our advice is that you should get your 2019/20 tax return details to us as fast as possible so that we can calculate the January 2021 payment due and get things in place so that you can plan ahead.  We don’t want to just start recovering from this crisis to find there are some unexpected show-stopping tax bills just around the corner.

3. VAT ‘holiday’

This is an automatic offer with no applications required. You will not need to make a VAT payment during the period 20 March to 30 June. You will need to submit your VAT returns as normal though.

VAT registered businesses will be given until the 31 December 2020 to pay any liabilities that have accumulated during the deferral period. VAT refunds and reclaims will be paid by the government as normal.

Customers who normally pay by direct debit should use their online banking systems to suspend or pause their direct debit with their bank if they are unable to pay. We don’t recommend cancelling entirely as this could cause complications trying to get it set up again later. Make sure you change the direct debit settings immediately so that HMRC do not attempt to automatically collect on receipt of your next VAT return.

4. Time to pay for previous VAT, PAYE or CIS due

A dedicated helpline has been set up to help businesses and self-employed individuals in financial distress and with outstanding tax liabilities. Through this, businesses may be able to agree a bespoke Time to Pay arrangement. 

This number was getting so many calls that it couldn’t cope so HMRC have today announced a new number to call which is: 0800 024 1222. The opening hours for the helpline have also changed to between 8am to 4pm Monday to Friday only.

5. Business rates exemptions

If you have business premises that the council detail business rates for (even if you have nothing to pay) then you might have access to a further grant.

If your business qualifies for small business rate relief, you are eligible for a grant of £10,000. Please contact us if you are unsure if you are eligible for this. There is no need to apply for this as the local authorities will be in contact and this should be provided in early April.

We have a video about this here and will be posting an article shortly about this.

6. Universal credit and sick pay

Universal credit is a benefit supplied by the government to help pay for living costs if you are on a low income or out of work.

Last week they increased the number of people who could apply by increasing the upper income at which an individual can apply. Essentially for most self-employed people this will give them access to £94.25 a week (equivalent to sick pay). On the whole, it won’t help much. And now the grant has been announced specific to the coronavirus that would be more useful in most cases.

We will publish an article shortly with more details about universal credit.

7. (If you have employees) The Jobs Retention Scheme

If you have employees then you will need to take some decisions very shortly about if you can keep them busy working from home, reduce their hours, furlough them, or make them redundant.

See our understanding your options employer factsheet for full details including our summary of the grant for furloughed employees.

What this doesn’t cover

Ultimately a scheme as wide-ranging and complicated as this was never going to cover everything. 

1. Small limited companies

The biggest gap in the Chancellor’s announcements was no mention of small limited companies. There are hundreds of thousands of people who trade this way and they don’t all earn over £50,000. Most take the majority of their earnings as tax-efficient dividends which is not covered.

Unless the definition of “self-employed” is widened to include those individuals then there is no help available for those people. 

Astonishingly none of the journalists asking questions queried this point even though I suspect that some of them fall into that category!

2. Business expenses

The grant is based on profit not turnover which effectively assumes that you are putting your business into hibernation. 

But of course, you may still have costs for rent, insurance etc which will continue.

3. Those who have started recently 

Anyone who has commenced self-employment since 6th April 2019 will not qualify for the scheme.

4. Those with average earnings of £50,000

Anyone in this category is not covered. Whilst £50,000 seems a lot of money, people often live to their means and undoubtedly there will be individuals in this category who have no savings. This seems a very harsh dividing line and could cause considerable hardship if the crisis goes on for a long time.

How A4G can help

We will of course provide our clients with whatever help is required to make this claim. Call us on 01474 853856.

For those who do not qualify, please consider what savings you can make in your living costs.

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