Yesterday the chancellor announced a support package for the self employed. Information is still limited to that announcement, and no legislation has been passed to enact this yet. Official government advice is available here. Here is what we know, which is subject to change:
IMPORTANT: HMRC will be inviting eligible individuals based on their 2018-19 tax return. If you have not submitted your 2018-19 tax return, the cut off for consideration is 23 April 2020. Fines and interest still apply for late filings of the 2018-19 tax year.
Who it covers
The self employed only, that is people who are sole-traders or partners. For clarity, this is does not cover limited companies, personal service companies, and directors who are operating on a mixtures of PAYE and Dividends. ‘Trading profits’ are exclusive to businesses and individuals who are not incorporated.
- You must be already in the self assessment scheme, and have submitted a personal tax return for the tax year ended 2018-19;
- You must have traded in the tax year 2019-20 – rental and investment income doesn’t apply;
- You are trading at application, or would be if not for COVID-19;
- You intend to continue to trade in 2020-21;
- You have lost trade or profits due to COVID-19 (how this will be substantiated is unclear).
Support is only available to those who have trading profits (which do not include dividends, rental profits or interest) below £50,000 per annum, you must meet at least one of the following conditions:
- Your 2018-19 trading profits are less than £50,000 and on your personal tax return those profits make up more than 50% of your overall taxable income. See example 1 below;
- The average of your trading profits between 2016-2019 are less than £50,000, and those profits make up more than 50% of your total income. See example 2 below
The criteria is based on either the 2018-19 tax year in isolation, or the average across 3 years. If you do not have 3 current years in self assessment, HMRC will use the years you have filed.
The amount claimable will be 3 months of the lower of:
- 80% of your average monthly trading profits over the tax years 2016, 2017 and 2018 – calculated by taking the trading profits each tax year, dividing by 3, and then dividing by 12 (as per example 2); or
- £2,500 per month.
The maximum amount received will be £7,500 based on the calculation above.
How is it paid?
This will be one lump grant payment, paid in June into your bank account.
How do I get it?
HMRC will be writing to you if you are eligible. This will be based on 2018-19 tax returns already filed, and late 2018-19 tax returns filed before 23 April 2020.
Example 1: Trading profits less than £50,000 and over 50% of total income for 2018-19
Consider J Bloggs, who submitted a 2018-19 personal tax return within the deadlines made up of the following:
|1.Self employed trade profit (Cleaning)||£20,000|
|2.Partnership share ( 1 of 3 partners in a shop)||£15,000|
|Trading Profits (1 + 2)||£35,000|
|Investment and Rental (3+4)||£12,100|
|% of trade over total income||74%|
In this example, J Bloggs is potentially eligible for the grant. They then work out their average income as described in example 2 to calculate the amount of the grant available.
Example 2: Average profits less than £50,000 and over 50% of total income for 2016-19
Now let’s extend the example above if J Bloggs wasn’t eligible in example 1, or needed to calculated their average income for the grant amount:
|1.Self employed trade profit (Cleaning)||£24,999||£30,000||£20,000||£25,000|
|2.Partnership share ( 1 of 3 partners in a shop)||£25,000||£25,000||£15,000||£21,667|
|Trading Profits (1 + 2)||£49,999||£55,000||£35,000||£46,666|
|Investment, Dividends and Rental (3+4+5)||£52,500||£40,100||£12,100||£34,900|
|% of trade over total income||49%||58%||74%||53%|
|Eligible?||NO (<50% trading profits)||NO (Profits > £50k)||YES||YES|
In this example, J Bloggs is potentially eligible for the grant as the average across three years shows average trade profits less than £50,000, and greater than 50% of income.
Example grant available calculation
Potential amount of the grant available above:
- Monthly average income of 80% of average trading profits (£46,666 / 12) = £3,888; and
- £2,500 per month.
The potential amount available is £2,500, which would be paid in a lump sum in June some time.