Covid-19 Support for the Self-Employed

Date: 27th March 2020  |  Author: Sean Toomer

Rishi Sunak has said the Self-Employment Income Support Scheme (SEISS) will help 95% of those self-employed. We’ll be the first to call ‘bullshit’ on that. Read on for more information on who is eligble for the scheme, who isn’t, what’s on offer and how to get it.

The Self-Employment Income Support Scheme (SEISS)

The SEISS was announced yesterday amid the large calls for the government to step in and help the self-employed as they have done for employed workers and some small businesses. Whilst on the surface these measures seem fair, if you dig a litter deeper, there are many who will not receive the support they desperately need.

What is the SEISS

The SEISS will pay a taxable grant (yes, you’ll need to include this as taxable income on your next tax return) of the lower of 80% of your profits (not sales) or £2,500 per month. You are eligible if:

  • You have submitted a tax return for the year ending 5 April 2019 (which was due 31 January 2020). Those who haven’t submitted this yet, have 4 weeks to do so
  • You must have traded during the current tax year 2019-20
  • Are trading, or would have been trading if it were not for covid-19
  • Intend to continue to trade in the next tax year 2020-21
  • more than 50% of your income comes from self-employment
  • have lost trading income due to Covid-19

You will not be eligible for the SEISS if the following apply:

  • Your average taxable profit is more than £50,000
  • You only started trading after 6th April 2019 and therefore have no submitted tax returns on file
  • You operate as a Limited Company and received a small Director Salary and Dividends

The amount you receive will be an average of your last 3 years profits from self-employment (2016-17, 2017-18, 2018-19). If you only have 1 year, it’ll be based on that, if you have 2 years, it’ll be an average of those 2 years.

Also note that you can continue to trade and earn during this time, providing it is within the health and safety guidelines issued in respect of the Covid-19 outbreak.

How do I get it?

Right now, you do not need to do anything. HMRC have access to this information based on the tax returns submitted and will calculate the amount expected to be paid and contact the self-employed directly within the coming weeks. The grant is expected to be the months March, April & May and is expected to be paid at the start of June. It is expected there will be some form of application required and HMRC will pay the amount you’re due direct into your bank account.

What can I do now?

Check your last submitted tax returns and calculate 80% of your net profit for each year you have available. Then, add these together, and divide this by the number of tax returns you have. Finally divide this figure by 12 to get your monthly grant amount. This is the figure you should expect to receive in June. For example, if your profit from self-employment was £2,500 for the 2016-17 year, £18,500 for the 2017/18 tax year, and £45,000 for the 2018-19 tax year, you would expect to receive a monthly amount of £1,833.33. If you need help with this, or are confused, please get in touch. For our clients, we’ll be calculating this and providing you with an estimate in the next few days.

What if I’m not eligible?

If you’re only recently self-employed (sometime after 6 April 2019), the only option available to you at this time is Universal Credit, or the Business Interruption Loan Scheme.

What if I’m a Director of a Limited Company?

As is the case for 95% of our clients, many ‘self-employed’ people chose to operate under a Limited Company, and instead receive a small salary (around £719 per month) with the remainder of their income received as dividends. There are many reasons for choosing to operate as a Limited Company, including tax efficiency, security (as your liability is limited), additional credibility, and in some cases, if contract based, your contractor will insist on you operating as a Limited Company.

These people are NOT eligible for the above SEISS.

So what can I get if I’m a Director of a Limited Company?

You have 3 options available:

  • Universal Credit
  • Business Interruption Loan Scheme
  • Furlough yourself

Universal Credit will also include other benefits such as working tax credits and child tax credits. Our suggestion is to use a calculator, to see how much you could receive. You should be eligible providing you do not have more than £16,000 in personal savings.

The Business Interruption Loan Scheme is not a grant like the other support on offer – it is a loan with low interest that you can apply for through your bank or other accredited lenders and will need to be repaid.

Directors of Limited Companies can also make the decision to Furlough themselves, as with employees. This means they would be expected to receive £575 per month (which would be 80% of your small monthly salary), per director (this can include your spouse/partner also). Providing your business is not trading during this time due to Covid-19 and you are not making money for your company or providing services for your company (doing work), you will be eligible.

It is our advice to clients to first use a calculator to see what Universal Credit they could be entitled to. If this is more than £575 per month that you’ll receive by furloughing yourself (that sounds more and more like a swear word each day), then make the application. If it transpires you’re better off with the furlough route, we’ll take care of this for you.

There is a lot of ‘Self-Employed’ people who are not getting support

I know the above is a tough pill to swallow. Whilst some businesses are sitting pretty on grants they don’t need, some self-employed individuals could obtain a grant whilst still earning, a lot of self-employed people are not getting any support at all. However, our clients are resilient, and agile, and if the past few weeks have taught me anything, it’s that I really do have amazing admiration for our incredible clients and how they are handling this situation and how, although it seems an impossible task right now, will survive this and will come out the other side.

If you need any help or further explanation on the above, please give us a shout.

Yours resiliently,

The Diverso Team

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