As reported on our earlier article on the 27 March 2020, the chancellor announced the government’s support package for the self-employed, with a view to equalising the support to the self-employed and employed. As with most of the support measures, the detail on this scheme has been refined since the initial announcement, and we have set out below answer to the most common questions surrounding the scheme. We will update this Q&A as more information is released.
What can be claimed?
Eligible self-employed can claim a non-repayable taxable grant of 80% of their trading profits, up to a maximum of £2,500 per month. The grant will be paid for 3 months, but may be extended.
Who can Claim?
Self-employed individuals and partners in partnerships can claim the grant but trusts with a trade cannot claim. In order to be eligible, you must:
- Have submitted your 2018/19 tax return, showing income from self-employment – HMRC allowed an additional 4 weeks from the 27th March to submit any outstanding 2018/19 Tax Returns so if you didn’t file this return by the 23 April 2020, you will not be able to claim.
- Traded in the 2019/20 tax year (6 April 2019 – 5 April 2020)
- Are trading when you apply (or would be if it wasn’t for Coronavirus)
- Intend to continue trading in the 2020/21 tax year (6 April 2020 – 5 April 2021)
- You carry on a trade which has been adversely affected by Coronavirus - HMRC have provided the following examples of why business may have been adversely affected:
- you’re unable to work because you:
- are shielding
- are self-isolating
- are on sick leave because of coronavirus
- have caring responsibilities because of coronavirus
- you’re unable to work because you:
-
- you’ve had to scale down or temporarily stop trading because:
- your supply chain has been interrupted
- you have fewer or no customers or clients
- your staff are unable to come in to work
- you’ve had to scale down or temporarily stop trading because:
It is not clear how HMRC will check if, and to what extent, businesses have been adversely affected, as the way the scheme is currently set up you do not report how much business profits have been affected by coronavirus. HMRC will pay an amount that they have calculated by reference to your average previous business profits. The only information we have at the moment is that HMRC will check claims and take action to withhold or recover payments found to be dishonest or inaccurate - how they will do this is not yet clear.
Trading profits must be no more than £50,000 and be at least equal to your non-trading income for either the 2018/19 tax year OR as an average of the 2016/17, 2017/18 and 2018/19 tax years.
What about if you started trading in the 19/20 tax year?
Unfortunately you will not be able to claim a you were not self-employed in the 2018/19 tax year.
How are trading profits calculated?
HMRC will use the figures reported on your tax returns as your taxable trading profit. They will first look at your 2018/19 tax return, and if you are not eligible based on that tax year, they will then look at the average profits for the 2016/17, 2017/18 and 2018/19 tax years.
The trading profit will be after the deduction of usual allowable expenditure (e.g. staff costs, office costs, marketing, administration costs etc.) and after the deduction of capital allowances on capital expenditure.
What about losses?
If you made a loss in 2016/17, 2017/18 or 2018/19, then this will be included when calculating the average profit figures, so a loss will be included as a negative amount and reduce your average profits.
If however, a loss from an earlier year has been carried forward and used to reduce your taxable profits in a later year this will not impact your trading profits figures.
What if you have more than one trade?
Profits and losses from all trades will be added together to calculate your trading profit for the relevant year.
What about partners in a partnership?
Each partner will need to make a claim based on their own circumstances, and the claim will be based on their share of partnership profits.
What about Farmers who have made averaging claims?
If you are not a farmer, this question probably makes no sense to you as you’ve had no need to know what an averaging claim is! If you are a Farmer who has claimed averaging relief, the profit calculations to determine if you can claim the grant and how much you can claim will use the profit figures BEFORE the averaging claim.
Can 2018/19 Tax Returns be amended?
HMRC have confirmed that any amendments after 6 pm on the 26 March 2020 will not be taken into account when working out eligibility for the grant or the amount that can be claimed. This is to avoid taxpayers withdrawing certain claims or reliefs on their tax returns to improve their position.
What if I submitted by Tax Return late?
If you submitted your 2018/19 tax return after 23 April 2020, you will not be able to claim under the scheme. If you submitted your return between 26 March and 23 April 2020, claims based on these returns will be subject to additional anti-fraud checks.
How Much Can Be Claimed?
The grant that can be claimed will be based on your average trading profit over the previous 3 tax years (2016/17, 2017/18 and 2018/19). This average trading profit will be reduced to 80%, and then divided by 12 to give a monthly average trading profit. This will then be multiplied by 3 to calculate the total grant payable.
The amount payable per month will be the lower of the monthly trading profit from this calculation, or £2,500. The maximum claim will therefore be £7,500.
What if you were not self-employed for all 3 tax years?
HMRC will look at you average trading profit over a continuous period; so either the 2017/18 and 2018/19 tax year, or just 2018/19 if you had no self-employment in 2017/18 (2016/17 will be ignored if this is the case).
What if you started trading part way through the 2018/19 tax year
It appears that average profits will not be extrapolated to give a full year’s average earnings. So if you started trading in October 2018 and therefore only included 6 months of trading profits on your 2018/19 tax return, this profit will be used for HMRC’s calculations, and it will not be uplifted to give a theoretical 12 month profit.
Can I check my eligibility?
HMRC have just released an eligibility checker (here). All you will need is your Unique Tax Reference Number and National Insurance number. If you are eligible, HMRC will tell you the date you will be able to make a claim from – see below.
When can a claim be made?
The system is not yet up and running, but HMRC have now confirmed this will be available from the 13 May 2020, although we understand that applications will be staged between 13th – 18th May). If you use the eligibility checker, HMRC will send you a reminder once the service is available for you.
What information will be required to claim?
You will only need to supply:
- Your Unique Tax Reference number
- Your National Insurance number
- The bank account details you want the grant paid into
- You will have to confirm that your business has been adversely affected by Coronavirus.
In order to make your claim, please make sure you have a government gateway account, and can remember your credentials to log in!
HMRC will use the data on the tax returns submitted to calculate the amount of claim payable, so we understand that you will not need to include financial information on the claim.
Can my tax agent submit on my behalf?
HMRC have now confirmed that agents cannot submit claims on taxpayers behalf. It is therefore vital that you have a government gateway account set up to do this. We suspect that most will already have this, but please check that you do and that you can gain access to this. If you do not have a government gateway account, you should set one up immediately so your claim is not delayed.
How will the grant be paid?
The grant will be paid directly to your bank account in one lump sum. HMRC are aiming for the payments to be made by 25th May, or within 6 working days of your claim submission.
How will the grant be taxed?
When your 2020/21 tax return is prepared, the grant income will be included within your self-employment profits which will be charged to income tax and national insurance as usual.
Can I still work while in receipt of the grant?
There is no restriction on taking on work or an employment whilst claiming the grant.
We will update this Q&A as further guidance is released. In the meantime, if you have an questions regarding the scheme, please do not hesitate to get in touch.
You may also find our other articles useful, as these cover other areas of support that will apply to the self-employed and which you may find useful given that there will be a cash flow timing difference for many businesses, as the grant payment will not be received until June.
It’s The Cash that Counts click here to read
Grants for Small Businesses click here to read
