In his statement of 26 March 2020, Chancellor Rishi Sunak announced coronavirus (COVID-19) Self Employment Income Support Scheme. This had been highly anticipated having been suggested for earlier in the week, with information being available about the top figure. However when the announcements were made, they mirrored those of the employed and also suggested that there could be future changes to the tax system to closer align self employed and employed tax payers.

To qualify for the scheme, a tax payer can either be self employed or in a partnership with others. They

  • Must have submitted a self assessment return for the tax year 2018/19
  • Traded in the Tax Year 2019/20
  • Be trading when they apply unless waylaid by COVID-19
  • Intend to continue trading into 2020/21
  • Have lost trading or partnership profits by virtue of COVID-19

The scheme also applies to those whose self employed trading profits are less than £50,000. On top of this, more than 50% of their income must come from self employed profits. There is a matrix for this point where one has to be true as follows:

  • Having trading profits in 2018/19 of less than £50,000 and these are more than half of your total taxable income
  • Having average trading profits in 2016/17, 2017/18 and 2018/19 of less than £50,000 and these profits constitute more than half of your total taxable earnings for the period

If you started trading between 2016-19, HM Revenue & Customs will only use those years for which you filed a self assessment return.

There are still taxpayers that have not yet filed their self assessment tax returns for 2018/19 and the Chancellor, in a move of significant generosity, has allowed these tax payers an extension till 23 April 2020 to do so. The cynic in me thinks these late returns may show more income than they otherwise might have…

As tax payers, we need to do nothing. HM Revenue & Customs will use data on self assessment submissions to identify those who qualify and will risk assess late returns as they get filed.

HM Revenue & Customs will calculate the grants which will be 80% of the average profits for the 3 years set out above – if they have traded for the full period – and then divide it by 3 – where applicable – to calculate a monthly amount. If this is over £2,500 it will be capped at this amount.

£2,500 per month will be the maximum sum paid for 3 months. The amount will be paid into the tax payers bank account in one sum.

There is no application procedure for this scheme as I said above. HM Revenue & Customs will contact you if you are eligible. We do not need to contact them and are advised that doing so will waste time and delay payments.

So how do we feel about the scheme?

On first look, it appears a worthwhile scheme but the delay in making payments is going to cause some difficulty.  I think that the Government expect taxpayers to approach the Bank to secure funding to cover the bridge if they are not working but for some, this will prove a bridge too far either due to the size of loan (minimum £5,000) or state of the business finances.

We are also seeing amendments to rules on the Furloughing sums and who is eligible to not pay self assessment tax in July, so it may be that these rules will be amended by the time of the late filers self assessment deadline in April.

If you have any questions about how this scheme will work, please get in touch.

(Important Notice – Details correct at time of publication. It is recommended that you check the GOV.UK website for the very latest information)

The views expressed in this article are the personal views of the Author and other professionals may express different views. They may not be the views of Lambert Chapman LLP. The material in the article cannot and should not be considered as exhaustive. Professional advice should be sought in connection with any of the issues contained in the article and the implementation of any actions.

Lambert Chapman Chartered Accountants

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