HMRC issue updated guidance for the Self-employment Income Support Scheme

HMRC have issued further guidance on the 14 April 2020 in relation to the grant support scheme for the self-employed. 

The update includes:

• HMRC intend to contact individuals in mid-May, inviting them to make an application.  Payments are expected to be made in early June.
• Applicants will be required to confirm to HMRC that their business has been adversely affected by coronavirus. HMRC have stated they will “as usual use a risk based approach to compliance”.
• We now have clarification as to how ‘trading profit’ is defined for the purposes of the scheme.
• HMRC have also clarified the definition of ‘total income’ (one condition of the scheme is that the eligible trading profits are more than 50% of the person’s ‘total income’). 
• We now also have confirmation that individuals may also make an application for Universal Credit at the same time as making a claim under the scheme (notably the support received under the scheme must be declared for the purposes of Universal Credit).
• Amendments made to personal tax returns after 26 March 2020 will be ignored for the purposes of establishing an individual’s eligibility.

Background:

The scheme is open to the self-employed (sole traders or members of partnerships) with either:

• a trading profit of less than £50,000 in 2018/19, or
• an average trading profit of less than £50,000 over the 2016/17, 2017/18 and 2018/19 tax years. 

These profits must constitute more than half of an individual’s total taxable income. 

If the individual started their business in the last three years, HMRC will undertake the averaging over the years where returns have actually been filed.   The scheme is not open to individuals whose business commenced after 6 April 2019. 

‘Trading Profit’ is basically net taxable business profits – i.e. business income turnover less deductible expenses, less capital allowances but before losses brought forward and the personal allowance. 

HMRC have listed deductible expenses to include:

• office costs, for example stationery or phone bills
• travel costs, for example fuel, parking, train or bus fares
• clothing expenses, for example uniforms
• staff costs, for example salaries or subcontractor costs
• things you buy to sell on, for example stock or raw materials
• financial costs, for example insurance or bank charges
• costs of your business premises, for example heating, lighting, business rates
• advertising or marketing, for example website costs
• training courses related to your business, for example refresher courses

It also includes:

• any business expenses deducted through the trading allowance
• capital allowances, used to buy assets used in your business
• qualifying care relief
• flat rate expenses

An individual’s ‘Total income’ is defined as being the total of all:

• income from earnings
• trading profits
• property income
• dividends
• savings income
• pension income
• miscellaneous income (including social security income)

These definitions and examples of how the averaging calculation is undertaken can be found in the link below:

https://www.gov.uk/guidance/how-hmrc-works-out-total-income-and-trading-profits-for-the-self-employment-income-support-scheme

The support grant:

Under the scheme individuals will receive a taxable grant representing 80% of trading profits over the past three years up to £2,500 per month, for a current maximum period of 3 months – this may be extended if necessary.  

The grant will be subject to Income Tax and National Insurance contributions but does not need to be repaid.

Timing:

HMRC will contact persons that they believe are eligible in mid-May and invite online applications for the grant to be made.  HMRC will use the 2018/19 tax return submissions as the basis for eligibility – IMPORTANT – if the 2018/19 return is outstanding it must be submitted by 23 April 2020 in order to be eligible for this scheme.

Any tax return amendments made after 26 March 2020 will be ignored.

Payments are expected to be made in June and will be backdated to 1st March 2020.  A single grant payment will be made into the applicant’s bank account.

Continuing work and Universal Credit

Unlike the support scheme for furloughed employees, self-employed individuals may continue to undertake their business if this is practically possible.

Self-employed individuals may also make a claim for Universal Credit while they wait for the grant, but any grant received will be treated as part of their self-employment income and may affect the amount of Universal Credit received. Any Universal Credit claims for earlier periods will not be affected.

Details of the grant can be found here:

https://www.gov.uk/guidance/claim-a-grant-through-the-coronavirus-covid-19-self-employment-income-support-scheme

Notes:

The self-employed are not required to pay their 31 July 2020 income tax instalment until 31 January 2021

The self-employed may also access the Coronavirus Business Interruption Loan Scheme.

The self-employed may also access increased amounts of Universal Credit.

If you have any questions or need help with this scheme, get in touch with us today for further support.