Self-employed Coronavirus Scheme (Paul Lewis

Paul Lewis

SELF-EMPLOYED CORONAVIRUS SCHEME

Thanks to Paul Lewis for sharing this information. I know that many people who read this blog either are or advise the self-employed, I will try to update the blog as Paul does, but you can always read Paul’s original which can be found here.


UPDATED 1730 3 April 2020 – version 1.34 – recent updates in red


The Government scheme to help self-employed people will leave out millions of those who have income from self-employment. Even Her Majesty’s Revenue & Customs admits only 66% will be helped. It will not be 95% of self-employed people as Ministers and others have said. Altogether more than two million will be left out – it could be as many as five million left out altogether.


Tweet or DM me @paullewismoney with corrections and questions. I may not be able to answer them all personally.

Numbers
The Office for National Statistics says at the end of 2019 there were a shade over five million self-employed people. But the Government says 5.75 million are registered with HMRC as self-employed. It has said its Self-employment Income Support Scheme announced on 26 March 2020 will help 3.8 million of them.

HMRC has told me that two groups are excluded because

  • Less than half their income came from self-employment. It says that is 30% of the 5.75 million or about 1.75 million people
  • Their profits from self-employment were £50,000 or more. It says that is 4% of the total or around 230,000 people.


Those two groups reduce the 5.75 million registered to about 3.8 million – the number it says will be helped.

Those Government figures fail to count four other excluded groups.

  • People who began their self-employment in the tax year 2019/20 that is since 6 April last year.
  • People who began their self-employment in 2018/19 but did not register because the business was too small or they forgot. A new self-employment should be registered by 5 October in the tax year after it begins. We do not know how many register each year because HMRC does not produce the statistics. But these rules exclude at least hundreds of thousands of people and maybe more than a million. Detail on these figures below.
  • People who consider themselves self-employed but trade through a limited company of which they are a director. The Institute for Directors estimates there are 800,000 limited companies with between 0 and 9 staff. Another estimate is that half a million people trade through a personal service company.
  • Those who earn very little and did not register – though they should have done if their turnover exceeded the level of the trading allowance which is £1000.



The Scheme
The Self-employment Income Support Scheme gives self-employed people who qualify 80% of average profits over three months in one lump sum sometime in June 2020. There is an upper limit of £2500 a month or £7500 over the three months. That upper limit will apply to people with average annual self-employed profits of £37,500 to £49,999. Others can work out their payment by dividing their annual profits by five. The lump sum will form part of their profits in 2020/21 and be subject to income tax and National Insurance. It will count as income when working out entitlement to tax credits. Ferret Information Systems have produced this helpful calculator.

To be eligible you must pass seven tests.

1.  You must have filled in a self-assessment tax return in the year 2018/19 and submitted it. Normally that is due on 31 January 2020 but a million people who should have done so did not. If you were late but file by 23 April you fulfil this condition.

2. In that tax return you must have filled in the self-employment or partnership pages. Property pages filled in by landlords and others are not part of the scheme.

  1. You must still be trading when you apply or would be but for COVID-19 and you must intend to continue to trade in 2020/21.
  1. You must have suffered some loss of profits due to the Coronavirus outbreak.
  1. Your annual profits must be less than £50,000. That is defined as taxable profits after expenses and capital allowances but before pension contributions or charitable donations.

You can fulfil the profits condition in two ways –

  1. a) Your profits in 2018/19 were less than £50,000

OR

  1. b) Your average annual profits over the three tax years 2016/17, 2017/18, and 2018/19 were less than £50,000. If you were not self-employed in 2016/17 then the average is taken over two years.

  2. Most of your income in a tax year must come from self-employment.

You can fulfil this condition in two ways –

  1. a) Most of your income in 2018/19 was from self-employment

OR

  1. b) Your average income from self-employment formed most of your income over the last three tax years 2016/17, 2017/18, and 2018/19. If you were not self-employed in 2016/17 then the average is taken over two years.

    Income is all taxable income other than that from self-employment. It includes wages, pensions, interest on savings, returns on investments, rent etc.

  1. You apply for the scheme and are accepted.

HMRC holds most of the data it needs and will invite applications from those it thinks qualify. It is not clear yet how or if others can apply. A declaration about fulfilling condition 4 above may be required as part of the application. If successful the money will be paid direct into the nominated bank account in June.

If you are accepted you are not restricted from pursuing your business. Unlike the similar scheme for furloughing employees you can get the money and work at your self-employment or indeed in a separate job as long as you fulfil rule 3 above.

If you qualify for this scheme and also have a separate job as an employee you can claim from the self-employment scheme and be furloughed by your employer in the job. See my blogpost on the Coronavirus Job Retention Scheme.

There is no upper age limit.

Beware thieves contacting you by text, phone, or email offering you money from HMRC. Do not click on any link or speak to anyone. Hang up or delete

Universal Credit

The Government says if you cannot wait three months for the money then you should claim Universal Credit – if you are under state pension age – to fill the gap. Not everyone can do that and it will take a lot of persistence as hundreds of thousands of people are trying to get it. Find out how to claim on the Government website. Before you do that you can check your entitlement to means-tested benefits including Universal Credit at Turn2Us. Savings over £6000 will reduce UC and savings over £16,000 exclude you. A couple has their income and savings counted jointly. People over state pension age – almost 66 at the moment – should claim pension credit which is almost double the rates for Universal Credit.

