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Last week, the Prime Minister announced the Coronavirus Job Retention Scheme which will see the Government reimburse employers for 80% of the wages of any employees that they wish to furlough. However, there was no mention of any assistance for the self-employed and this has been anxiously awaited by many.
That changed last night when the Chancellor, Rishi Sunak, announced the details of the self-employed rescue package. The Government sought to justify the delayed announcement on the basis that self-employed working arrangements are more nuanced and require a bespoke solution.
Broadly speaking, the rescue package is similar to the Coronavirus Job Retention Scheme in that the self-employed will get a taxable grant worth 80% of their average monthly profits, up to a maximum of £2,500 per month. However, there are some key differences, as follows:-
How is this calculated?
This is calculated by taking the average of the individual’s last three years of submitted tax returns. If the individual has not been trading for three years then HMRC will average out profits from the information they have (namely one or two years’ worth of submitted tax returns).
At least 50% of the profits need to have come from self-employment, as registered on the 2018-19 tax return – this is to prevent employed individuals claiming additional support from their 'side job’.
For anyone that missed the 31 January 2020 filing deadline, you now have four weeks from yesterday to get your current tax return submitted. It is important to bear in mind that these grants will be taxable and will need to be declared on tax returns by January 2022.
When do I get paid?
This is perhaps the most immediate question for struggling families. When all of your tax returns are filed and up to date, HMRC will then contact all eligible self-employed individuals directly. If you are contacted, you will be asked to fill out an online form and then the grant will be paid directly into your bank account.
Unfortunately, while payments will be backdated to March, they will not arrive into the individual’s bank account until June – for many, this delay may be too late. Accordingly, for some, the banks (via overdrafts or short-term loans) and the benefits system may need to be relied upon to alleviate immediate cashflow problems.
Can I still work if I apply for this grant?
Unlike the Coronavirus Job Retention Scheme (where furloughed employees must stop working altogether) self-employed individuals can continue to work whilst they receive this support. This will enable business owners to continue to work on their businesses so far as possible in the current circumstances, and to lay the groundwork for the time when restrictions are lifted.
Unfortunately, the scheme is not available for individuals that (1) have been trading for less than one year, (2) earn over £50,000 a year on average, or (3) are company owners who pay themselves a dividend. Likewise, as the rescue package is based on average profits, any new businesses that were just getting started and which have made a loss will not benefit. If you fall into any of the aforementioned categories then it unfortunately seems that you will slip through the cracks of the scheme.
While there are still areas of uncertainty, for many, this is a welcome announcement. However, the developments are fast moving and complex so if you do require assistance on this then please contact any member of Blackadders’ Corporate or Employment teams.
Keanu Newman, Trainee Solicitor
Corporate and Commercial
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