Coronavirus Scheme for Self-Employed – What is it and how do you apply?

By April 2, 2020 Insights
Covid-19 Self-Employment

Recent weeks have been a distressing time for many businesses and the self-employed. While the Government quickly announced measures to support small businesses during the COVID-19, or coronavirus, pandemic, the self-employed felt rather left out from the plans. The Government has now introduced a coronavirus scheme for self-employed, providing support to those who are adversely affected by the situation.

What is the Self-Employed Income Support Scheme?

The newly launched coronavirus scheme for self-employed is a taxable grant to support anyone who is working as self-employed or is a member of a partnership and who has been affected by COVID-19. The grant is worth 80% of your trading profits, initially covering the next 3 months. The length of the scheme could be increased depending on how the situation develops in the coming months.

You will be eligible to claim 80% of your average monthly profits, up to a maximum of £2,500 per month. The average profits are determined by what you have made over the last three tax years, where applicable.

For example, if you have tax returns available for all three of the applying years (2016-17, 2017-18 and 2018-19), HMRC will add together the total trading profit and then divide it by 3 and use the sum to calculate a monthly amount. However, even if you only have tax return for 2018-19, this can still be used to calculate your available grant – you don’t need to have traded in all of those three years.

The big thing to note at the moment is that the scheme is not yet up and running and the money will not be paid until June. Once the scheme is set up, the grant will be paid directly into your bank account and in a single installment.

Please also note that you will need to pay tax on the grant at a later stage.

Who is eligible to apply?

The Self-Employed Income Support Scheme is available to any self-employed individual or a member of a partnership based on the following conditions:

  • You submitted your Income Tax Self-Assessment tax return for the tax year 2018-19.
  • You traded in the tax year 2019-20.
  • You are currently trading or would be if it weren’t for COVID-19.
  • You intend to continue to trade in the upcoming tax year 2020-21.
  • You have lost profits due to COVID-19.

In addition, your profits must be less than £50,000 and over half of your income has to come from self-employment. These conditions are checked and determined in the following way:

  • Your trading profits in 2018-19 were less than £50,000 and they constituted over half of your total taxable income.
  • Your average trading profits in tax years 2016-17, 2017-18 and 2018-19 were less than £50,000 and those profits were more than half of your average taxable income in the same period.

How and when to apply?

As mentioned, the coronavirus scheme for the self-employed is not yet available for applications.

The authorities are currently going over the finer details, as well as examining tax returns to identify those self-employed who are eligible for the grant. Since HMRC will use data on 2018-19 returns remember that the deadline for filing that year’s taxes is 23 April 2020. Failure to submit on time would make you subject to normal late return fines, as well as leave you outside of the scheme.

When ready, HMRC will contact those eligible and invite them to apply online.

What are the big questions around the coronavirus scheme for self-employed?

The scheme is going to provide some peace of mind for many self-employed. But there will still be some questions over the reach of the scheme and undoubtedly, some self-employed people could be left without support.

The major concerns and issues to note include:

  • If you have recently made a loss as self-employed, you can’t receive support through the scheme.
  • If you became self-employed within the last year, the scheme is currently out of reach for you.

In cases where self-employed are directors or employees and paying themselves a salary or dividend, the Government has confirmed that they can receive support using the Job Retention Scheme. This means they can be furloughed and claim the 80% of salary protection the scheme allows them to.

We will continue to monitor the situation and keep you updated on any new developments.

What other help is available for the self-employed?

If you are worried about your financial situation at the moment, you should consider looking into the additional help already available for the self-employed. This includes:

  • The option to defer Self-Assessment income tax payments due in July 2020 and VAT payments due from 20 March 2020 until 30 June 2020
  • Small business grants and business loan schemes – find out more about them on our previous blog post
  • Universal Credit

Get help with your financial situation

The COVID-19 pandemic has hit many businesses hard and the full impact is difficult to estimate. The Government has taken the right steps to provide some comfort to businesses and the self-employed struggling in this environment but more measures and support will likely be needed in the coming months.

If you want to discuss the coronavirus scheme for self-employed or any other financial issue you might be dealing with right now, don’t hesitate to contact us. Here at Devonshire Green, we understand the unique situation small business owners are facing and we hope to use our expertise to guide you through these tough times. Contact us today and let’s look at ways to protect your income in the months ahead!