If you do successfully claim Universal Credit it will give you an income until the payment is made. However, UC does not start for five weeks after you are awarded it. So you will have to claim an advance payment. Despite its name that is just a loan which will be repaid by deductions from your future Universal Credit. WARNING: If you already get tax credits it is probably best not to claim Universal Credit as it may well be worth less and you cannot then go back to tax credits. Seek advice – Citizens Advice is probably the best place to start.

When you get your self-employment payment that will affect your Universal Credit. The Government has now confirmed the June payment will be treated as earned income in that month. That will be taken into account when your next Universal Credit payment is made and will probably wipe it out. It will not affect earlier payments ones so you will not have to repay any Universal Credit you have had, except of course the advance payment if there is still an amount outstanding. The next month you will have to reclaim UC, which is easy and does not normally involve a five week wait. If your June payment was very big – well over £2500 – it may reduce the payments you get or even prevent a claim.


EXCLUDED

Profit ceiling

People whose profits are £50,000 or a shade above will be excluded even though they may be as much in need as those on £49,999. The Treasury said it has to have a limit to make it affordable. If people on £50,000 or over were included they would be caught by the upper limit and limited to a payment of £7500. HMRC estimates there are 230,000 of them so the extra cost would be £1.72 billion on top of the £9 billion the Chancellor says the scheme will cost. However between 40% and 47% of the cost would be recouped through tax and National Insurance.

Given the ‘whatever it takes’ approach to the crisis the net cost of no more than £1 billion is not prohibitive. The Government is more likely concerned about how it would look to give a £7500 handout to the already very profitable self-employed such as some TV presenters and some barristers. Hence the Chancellor’s statement that the average pay of these people is £250,000. True but misleading. Many will be caught by this rule who are not much above the average pay in London.

The similar scheme for employees placed on furlough has the same maximum payment of £2500 a month for three months but there is income ceiling. Someone on annual pay of £250,000 could be furloughed and get £2500 a month to do nothing.

People who have used the profits of their business to invest in the future and have high expenses and capital allowances will have what they may see as artificially low profits and get little from the scheme. On the other hand some with very high profits who have also investment heavily in their business will be in scope of it because of those investments.

Newly self-employed

Those who began self-employment in 2019/20 are contacting me in large numbers. They feel the hardest done by as they get nothing despite perhaps being 11 months into self-employment but with dreams shattered by the epidemic. At least one petition has been launched to challenge this rule.

HMRC have made it completely clear again to me that there are no exceptions to the rule that to qualify for the scheme an individual must have completed the 2018/19 tax return in time (which is no later than 23 April 2020). So those who began self-employment from 6 April 2019 are excluded.

The number affected is not definitively known. Newly obtained figures from the Office for National Statistics show that in 2019 the net flow into self-employment was 306,000. That net figure is made up of 1,422,000 people who moved into self-employment minus 1,116,000 people who moved out of self-employment. Some people will be included in both numbers. It follows that the true number of newly self-employed in 2019 calendar year is somewhere between 306,000 and 1,422,000 people who are denied help under this scheme. I will try to get more clarity on this figure tomorrow.

Not a hobby

The massive group of 1.75 million ‘part-time’ self employed are also being excluded unless more than half their income comes from self-employment. There are many who consider themselves self-employed but have to take paid employment to make ends meets and pay their rent and feed themselves and their family while their business grows. These are not pursuing a hobby on the side but developing their business which may later become successful. They are being excluded if they fail this ‘over 50%’ test now.

The rule also treats very badly people who moved from employment to self employment in 2018/2019 and did fill in a tax return. They can fail the 50% test if their time as an employee earned them more than their later time as self-employed. In some cases they could have been working as self employed for well over a year. But they are excluded. In 2018/19 a total of 750,000 people moved from employment to self-employment. If they earned less from their new self-employment than their previous employment in that tax year they are excluded.

Directors

Many people who consider themselves self-employed trade as a limited company. Many of them pay themselves a small salary out of the profits and take the rest as dividends. That has – or had – major tax advantages. They could pay a lot less tax than if they paid themselves all the profits as salary. Many do not choose to work in this way. It is forced onto them by the firms that engage them. This group is specifically excluded from the Self Employed Income Support Scheme. Instead the Government has suggested they claim under the furlough scheme for employees.

The Government has now confirmed that it is possible for sole directors to furlough themselves and fulfil their statutory duties as directors.

So, limited company directors can furlough themselves in their capacity of as employees for their company, and claim a grant under the Coronavirus Job Retention Scheme to cover 80% of the regular salary that they have paid themselves via PAYE, up to a cap of £2,500 a month.

For companies with a sole director, their statutory and administrative responsibilities under company law should not impinge on their ability to furlough themselves as employees for the purposes of this scheme, as long as they do no work beyond this.

However, those sole directors who have paid themselves mainly in dividends will get very little – just 80% of their regular pay. Dividends do not count as pay.

THIS BLOG REFLECTS THE RULES AS I UNDERSTAND THEM AT THE DATE AND TIME BELOW. IT DOES NOT CONSTITUTE ADVICE AND SHOULD NOT BE RELIED ON TO MAKE DECISIONS THAT WILL AFFECT YOU FINANCIALLY.

Paul Lewis

3 April 2020

version 1.34