Covid-19: support announced for the self-employed

Last night, the Chancellor unveiled the Self-employment Income Support Scheme, the much-anticipated financial support offering for sole traders and partnerships whose businesses have been impacted by the coronavirus (Covid-19) crisis. Our Chief Accountant, Emily Coltman FCA, outlines how the scheme will work, who will be eligible for it and how qualifying businesses can claim for it.

How will the scheme work?

If you are an eligible sole trader or your business is an eligible partnership, you will receive a grant of 80% of your average monthly profits, capped at £2,500 a month. The amount you receive will initially be based on three months’ worth of profit but the government has said that this time period may be extended if the coronavirus pandemic continues.

The money from the scheme is not expected to be paid out until June 2020 and will be paid in one lump sum directly into your business bank account. You’ll need to declare the money as income on the tax return for the accounting year in which you receive the grant.

Who is eligible?

Only sole traders and partners can apply for the Self-employment Income Support Scheme.

To qualify, your business must have been required to file a tax return for the 2018/19 tax year, which ended on 5th April 2019. If you haven’t filed this tax return already, you must do so by 23rd April 2020 in order to qualify. Your business must also:

  • have traded in the 2019/20 tax year, which began on 6th April 2019
  • intend to continue trading in the 2020/21 tax year, which begins on 6th April 2020

Your business must be trading at the moment (unless the coronavirus crisis has forced it to stop trading) and it must have lost profits as a result of the crisis.

Finally, more than half of your income must come from your business and your share of its profit must be either:

  • less than £50,000 in the tax year 2018/19
  • less than £50,000 on average over the tax years 2016/17, 2017/18 and 2018/19

A sole trader’s profit share is always 100% of what a business makes, whereas partners receive a designated share of a business’s profit. If a partnership with three partners who all receive equal profit shares makes a profit of £90,000, for example, each partner will still qualify for the relief because their individual share of the profit will be under £50,000. However, a sole trader whose profit is £90,000 would not qualify.

If you qualify for the Self-employment Income Support Scheme, HMRC will multiply your average monthly profit by three and pay you 80% of that final figure, capped at £7,500, in a lump sum.

Unfortunately, you will not qualify for the scheme if your business makes losses or if it began trading after 5th April 2019. However, you may still qualify for Universal Credit.

If you’re trading through a limited company you can’t claim for the Self-employment Income Support Scheme but you may be eligible to claim 80% of your salary through the Coronavirus Job Retention Scheme.

How can I apply for the scheme?

You won’t be able to apply for the Self-employment Income Support Scheme yet because HMRC still needs to build the systems and run the calculations required to support it. Once the systems are up and running, HMRC will contact you if you are eligible for the scheme and will invite you to apply online through the government's website.

HMRC has warned business owners to be wary of scams relating to the scheme, stating on its website: "If someone texts, calls or emails claiming to be from HMRC, saying that you can claim financial help or are owed a tax refund, and asks you to click on a link or to give information such as your name, credit card or bank details, it is a scam.”

To learn more about what the coronavirus crisis could mean for your business and to stay up to date with the latest news, take a look at our small business coronavirus hub.

Disclaimer: The content included in this blog post is based on our understanding of tax law at the time of publication. It may be subject to change and may not be applicable to your circumstances, so should not be relied upon. You are responsible for complying with tax law and should seek independent advice if you require further information about the content included in this blog post. If you don't have an accountant, take a look at our directory to find a FreeAgent Practice Partner based in your local area.

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