As a result of the coronavirus pandemic, the Chancellor has announced that the self-employed (including members of a partnership) can claim a grant worth up to 80% of your trading profits, up to a maximum of £2,500 per month, for the next 3 months.
You will be entitled to a payment if you are self-employed, or a member of a partnership, and you:
- Have submitted your income tax return for the year ended 5 April 2019;
- Traded during the current tax year (i.e. the one that begun on 6 April 2019);
- Are trading when you apply (or would be except for COVID-19);
- Intend to continue to trade in the next tax year (i.e. you intend to continue trading during the tax year starting 6 April 2020); and
- Have lost trading / partnership trading profits due to COVID-19.
There are a number of further conditions. To qualify, your trading profits for your accounting year ended during 2018/19 must have:
- Been less than £50,000; and
- Constitute more than half of your income for 2018/19
- If your 2018/19 profits exceeded £50,000 but were greater than normal, there is an alternative test. You can still qualify for support if the average of your trading profits for the years ended 5 April 2017, 2018 and 2019 were less than £50,000 and that average was greater than the average of your other income over that same period
HMRC has said, “Don’t contact us; we’ll contact you”. The intention is that it will identify from its self-assessment computer system those it believes will qualify, and write to them inviting them to apply for a grant.
This is obviously fresh off the press and to some extent the Government should be commended with coming up with something to help the self-employed that mirrors that which it has provided to employees. However, there are some serious issues here:
- The ‘grant’ is not a grant at all. It is in fact taxable. So, once you take account of income tax at 20% and national insurance at 9%, this is worth £1,775 per month.
- The Government has announced that it will not be payable until the earliest of June 2020 – more than 2 months away
- It takes no account of income and tax reliefs that may have been claimed by the taxpayer. It is perfectly possible to make a modest taxable profit on very high turnovers by taking advantage of tax reliefs such as capital allowances.
- If you have made a loss you will get nothing
- If you have not traded during the year ended 5 April 2019, you will get nothing. So for those that are newly self-employed this will not help.
- If your profits exceed the £50,000 threshold – even by a penny – you will get nothing!
So, what should you do?
First, don’t panic. We at CBW can help you.
Second, look at your tax returns since the year ended 5 April 2017 and work out your income for those years.
Third, talk to us as there are other support measures that the Government has announced that may help, including:
- The Business Interruption Loan Scheme
- VAT payment deferment
- Income tax payment holiday
- Job Retention Scheme for furloughed workers
- Business rate holidays and grants for certain sectors
The most important thing you can do is to talk to your advisor. We at CBW are here to help you.
Please get in touch with a member of the tax team if you have any questions.