The chancellor announced an extension to the support scheme for the self-employed and based on the policy paper issued on 24 September 2020 and the announcement on 5 November, we have set out below an outline of how the extension of the scheme works.
Please note the scheme in relation to the first two stages of the grants are now closed; however, you do not have to have claimed under the earlier stages to be eligible for the later stages.
Who will qualify for the Scheme
In order to qualify for the scheme, you must be a self-employed individual or a partner in a trading partnership and you must:
- have submitted a Tax Return for the tax year ended 5 April 2019 before 23 April 2020.
- have traded during the tax year ended 5 April 2020
- are trading when you apply or would have been trading except for COVID 19
- intend to continue to trade in the tax year ended 5 April 2021
- your business has been adversely affected by Coronavirus, between 1 November 2020 and 29 January 2021 Examples of adversely affected include:
- To be able to claim this third grant you must either:
- be currently trading but are impacted by reduced demand due to coronavirus
- have been trading but are temporarily unable to do so due to coronavirus
- You must also confirm the following:
- that you intend to continue to trade
- that you reasonably believe there will be a significant reduction in your trading profits due to reduced demand or your inability to trade
- See the HMRC guidance and examples
HMRC have stated the following in respect of reasonable belief and significant reduction:
In order to claim, you must reasonably believe that you will suffer a significant reduction in trading profits due to reduced business activity, capacity or demand or inability to trade due to coronavirus during the period 1 November to 29 January 2021. You must keep evidence that shows how your business has been impacted by coronavirus resulting in less business activity than otherwise expected.
Before you make a claim, you must decide if the impact on your business will cause a significant reduction in your trading profits for the tax year you report them in.
HMRC cannot make this decision for you because your individual and wider business circumstances will need to be considered when deciding whether the reduction is significant.
You should wait until you have a reasonable belief that your trading profits are going to be significantly reduced, before you make your claim.
You can check if you are eligible using HMRC online checker at https://www.tax.service.gov.uk/self-employment-support/enter-unique-taxpayer-reference
HMRC have stated that they will as usual use a risk based approach to compliance. We do not know what form of compliance checks this will take, but we would expect you would need to demonstrate your sales were adversely affected during this period; however, the scheme still allows you to work. They have announced a penalty regime and if you have received a grant to which you are not entitled and do not repay it to HMRC, then you will have to repay the grant, together with penalties and interest.
HMRC will use the data from your Tax Returns already submitted to identify if you are eligible and contact you to inform you of the date you will be able to make a claim and when the online service will be available.
In addition, if you have traded during the tax years 2016/17 to date then you will need to meet the following criteria to be eligible to make a claim:
- your trading/partnership profit in the year to 5 April 2019 is less than £50,000 and these profits are more than or equal to your non-trading income or
- your average trading/partnership profits for the years ended 5 April 2017, 2018 and 2019 are less than £50,000 and the total trading profits over the three years are more than or equal to non-trading income over the same period.
If you have made a loss in a year this will be included in the average calculation, but the use of losses which arose on your 2016 and earlier tax returns will not be included.
If you are a farmer the profits used will be prior to any claim for farmers averaging relief.
There are variations on the rules if you have not traded for the entire three-year period, please see HMRC’s detailed guidance at How HMRC works out trading profits and non-trading income for the Self-Employment Income Support Scheme.
What level of grant will I receive?
For the third grant HMRC will pay you 80% of your average monthly profits over the tax years stated above up to a maximum of £7,500 covering 3 months’ profits. You do not need to have claimed for a prior grant in order to claim the third grant.
In respect of the fourth grant, HMRC will set the level of support in due course.
For example, for the third grant if your self-employment income was your sole income source and your profits were as follows:
- 2016-17 – £30,000
- 2017-18 – £24,000
- 2018-19 – £36,000
- Average Annual Profits – £30,000
- Average Monthly Profits – £2,500
- Three month’s grant based on 80% of average monthly profits – £6,000
HMRC have issued guidance and examples of how they will work out your trading and total income at https://www.gov.uk/guidance/how-hmrc-works-out-total-income-and-trading-profits-for-the-self-employment-income-support-scheme
This grant will form part of your taxable profits for the 2020-21 tax year, it will also count as income for tax\universal credit purposes and will be paid directly into your bank account in one instalment. This is expected to be in June, but they will work as quickly as possible to see if they can speed this up.
How to apply
In order to check if you are eligible for a grant, you can use and register your interest using HMRC online checker at https://www.tax.service.gov.uk/self-employment-support/enter-unique-taxpayer-reference
The portal for the third grant opens on 30 November 2020 and closes on 29 January 2021. Once your claim has been approved you will receive payment within 6 working days. You do not need to contact HMRC.
In order to claim you will need your:
- Self-Assessment UTR – You can normally find this on your Self-Assessment Tax Return or communications from HMRC.
- National Insurance number
- Government Gateway user ID and password – please note this is your personal ID and not necessarily the one you use for business purposes. If you do not have a personal account, you will need to set one up and we recommend that you do this as soon as possible in order to access the claim process.
- Bank account and sort code for the payment to be made to.
- Confirm to HMRC that your business has been adversely affected by coronavirus.
The payment of the grant will count as State Aid and will need to be included, if applying for any other funding classed as State Aid.
The grant is classed as taxable income and will need to be included on your 2020/21 Self-Assessment Tax Return and as income for any Universal or Tax Credit claims you make.
What other Support is available
Other support available to the Self-Employed is as follows: