Guidance on the COVID-19 Self-employment Income Support Scheme

Dr Jane MacArthur FCA DipABRSM of Amati UK Ltd provides useful guidance and example grant calculations for you to follow on the Self-employment Income Support Scheme (SEISS), introduced by the government under COVID-19.

On 29 May the government announced an extension to the SEISS scheme and the advice below has been updated to reflect this from the information available.

This page is intended for information only and should not be considered as a substitute for financial advice.

What does the second payment cover?

Individuals can continue to apply for the first SEISS grant until 13 July. Under the first grant, eligible individuals can claim a taxable grant worth 80% of their average monthly trading profits, paid out in a single instalment covering three months’ worth of profits, and capped at £7,500 in total. Those eligible have the money paid into their bank account within six working days of completing a claim.

In response to calls to extend the SEISS scheme the government has announced that a second grant will be available to cover a further three months' worth of profits. The amount of money available is reducing to 70% of average monthly trading profits, up to a maximum of £6,570.

As before, it will be paid in one installment.

More details will be announced on 12 June but we know that applications won't open until August.

I haven't yet applied or received money from the first grant, what do I do?

You have until 13 July to apply for the first SEISS grant. As a reminder, the money available for this grant is 80% of your average monthly trading profits, capped at £7,500 in total.

You do not have to have applied for the first grant in order to apply for the second however.

What action do I need to take?

Her Majesty's Revenue and Customs (HMRC) has created an online eligibility checker which will let you check whether, based on the information HMRC holds, you are eligible for SEISS. If you are eligible, it will also give you a date on which you can apply.

As always, be vigilant against scammers:

You will access this scheme only through GOV.UK. 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.

How do I apply?

The government is urging claims to be made online wherever possible although an alternative will be provided for those unable to claim online.

You will need your self assessment UTR, national insurance number, Government Gateway user ID and password as well as the bank account number and sort code you wish the payment to be paid into.

As part of the claim process you will have to confirm to HMRC that you have been adversely impacted by coronavirus. HMRC will check claims and take appropriate action against anyone making a false claim.

When will I receive the money?

Money for either grant will reach your bank account six working days after your claim is made.

How much will I get?

The taxable grant offers three months support. The first grant at 80% of your average monthly self-employed profit from your last three tax returns (2016-17, 2017-18, 2018-19). The second grant at 70% of your average monthly self-employed profit.

If you have filed less than three years’ tax returns since you started self-employment, the average will be taken over two years or one year (but not a fraction of a year); as it appears that they do not intend to calculate profit on a pro-rata basis for those who started self-employment mid-year, but we are seeking clarification on this point.

HMRC has explained how it will calculate how much you are due here.

Example

You started self-employment halfway through a tax year, October 2017 and have filed six months’ profits on your 2017-18 tax return. Then, on your 2018-19 tax return, you filed 12 months’ profits. Hence, your 18-month total profit figure will be averaged over a full 24 month period (two tax returns).

If you made a loss in one or more of the years, we assume they will still average the three years results. Again, we are seeking clarification on this point.

Can I continue working?

The Chancellor has said that you ‘can claim and continue to do business’, for those of you able to re-arrange some of your work. However, you will need to prove that you have lost income to be eligible for the grant.

Am I eligible?

There is no change to the eligibility criteria for the second grant. If you have already received money, or been notified that you are eligible to apply for SEISS, you will be able to apply for the second grant. As long as you are eligible, the second grant is available to you irrespective of whether you claimed the first grant.

As before, you will need to confirm that you have lost income as a result of coronavirus.

You can apply if you’re a self-employed individual or a member of a partnership subject to the following conditions:

1) You are currently registered as self-employed, and or a partner in an unincorporated partnership and, have been trading since before 5 April 2019.

2) Either:
a. You have already filed a tax return for the year ended 5 April 2019; or

b. You will file your tax return for the year ended 5 April 2019 by 23 April 2020.

3) At least one of these statements must be true:
a.Your self-employed profit for the year ended 5 April 2019 was below £50,000, and this was more than half of your total taxable income;

b. Your average self-employed profit for the last three tax years was below £50,000, and these profits constitute more than half of your average taxable income in the same period. The following calculations will help you determine if these are both true:

i. Add your self-employed profit for 2016-17, 2017-18 and 2018-19. This sum must be under £150,000.

ii. Add your total taxable income from 2016-17, 2017-18 and 2018-19. This will be at least as big as (i)

iii. Take the profit sum you calculated in (i) above and divide it by your total income you calculated in (ii) above and to be eligible, the result must be greater than 0.5.

If you only have two years of self-employment and do not satisfy condition 3a, but you do satisfy condition 3b calculated on a two year basis, we think that this situation should still be eligible but are seeking clarification on this point.

4) You have traded in the tax year 2019-20.

5) You are trading when you apply, or would be except for COVID-19.

6) You intend to continue to trade in the tax year 2020-21.

7) You have lost trading or partnership trading profits due to COVID-19.

Currently there is no information about what questions may be asked or what proof and checks may be needed to satisfy points four to seven above, however HMRC guidance does state that for record keeping requirements you should retain evidence that your business has been adversely affected by coronavirus. The Chancellor wanted to be ‘fair’ and noted that some people may be able to continue to trade as usual and he did not originally intend for this grant to go to them. Hence, the need to prove a loss of income.

You must therefore keep all documentation and information relating to cancelled work.

Exclusions:

If you have registered as self-employed or a partner in a partnership since 6 April 2019, you are not eligible for this scheme.

If you are a director of your own limited company, then you are not eligible for this scheme. You may be eligible for the Coronavirus Job Retention Scheme, which provides 80% of your PAYE salary costs if you cannot work at all and put yourself on furlough. Unfortunately dividend income is ignored.

Are there any downsides?

The grants are taxable. We are seeking clarification on whether this means they are also liable to class 4 National Insurance (NI) and counted as part of your income when assessing student loan repayments (if applicable).

If you claim tax credits you’ll need to include the grant in your claim as income, which may reduce your entitlement to tax credits.

Nothing has been said at any stage about the grant being repayable. If you are offered a grant (on the basis of having lost profits due to coronavirus), but end up recording a year with higher profits than previously on your next tax return, this would imply that COVID-19 did not impact your profit. One leading website has asked the question of whether this situation, or any other circumstances, could lead to you having to repay the grant – we await the result of their enquiries.

Remember:

• self-employed profit is (A) Self-employed profit(s) + (B) Partnership profit share(s)
• if you have more than one self-employment, or are a partner in more than one partnership, you add all of the profit figures together, for the purposes of eligibility and your three year monthly average
• total taxable income is the total of all employment income, self-employed income, partnership income, rental income, pension income, savings income, dividend income, any other income

Updated Friday 29 May

Downloads: Scenario grant calculations and eligibility flowchart

Use our flowchart to help see where you stand with this scheme and look at some income scenarios for further guidance.

ISM members get access to a tax and legal helpline to help you with any questions that arise from your work. You can also contact our in-house lawyers for help with contracts and advice your rights at work.