It has been an unprecedented few weeks for everyone, not least for the self-employed community as the coronavirus (COVID-19) has spread across the globe, leading to lockdown in country after country, the UK most recently. As well as the obvious worries about our health and that of our loved ones, it has also led to worries about how incomes will be maintained when the world has effectively ground to a halt for an indefinite period.
The Government has announced a variety of measures designed to help both self-employed and employed people protect their incomes, so what measures are available?
Self-employment Income Support Scheme
After initial criticism for not extending his Job Retention Scheme to self-employed people, Chancellor Rishi Sunak yesterday announced the launch of the Self-employment Income Support Scheme. With this, the Chancellor expects to support up to 95% of self-employed people and partnerships.
The full eligibility criteria can be found on GOV.UK – more details are still to emerge, but the main points so far include:
- A taxable grant for self-employed individuals of up to 80% of trading profits up to a maximum of £2,500 per month, for at least three months – although the Chancellor will extend this if he needs to
- You can claim these grants and still do business – you don’t need to cease trading completely
- Trading profits will be in reference to either the average over the last three tax years or taken from your 2018/19 Self Assessment. If you started trading between 2016 and 2019, HMRC will use only those years for which you filed at tax return
- You do not need to contact HMRC – they will contact eligible businesses directly and invite them to apply online
- The scheme is open to all self-employed people who have submitted a 2018/19 Self Assessment
- If you have not yet submitted your 2018/19 Self Assessment, you now have four weeks to submit in order to be eligible
- You need to have traded in 2019/20 and be intending to trade in 2020/21
- Payments are expected to be made in June 2020 and will be made directly into bank accounts
- The scheme is open to those who make “the majority” of their income from self-employment
- It is not open to anyone with trading profits of more than £50,000 – the reason being, the average profit for those earning more than £50,000 is £200,000
While better than the lack of support previously announced, the scheme doesn’t include anyone who became self-employed during 2019/20, and because payments are not going to be made until June, many contractors will continue to feel the pinch for many weeks to come.
Moreover the announcement didn’t make it clear if these measures extended to those operating Limited Companies, however guidance published later stated that “Those who pay themselves a salary and dividends through their own company are not covered by the scheme but will be covered for their salary by the Coronavirus Job Retention Scheme if they are operating PAYE schemes.”
There was also something of a sting in the tail from Mr Sunak, who announced that due to launching this scheme, he could no longer justify that self-employed people pay less tax than the employed once things return to normal. Such a sweeping statement ignores the many self-employed people who won’t be eligible for this scheme, or who won’t need to claim it, as well as the fact that, unlike employees, the self-employed don’t receive sick pay (under normal circumstances), holiday pay or in-work benefits.
The Coronavirus Job Retention Scheme
The Coronavirus Job Retention Scheme is open to all UK employers and is designed to support employers whose businesses have been severely affected by the outbreak. It’s aimed at employees and will see the government pay up to 80% of a furloughed worker’s wage costs, up to £2,500 a month until their employer is open for business again.
This could be worth looking into if you are a director of your own company paying yourself through PAYE, or a PAYE worker, employed through an umbrella company or agency – although take care as defining your status as “employee” now could potentially cause problems for you further down the line in terms of IR35.
That being said it’s not yet clear how claiming on this scheme could affect your future employment status and tax rates, so it’s worth speaking to your accountant to help decide the best course of action.
Mortgage holidays and other support from banks
One of the earliest measures the Government announced was the ability to take a three-month mortgage holiday (including those with buy-to-let mortgages) if your earnings are hit by the pandemic. Most banks and building societies are offering this, with the option to apply online or over the phone. Additionally, if you rent, new emergency legislation has been passed to suspend evictions from both social and privately rented homes for the duration of this period.
If you have lost business due to the COVID-19 outbreak, this should give you some peace of mind for the duration of the crisis.
Depending on who you bank with, you may also have access to services such as increased limits on credit cards or overdrafts, the removal of penalties for early access to savings, or the removal of interest charges on overdrafts and credit cards. If you find yourself in financial difficulty due to the current crisis, calling your bank should be one of the first steps you make. If you hold income protection insurance then you should also look into making a claim on this.
Statutory Sick Pay (SSP) and Universal Credit
If you do qualify for Statutory Sick Pay (contractors operating through an umbrella company or a PSC and are inside IR35 within the private sector may be) then you will now be entitled to claim from Day One of being ill. The government will cover these payments for up to 14 days for businesses with less than 250 employees. This will also apply if you have been told to self-isolate or if you have to care for a vulnerable person. You will not require a ‘fit note’ from a GP at this time, but instead refer to 111 online for an alternative.
If you do not qualify for SSP, you should be able to claim for either Employment and Support Allowance (ESA) or Universal Credit Last week, Chancellor Rishi Sunak opened up Universal Credit to the self-employed by removing the minimum income floor and allowing self-employed people to claim Universal Credit to the equivalent amount of Statutory Sick Pay (SSP): £94.25 per week.
This goes nowhere near enough to cover the income of most contractors and freelancers but if you are struggling (and potentially ineligible for the Income Support Scheme) then it’s important to get yourself in the system as soon as possible so that if changes are made you should be eligible for them. Call the Universal Credit Helpline on 0800 328 5644, but please be aware they are experiencing an extremely heavy volume of calls at this time.
Deferral of tax payments and Time To Pay
All self-employed people and businesses who are struggling to meet their tax liabilities may be eligible to receive support through HMRC’s Time To Pay scheme. If you have missed, or are at risk of missing a payment because of the outbreak, call HMRC’s helpline on 0800 0159 559.
As part of the package of measures, the Chancellor also announced last week some deferrals for tax payments. The next self-assessment payment dates have now been deferred from July 2020 to January 2021, giving contractors a reprieve on paying money to HMRC imminently. This is automatic for all self-employed people and you do not need to apply.
The next quarter of VAT payments has also been deferred from now until the end of June in an effort to inject funds back into the economy.
Other schemes announced by the Government recently that are less likely to be useful to contractors include the Job Retention Scheme and the Business Interruption Loan Scheme.
The latter is a loan – interest-free for 12-months – designed to help small businesses that meet the criteria. As one of these criteria is to generate more than 50% of the business’s turnover from trading activity, it is unlikely to be applicable for our customers.
As you know, the situation is changing constantly and quickly so we will endeavour to keep you updated on any new measures as they arise. For now, we at Kingsbridge send our best wishes and hope that you and your family stay safe and well.