Louise Somerset, partner and head of private client tax services at Smith & Williamson in Bristol, explains the government’s self-employed income support scheme.
The Chancellor has announced an income support scheme to help the self-employed through the current financial crisis, designed to be on a par with support for employees. The self-employed can, however, continue trading throughout this period. 
The support will be paid directly to those eligible as a taxable grant. The scheme will run for at least three months – but the first payments are not expected to be made until the beginning of June due to administrative complications.
While it is welcome news that these additional support measures have been introduced, the delay in paying the grants will be a concern for many self-employed individuals.
In an indication of his future plans, the Chancellor also commented that, as the self-employed were receiving support substantially similar to those in employment, it would be difficult to justify continuing to tax them differently in the future.
We would expect future measures to include increases in National Insurance for the self-employed, such as those championed briefly by Philip Hammond during his time as Chancellor.
Who is eligible for support?
The scheme is open to those who are self-employed, or partners in partnership, and who:
- have trading profits under £50,000
- have over 50% of their taxable income from self-employment
- have lost trading profits due to Covid-19
- submitted a 2018/19 income tax return. Those who have not yet submitted a 2018/19 tax return must do so by April 23, 2020 as HMRC will use self-employment data from that year’s returns to assess eligibility
- traded in the 2019/20 tax year
- are trading at the time of application or would still be trading but for the effects of the pandemic
- intend to continue trading next tax year (2020/21)
The first two conditions must be met in either the 2018/19 tax year or as an average over the past three tax years (2016/17, 2017/18 and 2018/19).
This excludes those who have started trading in 2019/20 from the scheme, which has been done intentionally as a measure to minimise fraudulent claims.
This also excludes those who pay themselves a salary and dividends through their own company.
Although they may have 80% of their salary covered by the Coronavirus Job Retention Scheme if operating through PAYE, this could be minimal consolation if their income is paid largely as a dividend.
How much will the support actually be?
The taxable grant will be up to 80% of average monthly profits, capped at £2,500 per month. It will be paid as one lump sum for the three months covered by the scheme. The average will be taken over three tax years – 2016/17, 2017/18 and 2018/19 – where applicable.
How can the self-employed make claims?
HMRC will contact those who are eligible for the scheme and invite them to make a claim. The scheme is not yet open but HMRC expects the first payments to be made by the beginning of June at the latest.
What other measures are available to assist the self-employed?
One of the key issues for self-employed individuals will be managing cashflow and the following measures may therefore be useful. Articles explaining them in full, with applicable restrictions, can be found on our Covid-19 Hub.
They are:
- all July income tax payments deferred to January 2021
- VAT payments due up to the end of June deferred to April 2021
- business interruption loans are interest-free for 12 months
- grants for businesses with premises, including the self-employed
- increased availability of general tax deferrals under the time to pay scheme
- increases to government benefits and measures to ease access (details on gov.uk)
https://www.gov.uk/government/news/chancellor-gives-support-to-millions-of-self-employed-individuals
