COVID-19: Help for the self-employed

Insights 27.03.2020 Author: Thomas Adcock

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 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.