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08 July 2020
The government's Coronavirus Self-Employment Income Support Scheme has been extended to provide a second three-month grant for self-employed individuals affected by COVID-19 after 13 July 2020.
The initial scheme, which gave financial support to the self-employed, provided a grant to eligible claimants of up to 80% of their average trading profit for three months (capped at a total of £7,500), to be paid in a single lump sum from June 2020.
Alongside the extension of the employee furlough scheme, the self-employed scheme has been extended to enable self-employed individuals to claim a second lump-sum grant. As with the furlough scheme, the value of the second self-employed grants has been reduced to 70% of trading profit for three months.
The extended self-employed scheme now provides that:
The grant will be subject to income tax and self-employed national insurance contributions, and claimants must include the grant in their tax return for the 2020/2021 tax year. Recipients of the grant can:
HMRC is using data from already submitted tax returns to identify those eligible to claim. Claimants can check online to see whether they are eligible.
To be eligible, claimants must:
The guidance gives examples of how a claimant's business may have been adversely affected, including where:
If a claimant has been trading for all three tax years 2016/2017, 2017/2018 and 2018/2019, HMRC will first look at the 2018/2019 self-assessment tax return. If a claimant is not eligible based on their 2018/2019 tax return, the previous tax years will be considered. As long as the claimant's average trading profit for the three tax years is less than £50,000, and the sum of their trading profits for the three years is at least equal to the sum of their non-trading income, they will be eligible.
Self-employed people who have taken family leave since 6 April 2019 will still be treated as trading and will be eligible to claim the grant (subject to meeting the other criteria).
Claimants must make the claim themselves. A claim submitted by a tax agent or adviser will trigger a fraud alert, requiring the claimant to contact HMRC and causing a significant delay in payments.
Members of partnerships can claim based on their own circumstances and share of the partnership profits. If the partnership rules require the partner's grant to be paid into the partnership 'pot', the HMRC guidance states that the partnership must pay the full grant back to the partner.
Unlike the employee furlough scheme, which requires employers to calculate what they can claim in respect of each employee, the HMRC guidance contains little detail regarding calculation of the self-employed grant. The HMRC online service will tell claimants how their grant has been calculated. If a grant is payable, it will be paid directly into the individual's bank account in a lump sum (for each grant).
The grant is based on a claimant's average annual trading profit over the three tax years 2016/2017, 2017/2018 and 2018/2019. If a claimant has traded for all three years, the total trading profit is added together and divided by three to give the average annual figure.
If a claimant has traded only in 2017/2018 and 2018/2019, profit will be averaged over those two years. If a claimant traded in 2016/2017 and 2018/2019, but not in the middle year 2017/2018, only 2018/2019 will be considered.
Average trading profits must be under £50,000 for claimants to be eligible for a grant. HMRC will calculate the claimant's trading profit using the information shown in submitted tax returns as follows:
If a claimant has had more than one trade in the same tax year, all profits will be added together – and any losses deducted – to calculate the trading profit for that year.
Once it has been established that an individual has average trading profits of less than £50,000, HMRC will check that the claimant's non-trading profit is not greater than the trading profit. To assess this, HMRC will add together:
The grant is calculated according to average monthly profit, based on the average annual figures:
The government has made it clear that financial support cannot continue indefinitely, and that this will be the final grant instalment under the self-employed scheme. Given the uncertainty surrounding the government's plans for easing social distancing, many self-employed individuals will most likely continue to see a negative impact on trading well beyond the end of the scheme.
Those who missed out when the scheme was first announced, such as those who only began trading after the end of the 2018/2019 tax year and so did not submit a tax return for the year, or those with trading profit only a little over the £50,000 cut off, will be disappointed that the government has not made any adjustments to the eligibility criteria for the second grant.
There seems to be little prospect that additional support will be offered after the scheme finishes, when the government appears to expect affected individuals to rely on state benefits for which they are eligible.
In light of the additional anti-fraud measures applying to tax returns filed close to the extended filing deadline, it seems likely that HMRC will carefully scrutinise returns for the current tax year where grants have been claimed.
For further information on this topic please contact Carolyn Soakell or Shalina Crossley at Lewis Silkin by telephone (+44 20 7074 8000) or email (email@example.com or firstname.lastname@example.org). The Lewis Silkin website can be accessed at www.lewissilkin.com.
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