Covid-19: support announced for the self-employed

Last night, the Chancellor unveiled the Self-employment Income Support Scheme, the much-anticipated financial support package for sole traders and partnerships whose businesses have been impacted by the coronavirus (Covid-19) crisis. Our Chief Accountant, Emily Coltman FCA, outlines how the scheme will work, who will be eligible for it and how your qualifying clients can claim for it.

How does the scheme work?

Clients who are eligible sole traders or partners will receive a grant of 80% of their average monthly profits, capped at £2,500 a month. The amount they receive will initially be based on three months’ worth of profit but the government has said that this time period may be extended if the coronavirus pandemic continues.

The money from the scheme is not expected to be paid out until June 2020 and will be paid in one lump sum directly into a qualifying business’s bank account. As it will form part of a client's taxable income, a client in receipt of this money will need to declare it in the tax return for the accounting year in which they receive it.

Who is eligible?

Only sole traders and partners can apply for the Self-employment Income Support Scheme.

To qualify, a client’s business must have been required to file a tax return for the 2018/19 tax year. If it hasn’t filed this tax return already, it must do so by 23rd April 2020 in order to qualify. The business must also:

• have traded in the 2019/20 tax year
• intend to continue trading in the 2020/21 tax year

The business must be trading at the moment (unless the coronavirus crisis has forced it to stop trading) and it must have lost profits as a result of the crisis.

Finally, more than half of your client’s income must come from their business and their share of its profit must be either:

• less than £50,000 in the tax year 2018/19
• less than £50,000 on average over the tax years 2016/17, 2017/18 and 2018/19

This means that a sole trader whose profit is more than £50,000 won’t qualify for the scheme. However, a partner of a partnership whose profit is more than £50,000 will qualify if the partner’s individual share of that profit is under £50,000.

If your client qualifies for the Self-employment Income Support Scheme, HMRC will multiply their average monthly profit by three and pay 80% of that final figure, capped at £7,500, in a lump sum.

Unfortunately, clients will not qualify for the scheme if their businesses make losses or if they began trading after 5th April 2019. However, these clients may still qualify for the newly-announced Universal Credit for self-employed people.

Clients who are trading through a limited company can’t claim for the Self-employment Income Support Scheme but may be eligible to claim 80% of their salaries through the Coronavirus Job Retention Scheme.

How can clients apply for the scheme?

Clients won’t be able to apply for the Self-employment Income Support Scheme yet because HMRC still needs to build the systems and run the calculations required to support it. Once the systems are up and running, HMRC will contact clients who are eligible for the scheme and will invite them to apply online through the government’s website.

HMRC has warned business owners to be wary of scams, stating on its website: "If someone texts, calls or emails claiming to be from HMRC, saying that you can claim financial help or are owed a tax refund, and asks you to click on a link or to give information such as your name, credit card or bank details, it is a scam.”

Keep your clients up to date by sharing this version of the blog post with them.