Yesterday, Chancellor Rishi Sunak announced that a new scheme will be put in place to help all the self-employed workers across the UK whose health and finances have been affected due to the coronavirus pandemic.
Here, we tell you the details, including what the new scheme is, who is eligible, how much the self-employed will receive and how to apply.
Self-employed vs director of a limited company - What’s the difference?
Firstly, we need to clarify the difference between a self-employed worker and someone who is a director of their own limited company, as there has been some confusion surrounding this.
Self-employed workers & contractors
Those who are self-employed do not have employment rights and are not paid through the Pay As You Earn (PAYE) payment system, unlike those who are employed and pay income tax and national insurance contributions every month (as deducted by their employer).
If you are self-employed, you are essentially running your own business and you are solely responsible for said business, including its success, failures, accounts, submitting Self-Assessment tax returns to HMRC, etc.
It is possible that you can be employed and self-employed simultaneously, as many people may work for an employer as well as run their own business in their free time.
Directors - Are they entitled to the new scheme?
Those who are a director of a limited company run it on behalf of shareholders, and with many people, they also own the company that they are working for, meaning that they are both a director and shareholder.
It is important to note that directors who give themselves a salary and dividends from their own business are not entitled to the new Self-Employed Income Support Scheme - which will be explained in more detail below - however, their salary will be covered by the Coronavirus Job Retention Scheme (where employers can claim 80% of their employees' salary). For more information on this, see the GOV.UK website here.
What is the new Self-Employed Income Support Scheme?
As announced by Rishi Sunak yesterday (26/03/2020), HMRC has designed a completely new income support scheme that will help millions of self-employed workers across the country - this is currently the most generous package being offered worldwide, according to Sunak.
The scheme has been designed to support self-employed workers in the UK by providing cash grants of up to 80% of the individual’s profits (up to £2,500 per month), for at least three months (covering March, April and May 2020 so far).
Who can apply for the new scheme?
To be eligible for the new income support scheme, you must, of course, be self-employed, while it also applies to those who are members of partnerships.
There is also criteria you must meet:
- You need to have submitted a tax return for the tax year 2018 to 2019.
- You need to have traded during the tax year 2019 to 2020.
- You plan to continue trading in the tax year 2020 to 2021.
- When you apply for the scheme, you must be currently trading, unless you have been affected by coronavirus.
- You are unable to trade and/or have lost your partnership as a result of COVID-19.
Profits must be lower than £50,000 (in 2018-2019 tax year)
In addition to the criteria listed above, more than half of your income must come from self-employment, which can be determined by either of the following (one must be true):
- Profits less than £50,000 in tax year 2018-2019 must made up of more than half of your taxable income.
- In tax years 2016-2017, 2017-2018 and 2018-2019, average trading profits were less than £50,000 and made up more than have of your average taxable income in the same period.
For those who began trading between 2016 and 2019, HMRC will only use the years you filed a tax return for.
Make sure you have submitted your Income Tax Self-Assessment tax return for the tax year 2018-2019 - the deadline for this is 23rd April 2020.
HMRC will look at tax returns for 2018-2019, and any late returns will be risk-assessed before the April deadline as normal.
How much will the self-employed get?
If you are self-employed and eligible for the taxable cash grant, you will receive 80% of your average profits from the following tax years:
In order to work out the average amount of profits made in those years, HMRC will total the trading profits for the three tax years above (where applicable) and divide that amount by three, to work out how much you will get each month (no more than £2,500) for three months.
I’m self-employed - can I apply for the scheme now?
It is not possible to apply for the income support scheme just yet, so do not try to contact HMRC at this time - this will only delay the work that’s currently being done to help the British public.
If you have submitted tax returns for the years listed above, you simply need to wait to be contacted by HMRC who will let you know that you are eligible, with an invitation to complete an online application form on GOV.UK.
Martin Lewis asked HMRC when self-employed workers should expect to be contacted, and he was informed that it's likely to be mid-May (either by letter or email), with payment following in June.
Beware of scams!
During these difficult and unpredictable times, it is highly important that you remain vigilant when it comes to scam emails, texts and phonecalls.
If you receive texts, calls or emails from someone claiming to be working for HMRC and saying that you can claim financial help, that you’re owed a tax refund, that you need to click on a link in their email and give personal and financial details, it is definitely a scam.
Do not click on any links provided in scam emails, and remember that if HMRC do contact you, you will be asked to visit the GOV.UK website directly, they will not include a link for you to click.
What happens after I’ve applied for the scheme?
Once you have made a claim to receive Self-Employed Income Support, you will be contacted by HMRC again who will inform you how much you will receive and you will need to provide payment details so that they can pay it directly into your bank account.
Remember, this can’t be done until you’ve been directly contacted by HMRC to apply for the grant - which may be some time in the middle of May.
What’s been said by Chancellor Rishi Sunak?
Yesterday, Rishi Sunak stated:
“Self-employed people are a crucial part of the UK’s workforce who’ve understandably been looking for reassurance and support during this national emergency.
“The package for the self-employed I’ve outlined today is one of the most generous in the world that has been announced so far. It targets support to those who need help most, offering the self-employed the same level of support as those in work.
“Together with support packages for businesses and for workers, I am confident we now have the measures in place to ensure we can get through this emergency together.”
Be sure to look on the GOV.UK website for further information and updates relating to this scheme.
For more information relating to the coronavirus pandemic, read our related articles below: