Q: What support is available through the extensions to the self-employment income support scheme?

The self-employment income support scheme (the ‘scheme’) was originally announced in March 2020 for self-employed people or members of partnerships who lost income due to the pandemic. The scheme has now been extended in a similar way to the Coronavirus Job Retention Scheme (CJRS) to cover until the end of April 2021. There are subtle differences between the different phases of the scheme which are summarised below. 

The extensions to the scheme cover the following periods:

Fourth grant

  • Claim period is Feb - April 2021
  • Claims close on 30 April 2021 (TBC)
  • Grant amount cap is up to £6,570 or £7,500
Third grant
  • Claim period is Nov 2020 - Jan 2021
  • Claims close on 29 Jan 2021
  • Grant amount cap is up to £7,500
Second grant
  • Claim period was 14 July - Oct 2020
  • Claims closed on 19 Oct 2020
  • Grant amount cap was up to £6,570
First grant
  • Claim period was March - 13 July 2020
  • Claims closed on 13 July 2020    
  • Grant amount cap was up to £7,500

Third and fourth grants

The third grant under this income support scheme will increase to 80% in November to mirror the support given under CJRS. The self-employed will therefore potentially be entitled to third and fourth grant payments:

  • The third covers the three-month period November to January. This grant will be calculated using 80% of average trading monthly profits, capped at an overall maximum of £7,500. (This is an increase from the previous percentage advised by the government which were set at 20% before announcing that it would be increased to 40% and then 55% capped at £5,160.)
  • The fourth grant covers the three-month period February to April. The government will confirm the level of this second grant later on but it is likely to be  either 70% or 80% of average monthly trading profits capped at an overall maximum of £6,570 or £7,500 if the previous pattern is followed.

These grants will be paid in two lump sum instalments to cover these periods and are subject to tax and NIC’s in the usual way.

The first and second grants

The first grant was worth up to 80% of average monthly trading profits, capped at an overall maximum of £7,500. The deadline for the first grant closed on 13 July 2020. 

The deadline for the second round of grants was 19 October 2020. To be eligible for the second grant the business must continue to be adversely affected on or after 14 July 2020. From 17 August this second grant was payable worth 70% of the self-employed person’s average monthly trading profits. The monies were paid out in a single instalment covering three months’ worth of profit capped at £6,570.

Self-employed individuals, including members of partnerships, needed the same criteria for the second self-employed grant as they did for the first one, namely carrying on a trade which has been adversely affected by COVID-19 and have:

  • submitted an Income Tax Self-Assessment tax return in the tax year 2018-19;
  • traded in 2019-20 and intend to keep trading in 2020-21;
  • have average self-employed trading profits of under £50,000 p.a.;
  • self employed profits which are at least equal to their non-trading income.

A variation on the basis for calculating the grant was also announced on 23 June for new parents in 2018-2019 whose profits were affected by parenting.

Differences with the Coronavirus Job Retention Scheme

The self-employed scheme and Coronavirus Job Retention Scheme are different. The latter is only open to employees who were furloughed in accordance with various qualifying dates and criteria, for example employees must be on an employer’s PAYE payroll by 30 October 2020. Under the November phase of the furlough scheme neither the employer nor employee needs previously to have used the scheme. This is a significant departure from the earlier phases where employees could only be furloughed if they had been furloughed prior to 30 June 2020.

Self-employed individuals do not need to have claimed previously to claim the grant but do need to have been eligible for the first and second grants to claim the third grant.

Furloughed employees who were not allowed to work for their employer during the first phase of furlough, until the flexible furlough scheme started 1 July onwards. By contrast, the self-employed have been able to work, start a new trade or take on other employment including voluntary work, or duties as an armed forces reservist during both the period of their claim for the first and second grants.

Company directors are employees for PAYE purposes and not self-employed so if they were able to be furloughed this would be under the Coronavirus Job Retention Scheme.


Q: What assistance is available for self-employed people and what are the eligibility criteria?

On 26 March the government announced help for the self-employed which is similar (but not identical) to the coronavirus job retention scheme and this was extended in June and again in November 2020 for further grant instalments. This third phase of the self-employed scheme opened from 30 November. In summary the scheme is for those with annual profits under £50,000 and who receive at least half their income from self-employment. There are a total four rounds of the scheme and all grant payments are subject to income tax and Class 4NICs.

The eligibility criteria are that the self-employed person must have adversely affected by the coronavirus pandemic and:

  • Traded in tax year 2019-2020 and tax year 2018-2019.
  • Plan to continue trading in the tax year 2020-2021 or would be except for COVID-19. 
  • Submitted the 2018-2019 year's Self-Assessment tax return on or before 23 April 2020*. 
  • The self-employed person must have trading profits in 2018-2019 of under £50,000. 
  • Have lost trading profits due to COVID-19 and have records to support this. 
  • Self-employed people who earn more than £50,000 p.a. do not qualify.
  • The self-employed person must make more than half of their income from self-employment. 
  • Employees who work for an employer but have some separate self-employed work on the side which is less than half their income will not be eligible.

*Self-employed people whose tax return had not been submitted by the 31 January 2020 deadline, could submit a late tax return for 2019 until 23 April 2020. To help calculate the amounts the tax return for the tax year 2016-2017 will also be needed. No tax years after 2018-19 will be taken into account in calculating eligibility or amounts due for the grants, even if these have been filed by the time a claim is made. 

To be eligible for the third grant, two extra conditions also have to be met:

  • The trade must have suffered from reduced activity, capacity or demand between 1 November 2020 to 29 January 2021 due to COVID-19; and
  • The self-employed person must reasonably believe they will suffer a significant reduction in trading profits for the base period, including November to January.

If the person did not trade in 2016-17, the average trading profits for the two years 2017-18, and 2018-19 must be between £0-£50,000 and average trading profits for those years must be more than half of the total taxable average income. 

The qualifying profit conditions are modified for self-employed persons who are subject to specific loan charge provisions falling within Schedule the Finance (No. 2) Act 2017.

Previous grants

The previous two taxable income support grants for those adversely affected by the coronavirus pandemic were:

  • First grant for the period ending 13 July 2020 worth 80% of their average monthly income, capped at a total of £7,500. 
  • Second grant for the period from 14 July 2020 worth 70% of average monthly income capped at £6,570.  

These grants were calculated by working out the lower of:

  • £7,500 (for the first grant), or £6,570 (for the second grant) and
  • 80% or 70% of income over the three years 2016/17, 2017/18 and 2018/19.

Income is therefore calculated by taking the average of their income over the last three years. Income is based on PAYE salary not dividends which do not count towards the average income. The self-employed person does not have to have claimed the first grant to be able to claim the second and does not have to have claimed the first two, to claim the third one although they must have been eligible for the earlier grants.

Parents

From July 2020 parents who took time off to care for their children within the first 12 months of the birth or adoption of the child can use their 2017-18 (or 2016-17 and 2017-18) self-assessment returns as the basis for their eligibility for the self-employed scheme if their trading profits dipped in 2018-19 due to parenting.


Q: What do self-employed businesses have to show to establish their business has been adversely affected?

Self-employed people can continue to trade and claim a grant, as long as their trade is adversely affected. During the application process, the taxpayer is asked to confirm that they meet the eligibility criteria and HMRC has provided some guidance on what 'adversely affected' means. The main situations include scaling down or ceasing working or incurring additional costs include but are not limited to:

  • the supply chain has been interrupted
  • the business has fewer or no customers
  • staff are unable to work
  • one or more of contracts have been cancelled.
Those who cannot work because they are shielding, self-isolating, on sick leave or have care responsibilities because of coronavirus can also claim.
 
The financial loss can be relatively small, for example the business might be adversely affected because it had to write off bad debts due to customers ceasing trading due to Coronavirus. 
 
For the first grant the business must have been adversely affected on or before 13 July 2020. For the second grant the business must be adversely affected after 13 July 2020.
 
For the third grant the reduced activity or temporary inability to trade (compared with what could reasonably have been expected but coronavirus) must be between 1 November 2020 and 29 January 2021. The individual must meet the eligibility criteria for the first and second grants and additional criteria apply for the third grant including a reasonable belief of a significant reduction in trading profits for the relevant accounting period due to coronavirus, compared with what would otherwise have reasonably been expected.
 
The significant reduction in trading profits applies across the whole accounting period. Business owners will have to honestly forecast  whether they reasonably believe that their business will have a significant reduction in profits to establish eligibility. HMRC may find this difficult to police especially as some people will not show the significant reduction in trading profits for the relevant period until their 2021/22 tax return depending on their accounting period.
 
Guidance is ongoing but two minor points that have been clarified are that a claim cannot be made for the third grant just because of a reduction in profits or demand due to:
  • increased costs (such as having to buy masks and PPE)
  • self-isolation, or care for someone else required to self-isolate as a result of travelling to the UK.
These things on their own do not mean the self-employed person can show an adverse effect. HMRC has published guidance and examples to help claimants check whether they are eligible.

Q: Can a self-employed person work for us over the relevant period and still claim under the coronavirus self-employment income support scheme?

Yes, the self-employed can claim income support payments and continue working for their business. This is in complete contrast to furlough leave under the coronavirus job retention scheme for employees - under that scheme the employees must not continue to work for the employer.

The self-employed person or partner must have lost trading profits due to COVID-19 which presumably will be assumed if profits fall over this period. It does not appear to matter if the self-employed person only loses a small amount of profit due to the coronavirus situation, they would still be entitled to receive the 80% support grant as no credit is given for any earnings that are unaffected as long as there is some adverse effect. 

Eligibility for self-employment income support depends upon the individual’s income being under £50,000 on average for the last three years; no equivalent restriction applies to employees on furlough under the coronavirus job retention scheme.


Q: When will payments under the coronavirus self-employment income support scheme be made?

