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. 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 haven’t already filed this return, you have until 23 April 2020 to do this
- 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)
- Have lost trading profits due to Coronavirus – it is not clear yet how HMRC will monitor this or if they will be any clawbacks if this condition is not met.
Trading profits must be no more than £50,000 and make up more than half of your total income for either the 2018/19 tax year OR as an average of the 2016/17, 2017/18 and 2018/19 tax years.
How are trading profits calculated?
HMRC will use the figures reported on your tax returns as your taxable trading profit.
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 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 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.
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.
The amount payable will be the lower of the monthly trading profit form this calculation, or £2,500.
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).
When can a claim be made?
The system is not yet up and running, but HMRC will use the data on the tax returns submitted to identify eligible taxpayers and are aiming to contact potential claimants by mid-May, and will invite you to claim online. In order to make your claim, please make sure you have a government gateway account, and can remember your credentials to log in!
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 in early June.
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.
Future developments
There are still an number of questions left unanswered such as:
- Can agents apply on their clients’ behalf?
- What if you started trading part way through the 2018/19 tax year, will your average profits be extrapolated?
- What about if you started trading in the 19/20 tax year?
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
