MoneyMagpie

May 12

Self-Employed Income Support Scheme: Who, How, and When

Reading Time: 7 mins

The Chancellor finally announced the self-employed income support scheme on March 26th 2020. This package is designed to help some self-employed people in a similar way to the 80% wage payment grant for businesses to retain their PAYE employees.

However, there are – as ever – some winners and losers in this. Let’s look at the scheme in detail.

Update: SEISS Scheme now open

The Self-Employed Income Support Scheme is now open for applications. You can check your eligibility to apply here – it’ll give you a date from which you can apply.

HOWEVER

Be warned: a lump sum payment could affect any benefits you’re currently receiving. Even someone with NO savings at all at the moment, who is claiming Universal Credit, could see their benefit payment drop. UC payments reduce once you have £6,000 in capital. As the maximum lump sum payment is £7,500, even if you have no savings right now, the lump sum could take you over this threshold.

The amount you lose on your payment depends on how much capital you have between £6,000 – £16,000. It tapers off from a few pounds less each month to no payment at all.

If your Universal Credit assessment period is coming up soon, you may want to wait to apply for your SEISS lump sum until AFTER your assessment date. This will ensure you receive one more full UC payment before it changes.

What you could get

The self-employed income support scheme offers a taxable grant for at least three months to self-employed people who have lost income as a result of the coronavirus crisis.

It’s based on your average monthly profits from the last three years’ tax returns. The Government will pay 80% of these average earnings for at least three months. This amount is capped at £2,500 a month.

The scheme may be extended if businesses have to remain closed beyond the initial three-month period.

Payments won’t be provided until at least early June. They’ll go directly to your bank account as a lump sum.

Are you eligible for self-employed income support?

This scheme won’t cover every freelancer or self-employed person. It covers about half of the 5 million self-employed (much lower than the 95% the Chancellor quoted – it appears people on the CIS scheme and directors of solo Ltd companies were excluded from that figure).

You must have:

  • Submitted a tax return for 2018/19
  • Traded in the tax year 2019/20
  • At least the 18/19 tax return – ideally 3 years’ of returns to get maximum benefit
  • Average annual profits below £50,000.01
  • Lost trading profits due to COVID-19
  • An intention to continue trading in the 2020/21 tax year
  • A majority of your income (50% or higher) coming from your self-employment

If you only have one or two years’ worth of tax returns, HMRC will use this information to calculate your benefit. You don’t HAVE to have the full three years – but if you do, it’ll give them more data to use and probably bring your average grant up.

The self-employed income support scheme is based on tax returns

You’re not eligible if you:

  • Haven’t yet registered as self-employed
  • Are yet to submit a tax return (i.e., you’ve only been self-employed in the last 11 months)
  • Have average earnings over £50,000
  • Don’t get the majority of your income from self-employment.

Update 4th May 2020: You can now check your eligibility for the Self-Employment Income Support Scheme here. You’ll need your Unique Tax Reference and National Insurance number.

How do you apply?

You don’t! HMRC will write to you if you’re eligible for the scheme. They’ll ask you to complete a short online form that confirms your profits from the last three years, and a declaration that you’ve lost profits due to coronavirus.

Payments will be provided as a lump sum in June.

Can you still work if you apply?

Unlike the PAYE scheme that furloughs workers, you CAN still work if you’re eligible for this scheme. This is likely because the payments won’t be provided until at least June 2020 – and the Government recognises you’ll need to find some cash in the interim.

It also encourages business continuity to make sure you can carry on working once the coronavirus crisis is over.

Solo Limited Traders

A lot of self-employed people incorporate their business as a Limited Company. They’ll pay themselves a smaller regular salary through the PAYE system, and earn more through tax-efficient dividends.

If this is you: you don’t qualify for the self-employed income support scheme.

HOWEVER

You do qualify for the Government’s Job Retention Scheme for PAYE workers. You can apply to furlough yourself and receive 80% of your PAYE salary. You cannot continue with revenue-generating work while you’re on furlough, but can continue activities that are legal requirements as a director of a company. You can also work for someone else while you’re on furlough – just not your own company.

This leaves many people short, but it’s the only additional support for people with this business financial setup. If your 80% won’t cover bills, and you don’t have savings over £16,000, you could be eligible from some additional support from Universal Credit.

You could also apply for the Coronavirus Business Interruption Loan Scheme.

Landlords and Property Income

If your sole income is from rental properties, you will not qualify for the scheme.