HMRC should have checked the tax returns and contacted those who were eligible for the first payments under the scheme by letter, text or email. Those who earned more than £50,000 (or had less than half their income from self-employment) in 2018/2019 will have their 2016/2017 and 2017/2018 tax returns checked. If on average over the three years people earned less than £50,000 and made more than half their income from self-employment then they'll still be eligible.

There is an HMRC's online eligibility checker which requires the taxpayer UTR and national insurance number to verify if an individual is eligible for the grant. There is also a claims portal which taxpayers' can use.

Those who are eligible could make applications:

  • from 13 May to 13 July 2020 for the first grant. 
  • on or before 19 October 2020 for the second grant.
  • on or before 29 January 2021 for the third grant.
The deadline for the fourth grant is to be confirmed.

Self-employed income support payments should normally arrive around six working days after the claim is made although delays may arise under the third phase of the scheme. Self-employed people may need to borrow money to help with cash flow if there is a delay until the income support application is processed. There are also business interruption loans available and the July self-assessment tax payments can be delayed for six months. Other potential government support is summarised in our table outlining government coronavirus support schemes. Tax advisers can provide assistance or support but cannot make the claim on behalf of the self-employed person who must make the claim themselves.


Q: What happens to people who work for us but only became self-employed in the 2019-2020 tax year?

People who first became self-employed in the tax year 2019-2020 (and do not therefore quite have a full year of accounts) will not be able to claim under the scheme.

Those who are ineligible for the Self-Employed Income Support scheme may be able to claim Universal Credit although those with more than £16,000 in savings may be restricted in what they are able to claim. Other potential government support is summarised in our table outlining government coronavirus support schemes.


Q: Do self-employed people have to have been self-employed for three whole years to claim under the coronavirus self-employment income support scheme?

No, self-employed people do not have to have traded for three years to claim under the coronavirus self-employment income support scheme, but they do have to:

  • have traded in the tax years 2018-2019 and 2019-2020

  • be trading when the application is made (or would be trading except for the pandemic)

  • intend to continue trading in 2020-2021.

The self-employed person or partner must have lost trading profits due to COVID-19. The 80% is based on average monthly income over the past three years. This means that figures for average trading profits in 2016-2017, 2017-2018, and 2018-2019 will be used and these must be under £50,000 on average.

If the person started trading after 2016, HMRC will use the years for which a self-assessment tax return has been submitted to calculate the average profits. The profits must be more than half of the individual’s average taxable income over those three years.


Q: Is it correct that self-employed people with average profits of £50,001 will not be eligible?

Yes, if profits are over £50,000 on average the self-employed person will not be eligible, whereas if the profit is under £50,000, they will be.


Q: Are self-employed people, who have to self-isolate, or whose work stops, eligible for sick pay?

Self-employed people, who have to self-isolate, or whose work stops, have limited sick pay protections as they are not eligible for statutory sick pay although other benefits are available.

Self-employed Income Support

The self-employed income support scheme supports those whose business was adversely affected by the pandemic and applies to those who were ill self-isolating, shielding, or had to care for others and this disrupted their work. The payments depend upon the self-employed person’s previous tax returns and will be administered by HMRC. See the questions on the assistance available to self-employed people above for more information.

Other rights 

The other precise legal rights of self-employed workers depend upon the terms of the agreement and how the arrangement operates in practice. Some workers deemed to be self-employed may in fact be protected as employees.

If workers deemed to be self-employed do in reality have employee status then employers should consider the support measures introduced by the government. 

Further state help

The government announced in the March 2020 budget that the self-employed will be able to claim employment support allowance from the first day of their isolation or illness rather than day eight. However, it is only paid to those who are too sick to work and who meet certain conditions and those who are likely to benefit are fairly limited. The benefit is worth £73.10 a week, or £57.90 for the under-25s.

The government also temporarily changed universal credit so that the minimum income ‘floor’ of how much the self-employed person would normally expect to earn in a month, is ignored when calculating entitlement to universal credit. This means some individuals will be able to claim over the telephone or online for time they spend off work due to sickness. In effect, instead of sick pay the self-employed will be given support through the benefits system by raising universal credit so that the self-employed receive  a similar amount to the £94.25 statutory sick pay.

The government has also announced a £500m fund to support economically vulnerable people which will be allocated by local authorities. More information can be found in the question on the summary of the help available above, our table outlining government coronavirus support schemes and on the Government website.

DISCLAIMER: The materials provided here are for general information purposes and do not constitute legal or other professional advice. While the information is considered to be true and correct at the date of publication, changes in circumstances may impact the accuracy and validity of the information. The CIPD is not responsible for any errors or omissions, or for any action or decision taken as a result of using the guidance. You should consult the government website for the very latest information or contact a professional adviser for legal or other advice where appropriate.


If you have other queries about COVID-19 not covered above, please contact the CIPD member employment law helpline on 03330 431 217 or visit the Community pages

We know that our members and customers are facing challenging times and we are here to help you. Due to a high number of calls we apologise that your wait time may be longer than usual. We appreciate your patience and will connect you to an expert adviser as soon as we can.

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