COVID-19 Response: Self-Employed Income Support Scheme (last updated 6 April 2020)
On 26 March the Chancellor announced the long-awaited scheme to help fund the self-employed during the coronavirus (COVID-19) pandemic.
The headline is that the scheme will pay a grant equivalent to 80% of a self-employed person's average profits on a monthly basis, capped at £2,500 per month (the same cap as was put on the scheme for employees). The scheme is back-dated to 1 March 2020 but will likely not start paying out until early June. Actual payments are therefore likely to be at least 9 weeks away, meaning that other forms of support may be required in the meantime.
There are a number of conditions attached and as far as we could make out from the initial announcement these are as follows:
- The individual must be a sole trader or partner/member in a trading partnership/LLP
- The trade must have been active in 2019/20 and intending to continue trading in the 2020/21 tax year
- The individual/business has lost trading profits due to COVID-19
- The individual must have submitted their income tax return for 2018/19 by 23 April 2020 (the next 4 weeks from today has been included so that late filers can be covered)
- The payments will be based on average profits for the last 3 tax years, according to filed tax returns
- The profits will be the taxable profits rather than the profits shown in the business accounts, so capital allowances claims made in those years will have an effect on the figures being used
- If the individual doesn't have 3 years' tax returns then the average will be over the last 2 or even 1 return
- If an individual's profits exceeded £50,000 for 2018/19 they will not be covered by the scheme unless their average profits over the 3 years to 2018/19 was less than £50,000 (or 2 years if they didn't trade in 2016/17)
- If average profits exceed £50,000 per annum over the three years then the individual will not be covered by this scheme (or 2 if they didn’t trade in 2016/17)
- Profits from self-employment must form the majority of the individual's income
So anyone with average profits of less than £37,500 over the assessed period will be due to receive 80% of those on a monthly basis, while anyone with average profits of £37,500 to £50,000 will receive £2,500 per month.
Individuals covered by the scheme will be allowed to continue to trade even while the payments are being made, if they are able to do so.
Detailed guidance is not available yet so issues such as the following will need to be clarified:
- Will years with tax losses be included in the calculation of average profits?
- If a business started in the last 3 years will the initial year be counted as a full year or pro-rata based on the number of months of trading?
- Will the test as to self-employment being the main income source also be averaged over the 3 years?
Other than those with 2018/19 or average profits of over £50,000, the main omission here is the recently self-employed, i.e anyone who started as self-employed on or after 6 April 2019. The Chancellor said that as they have little or no data on this category they could not design the scheme to accommodate them. It's also likely that those who went self-employed late in 2018/19 will fail the 'majority income' test, unless this can be applied only from the date of self-employment. Similarly those who had a short initial trading period in either 2016/17 or 2017/18 may find that an annual average counts against them.
As always, we will provide further updates as soon as we know more.