The income support scheme is only for those who are self-employed in a trade or partnership. So, if you earn some of your income (it must be the majority – at least 50.1%) from other self-employed activities, you could apply. If your only income is from property, or you’re on PAYE and receive rental income, you’re not eligible for the scheme.

Deferring June Tax Payments

If you have Payments on Account or VAT payments due in June, the Chancellor has suggested you use those savings to tide you over until grant, benefit, or loan money comes through for you. Tax payments can be deferred until January 2020. Of course, you’ll still need to pay the same amount of the delayed payment in January. However, it does mean you can immediately access cash if you need it.

Self-employed in Scotland

The Scottish scheme goes further than the one for England and Wales. If you’re newly self-employed – and so didn’t have a 2018/19 tax return but have been self-employed since April 2019 – you can apply for a grant. The same rules apply: your income must be less than £50,000 and 50% must be from self-employment.

You apply via your local authority and the grant of £2,000 is paid directly to you. Find out the full details here.

It’s really important to note that if you already receive Universal Credit or other benefits – or you’ve applied for them – you can’t get this grant.

What Should You Do If You Don’t Qualify?

Unfortunately, this scheme does leave some people out. Most notably, those who set up their business in the 2019/20 tax year aren’t eligible.

Question Time

On March 26th, the Secretary of State for Housing, Communities and Local Government, Robert Jenrick, said on Question Time that those without a tax return yet COULD apply for help. However, current published Government information on this scheme specifically excludes this group of the self-employed.

The scheme may change to include you – but without this information being confirmed, please don’t rely on Jenrick’s comments. With so much confusion and many different sources of information, it’s easy for even MPs to get confused! You could try contacting HMRC (perhaps in a few weeks, once you’ve supplied your 2019/20 tax return, and the phone lines quieten down a bit) to find out if they can help.

Apply for Universal Credit

If you’re one of the millions left out of the Government support schemes, the only thing available to you right now is Universal Credit. It can take 5 weeks to get your money (unless you get an advance, which you have to pay back), and the support is very low, but it’s something to help towards bills.

Your local authority may also have additional help for you – such as assistance towards council tax bills. Check their website in the first instance to find out what hardship schemes are available in your area.

What about savings set aside for tax?

Universal Credit is only for people with assets below £16,000. However, many self-employed contractors have savings for their next tax bill that push them over this cap.

The Government has officially confirmed that, for the first time, savings set aside for tax are NOT counted. Ideally, they should be in a separate business account. Even if they’re in a personal account, as long as you put a note in your UC journal the amount saved for taxes, this will be taken out of the equation for UC purposes.

Apply for a Business Loan

Self-employed people can now also apply for the Coronavirus Business Interruption Loan Scheme. It’s likely this option is more helpful for those excluded from the scheme because their average profits are above £50,000 – but any self-employed person can apply. Remember, though, that this is a loan and will need to be repaid in 12 months’ time.

The ‘Bounce Back Loan’ is another route to finance. It’s available for small business owners borrowing between £,2000 to £50,000. Loans are 100% guaranteed by the Government (making it safer for banks to offer it to you). The first year is interest-free, then interest is set at 2.5% per year, with a loan term of 6 years (72 months). Repayments start from the 13th month. If you’ve already applied for a loan through the Coronavirus Business Interruption Loan Scheme, that’s under £50,000, you can transfer your loan to these terms.

Ideas to Make Money

If you’re struggling right now for funds, remember our website is full of ways to make money. From instant cash by selling your stuff to new business ideas or passive income plans, check out our Make Money section to boost your bank account now!

A few self-employed stats for you

There are over 5 million self-employed people in the UK, making up15% of the workforce. The number of self-employed people in the UK has risen from 3.3m in 2001 to 5m today.

There are

  • 921,000 self-employed construction workers,
  • 396,000 in the motor trade,
  • 381,000 in health and social work,
  • 306,000 in transport
  • 162,000 in food services and accommodation.

London has the highest concentration of self-employed people where living costs are higher.

Self-employed people earn an average of 24% less than employed people and are far less likely to have a pension. Around 74% of employees have a pension whereas only 16% of self-employed people do. See our whole section on Pensions here to find out how to easily and cheaply set up a pension for yourself.

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WHAT DO YOU THINK?

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Raman
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Raman

Government support is for genuine businesses who are bearing the effect of pandemic, people should not try to take undue advantage of this. They will get caught out later.

Chris Sherratt
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Chris Sherratt

If I am claiming ESA can I still claim SEISS

Tom
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Tom

Very glad that the self-employed are not being left being during the pandemic.

Joanne
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Joanne

Very useful information.

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