Last night, 26th March, the Chancellor addressed the remaining issue of helping the self-employed who have been unable to work due to Covid-19 or have lost work due to that virus. We summarise below those businesses that are eligible for this additional relief and how it appears to work out the amount the self-employed will receive.
Please note – HM Revenue & Customs will contact you directly if you are eligible, they advise that we refrain from contacting them. They will invite you to apply for the relief only via https://www.gov.uk/.
Furthermore, this virus has brought unnecessary distress to everybody and therefore it is fertile grounds for SCAMMERS and FRAUDSTERS. Do not answer any text, phone call or emails from people saying they are from the HM Revenue & Customs and they will deal with the claim or your tax refund! HM Revenue & Customs will not contact you that way, so do not give any details! If they insist, tell them to call us – Your Accountants.
The Relief Available
The scheme will enable you to claim a “taxable” grant worth up to 80% of your trading profits up to a maximum of £2,500 per month for next three months. This will be paid as a single instalment directly into your bank account.
Who is Eligible?
The scheme is only available to those who are self-employed or are partners in a partnership (which is classed as self-employment) and that:
- You have submitted your 2018/19 tax return – if not, you must do so before 23rd April 2020;
- You have traded in the tax year 2019/20;
- You are trading or were trading but could not because of Covid-19;
- You lost trading profits because of Covid-19.
Unfortunately, this excludes all those small businesses operating through a limited company. It also excludes those who have just started self-employment, as there is no basis on which the HM Revenue & Customs can assess their eligibility.
The scheme is aimed at those businesses who have trading profits of less than £50,000 and where more than half your income arises from your self-employment. You need to satisfy one of the two conditions below:
- That your 2018/19 profits are less than £50,000 and the self-employed profits constitute more than 50% of your taxable income; or
- Your average trading profits during 2016/17, 2017/18 & 2018/19 are less than £50,000 and that during that period, the average self-employed income is more than 50% of your average taxable income.
Eg Steve the Painter/Decorator
Steve left employment to start his self-employed business and his profits and salary in the last three years were:
Year S/E Profits Other
2016/17 £15,000 £20,000
2017/18 £25,000 £15,000
2018/19 £35,000 £ 5,000
Total £75,000 £40,000
Average profits in the period £75,000 / 3 = £25,000
Average taxable income (£75,000+£40,000) / 3 = £34,500
Steve’s average self-employed profits were less than £50,000 and were more than 50% of his total average taxable income, therefore, he is eligible for the scheme.
[Based on our understanding of the rules announced, we expect the calculations to work as follows. Please note, we don’t have the tax legislation to calculate exactly, so are using the method contained in their announcements.]
How to Apply
You cannot apply for this scheme as HM Revenue & Customs will contact you directly if you are eligible.
When to Expect the Money
We expect the money will not be available immediately, we understand that the Government have put pressure on the banks to relax their lending criteria to enable you to get an overdraft/loan to cover your immediate living expenses. To this end, we will put together a letter that summaries your income details and work out a calculation that you can then show your bank what relief you should be getting from the government in due course. Please let us know if you would like this for your bank – let us have details of the bank that you will be applying to.
Details of these measures are available here.
If your self-employed business has employees and / or business property, there are further reliefs available, which we have detailed here.