Self Employed Income Support Scheme

The long-awaited statement from the Chancellor, Rishi Sunak regarding the Self Employed Income Support Scheme for COVID-19 was announced on Friday 27 March. The Chancellor said that the scheme will benefit some 95% of people whose main income source is derived from self-employment.

A list of the scheme features as announced, and published, are as follows:

  • Those that qualify will receive a cash grant from HMRC based on 80% of profits, up to £2,500 per month,
  • The initial grant will be for the three months, from 1 March through to the end of May 2020, but could be extended for a longer period.

Criteria to Qualify for Self Employed Income Support Scheme

To be eligible, the following conditions will be taken into account:

  • Applicants must be self-employed or a member of a trading partnership,
  • Have lost trading profits due to COVID-19,
  • Have filed a tax return for 2018-19. Late filers will have four weeks from 26 March 2020 to do so,
  • Have traded in 2019-20; be currently trading at the point of application (or would be except for COVID-19) and intend to continue to trade in the tax year 2020-21,
  • Have trading profits of less than £50,000 and more than half of total income from self-employment. This can be with reference to at least one of the following conditions:
    • Your trading profits and total income in 2018-19,
    • Your average trading profits and total income across up to the three years between 2016-17, 2017-18, and 2018-19.

How to access the support

There is no need to apply to HMRC as they will contact you if you are eligible. HMRC will use existing data to make this judgement. The initial three-month grant will be paid directly to a nominated bank account in a single lump sum. The grants are expected to be paid out at the beginning of June. The reason for this delay is likely down to three main factors: the 4 weeks additional filing time for late filers, the requirement to set up a complex new system at the same time as the Coronavirus Job Retention Scheme and to reduce the risk of fraud.

It is assumed that those self-employed who have experienced a significant drop in income due to COVID-19 disruption will need to apply for Universal Credits or Business Continuity Loans to tide them over until June. This will be a challenging time for those affected as the demand for help will place significant challenges on the institutions charged with providing this support.

CORONAVIRUS JOB RETENTION SCHEME (CJRS) – update for director shareholders

There has been uncertainty as to the position of director/shareholders claiming under the CJRS as their income is usually taken from their company as a combination of a low salary and dividends. In the news story published following the Chancellor’s statement on 26 March (regarding the Self-employed scheme) is a telling paragraph. It says:

Those who pay themselves a salary and dividends through their own company are not covered by the scheme (the Self-employed Scheme) but will be covered for their salary by the Coronavirus Job Retention Scheme if they are operating PAYE schemes.

This infers that directors will only be eligible for the CJRS based on their salary alone, and only if there is a proven PAYE record.

Further details of the CJRS are due to be published imminently and will be added to our newsfeed as soon as they are available.

Limited Support for Company Directors

Directors of Limited Companies who were hoping for more support when the Chancellor made announcements about supporting the self-employed have been disappointed.

Often Directors think of themselves as self-employed when they have their own company and have taken their income from the company as a small salary and the rest as dividends. Since dividend income is not classed as self-employment income, for the purposes of the self-employed income support scheme there will be no additional support. Such individuals will get much less than they might have hoped for.

Criteria to Furlough Company Directors

Furthermore, Directors can only be furloughed provided they meet the definition of who can be furloughed e.g. they must be an employee on PAYE and on the payroll on 28 February 2020. Only some directors will meet the PAYE criterion and unfortunately some won’t.  Where they can get 80% of pay, they then can’t do any work for the business during furlough.

It has been calculated that the majority of those operating limited companies paid themselves a monthly PAYE salary of around £719 in the 2019-20 tax year. This means they would be eligible for around £575 a month in financial support from the government.

New Updates on Furloughing

New guidance has also confirmed that those made redundant after 28 February 2020 can be re-employed and placed on furlough.

Those on furlough will also be permitted to volunteer without risking their pay. They will be able to join the 500,000 members of the public who have signed up so far to help the NHS during the coronavirus outbreak.

Under the new guidance, it is our understanding that employees can rotate around periods of furlough and work. Provided that each period of furlough lasts for a minimum of three weeks.

The Government will now cover NI and employer auto enrolment costs for furloughed workers

In a further update to the Coronavirus Job Retention Scheme guidance we understand that the government has announced that it will now cover the employer national insurance (NI) and employer auto enrolment costs for furloughed staff.

In addition to employer National Insurance Contributions, the government will also pay the minimum auto-enrolment (AE) pension scheme contributions employers have to pay on staff wages for furloughed staff. The employer minimum contribution rate is 3%, while employees have to pay 5%.

The Treasury says the latest move could save businesses an extra £300 a month for each employee under the scheme.

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