The government has announced a new self-employed Income Support Scheme to support those who work for themselves. The government will pay self-employed people, who have been adversely affected by Coronavirus, a taxable grant worth 80 per cent of their average income over the past three years, up to £2,500 a month, for at least three months.
The scheme will be open to anyone with trading profits of up to £50,000, who is already registered as self-employed and who has submitted a tax return for the 2018-19 year.
For those who have less than three years’ tax returns, HMRC will calculate an average based on the information available.
The government is aiming to make this money available from the beginning of June, but it will be backdated to 1 March. Anyone who is eligible will be contacted by HMRC, and must then complete a form before the backdated grant is paid directly into their bank account.
Anyone who has not yet submitted their 2018/19 tax return is being given one month from 26 March to do so, to ensure they will be included in the scheme.
The scheme will run for three months initially, but the Chancellor has said it will be extended if necessary.
What happens to individuals whose 2018/19 profits are very different from what they would have expected to make this year?
The government can only act on the most recently available data. This is from the 2018/19 tax year. To try to provide the most accurate possible estimate of self-employed income, the government can look at average profits over 2016/2017, 2017/2018 and 2018/2019.
What about those who haven’t filed their 2018/19 tax return yet?
The scheme is for those who have filed a tax return to report income from self-employment in the tax year 2018/19. For eligible individuals who have not submitted their returns for 2018/19, they will have four weeks’ notice from the announcement to file their returns, until 23 April 2020, and therefore become eligible for this scheme.
Is the grant subject to tax?
Yes. Individuals will pay income tax and National Insurance on any payments received through this scheme as they are replacement for income in line with normal practice for benefits or grants that replace income.
The grant is recognised as income for the purposes of Universal Credit and Tax Credits and may impact the amount to which claimants are entitled.
What should self-employed people do while they wait to be paid?
In the interim, self-employed individuals may be eligible for Universal Credit. Further information on how to access this support can be found here.
Why is this scheme limited to those who with trading profits below £50,000?
In order to target support at those most in need, the government has chosen to cap this scheme. For all those with trading profits of £50,000 and over, the mean self-employment income is £186,000 and the mean total income is £217,000.
Those with higher average incomes are more likely to have access to savings and other resources. They may also still be able to access support through the temporary Coronavirus Business Interruption Loan Scheme.
Why does this scheme not cover small businesses that are incorporated?
Self-employed individuals who are owner-managers and pay themselves a salary through PAYE will be eligible for support through the Coronavirus Job Retention Scheme. Further details can be found here.
SMEs can also access support through the temporary Coronavirus Business Interruption Loan Scheme. This supports SMEs with access to loans, overdrafts, invoice finance and asset finance of up to £5 million and for up to six years.
This new Self-Employment Income Support Scheme is open to anyone who reports trading profits through Income Tax Self-Assessment. Self-employed individuals who work through a company do not report their trading profits in this way.
What about self-employed people on Universal Credit? Why should they benefit twice?
The government announced measures that can be quickly and effectively operationalised. DWP and HMRC are experiencing high demand and the government has to prioritise the safety and stability of the benefits system and tax system overall.
The Self Employed Income Support Scheme will be treated as earnings in Universal Credit in the same way as the Coronavirus Job Retention Scheme. Universal Credit is designed to adjust the amount of benefits you receive in response to changes in your income.
Unemployed people will benefit from the package of welfare measures announced by the Chancellor. These include increasing the Universal Credit standard allowance by £1,000 a year for the next 12 months, and nearly £1 billion of additional support for private renters through increases in the generosity of housing benefit and Universal Credit. Further information on how to access this support can be found here.