COVID-19: Government support for self-employed individuals in the United Kingdom

This update is the counterpart to our note on the assistance offered to employers with the payment of salaries during the pandemic. This note looks at the help offered to some self-employed individuals by the Self-employment Income Support Scheme. Details of this Scheme were published on 26 March 2020. It will be of direct interest to those self-employed individuals who may be able to claim under it. However, employers who make use of the services of self-employed individuals, and who are concerned about their financial welfare, may wish to draw this Scheme to their attention.

Who can apply for assistance under the Scheme?

Unlike the Job Retention Scheme, which applies to all employers and all employees, the criteria for assistance through the Self-employment Income Support Scheme is much more limited. The Scheme, in essence, is for self-employed individuals or members of a partnership, where the trading profits from self-employment are less than £50,000. It is possible for individuals to have other income, but this must not exceed more than 50% of the individual’s total income.

The test for whether or not the self-employed trading profits are above or below the threshold can be met either by looking solely at the trading profits in the 2018-19 tax year, or basing it on average trading profits between 2016 and 2019. If the average profits in this case are less than £50,000, the occasions that the trading profits have exceeded this limit for a year will not matter. In both cases it is necessary for those profits to constitute more than half of the Claimant's total taxable income.

There are a number of other preconditions for being able to make a claim.

First, the individual must have submitted an income tax self-assessment return for the tax year 2018-19, and must have traded in the tax year 2019-20. Self-assessment tax returns for the tax year 2018-19 must be filed by 23 April 2020.

Secondly, the self-employed person or business must be trading when an application for a grant under this scheme is made or would have been trading, except for the Coronavirus outbreak, and intends to continue trading in 2020-21.

Thirdly, the individual must be able to show that they have lost trading income or partnership income due to the Coronavirus. There is no amount specified for such lost income to trigger a right to claim the grant.

Crucially HMRC will contact businesses and self-employed individuals who they consider may be eligible. HMRC will invite those individuals to apply for the grant. It is not necessary for individuals to contact HMRC to make the claim in the first place, although presumably there will be an opportunity for someone to make a claim if they consider they have been missed off wrongly by HMRC.

The note contains a plea that individuals do not contact HMRC enquiring about the grant because this will only slow matters down. It is for HMRC to contact them. However, in a sad sign of the times the Government note also feels compelled to warn people that individuals may falsely claim to be from HMRC, in an attempt to defraud people, by asking them to click on a link or to provide financial information and so such approaches should not be trusted.

How much can individuals claim and when?

Self-employed individuals who are eligible for a grant under this scheme are entitled to a taxable grant of 80% of the average profit from the tax years 2016 to 2019. To work out the average, HMRC will add the total trading profits for the three tax years (where applicable) then divide this by three (where applicable) and use this amount to calculate the monthly amount. The grant will then cover a maximum of £2,500 per month for three months.

The scheme is intended to last for three months, but this may be extended if necessary. While the scheme does provide some certainty to the self-employed, a significant drawback is that it will only become operative in June 2020 and there is nothing offered in the interim to provide relief to self-employed individuals or businesses operating in this manner.

One obvious problem is that it is not entirely clear the extent to which an individual’s profit must have been affected by the Coronavirus in order to submit an application for the grant. There is nothing that expressly says that the HMRC grant may take into account the extent to which profits have suffered. Could your grant be reduced if your profits have only been affected by £1,000 per month? Will HMRC only be contacting individuals where their self-employed income has gone down from the previous year? We assume not, but this does remain a significant uncertainty.