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Expert analysis of help for self-employed from Mansfield chartered accountant

Posted onPosted on 27th Mar

Mansfield chartered accountants Adkin Sinclair have given their analysis of the Chancellor’s measures aimed at helping the self-employed during the coronavirus crisis.

Chris Adkin, of Adkin Sinclair, writes:

The self-employed income support scheme promises the following support to the self-employed, provided that you qualify:
•Self-employed people will be able to apply for a grant worth 80% of their average monthly profits over the last three years, up to £2,500 a month.
•The grant will be backdated to March but will not arrive until June.
•Payment will be made directly into people’s bank accounts from HMRC
•These grants will be taxable.

So, who qualifies?

•The scheme is open to those UK registered self-employed people (self-employed includes partners in a trading partnership) who earn profits under £50,000 a year (note1); and where
•At least half their income needs to have come from self-employment as registered on the 2018-19 tax return filed in January; and
•You must have submitted your Income Tax Self-Assessment tax return for the tax year 2018-19 (note2); and you have
•Traded in the tax year 2019-20; and you
•Are trading when you apply, or would be except for COVID-19; and you
•Intend to continue to trade in the tax year 2020-21; and you
•Have lost trading/partnership trading profits due to COVID-19.

How do I apply?
Well, you cannot apply for this scheme yet. HMRC will contact you if you are eligible for the scheme and invite you to apply online. This means that individuals do not need to contact HMRC now and they point out that doing so will only delay the urgent work being undertaken to introduce the scheme.

In their guidance, HMRC reminds us that access to this scheme is only through GOV.UK. If someone texts, calls or emails claiming to be from HMRC, saying that you can claim financial help or are owed a tax refund, and asks you to click on a link or to give information such as your name, credit card or bank details, it is a scam.

The guidance issued by HMRC on this scheme can be found here: https://www.gov.uk/guidance/claim-a-grant-through-the-coronavirus-covid-19-self-employment-income-support-scheme

Note 1:
This is determined by:
Having trading profits/partnership trading profits in 2018-19 of less than £50,000 and these profits constitute more than half of your total taxable income; or
Having average trading profits in 2016-17, 2017-18, and 2018-19 of less than £50,000 and these profits constitute more than half of your average taxable income in the same period.

Note 2:
If you have not submitted your Income Tax Self-Assessment tax return for the tax year 2018-19, you must do this by 23 April, 2020. This is an extension to the filing deadline (but no suggestion that penalties will be waived).

Note 3:
Those who trade through limited companies are not self-employed but are likely to be directors of their own company.

It is worth noting that one aspect of the employed job protection scheme that has been clarified by the Chancellor’s announcement on the self-employed scheme is that directors of companies will be entitled to be treated the same as all other furloughed employees. He confirmed this when saying that dividends will not count, only salaries.

Commentary
There are some elements to the self-employed income support scheme that are positive and there are some that are disappointing.

On the positive side, unlike the employee scheme, the self-employed can continue to work as they receive support.

But, that support will not be forthcoming until June and so what this really means is that if you can safely keep working, do so. If by doing so you are then not actually adversely affected to the extent that you have not lost trading/partnership trading profits due to COVID-19 then you will not qualify for any support. There remains many unanswered questions here, specifically around how will the impact on your profits or business be measured to determine whether you have lost profits due to COVID-19 or not.

Also on the positive side for a few people is the option to now submit your 2018-19 tax return in the next four weeks if you have failed to do it on time. I expect that many self-employed who did meet the deadline will feel that this is not an appropriate response to those who chose not to submit it on time. The Chancellor used this extension period as a reason why the payments will not be made until June, but I’m sure we will all have our own view of this and must simply accept that HMRC are extremely busy and in practical terms they need a window of time to work on it.

I am disappointed though that they have not used the approach similar to the Payments on Account system, to enable a taxpayer to possibly claim a payment now and if it turns out to be wrong later on then they have to pay it back, plus interest.

So at least people who have totally lost all their income can access funds now and not in three-months time. There was no mention as to what people in this position are supposed to do about having money to live on for the next three months, other than rely on to the Universal Credit system.

Clearly disappointing is the fact that the support is to be a calculation based on historical profits. This will mean that for some self-employed people they will receive 80% of their average profits but then still have to meet fixed overhead costs out of this “profit” and not out of income as would be the normal case. This demonstrates that the self-employed are not being treated the same as the employed, despite the illusion created by the use of the 80% rate and a £2,500 cap being the same numbers.

Herein lies the crux of the problem. The self-employed work in many varied sectors and circumstances. Some, such as hairdressers and shopkeepers, will have lost the ability to earn anything at all; whilst others such as solicitors and accountants may be able to continue to work safely from home. These measures simply do not help many of the most vulnerable self-employed people at a time when it is critical to them, whilst we can all be certain that some people will already be looking at how they can abuse the scheme.

There is no doubt that the Chancellor used many politically focused statements in his announcement and that he has used numbers that appear to suggest parity with the support offered to the employed; by use of an 80% figure and a £2,500 per month maximum for example. He also told us that the self-employed “have not been forgotten” and we are all in this together. Rishi Sunak firmly intimated that in light of this support it may be necessary in the future to review the way in which the self-employed are taxed (and pay National Insurance) so as to bring their perceived burden more in line with the employed.

However, the details of the scheme don’t appear to support Rishi Sunak’s view entirely, which perhaps illustrates perfectly just why the self-employed and the employed need to be treated differently by a truly fair tax system. But, as he went on to say, that is something to consider at another time.

For now in these most difficult and unprecedented times, we are all surely grateful that our Government is taking whatever measures they have in order to support the working people.