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New COVID-19 support for the self-employed – a new dawn in employment taxes?

27 March 2020
The Government has announced a new self-employed income support scheme to support self-employed individuals whose trading profits are impacted  by the current crisis. 

The Chancellor, Rishi Sunak, announced new measures to assist self-employed individuals during the COVID-19 crisis and launched the Coronavirus Self-Employment Income Support Scheme.  

While these heavily campaigned for measures have been delivered, albeit not necessarily for all forms of self-employment, they were announced with a clear indication of the Government's intention to further align the tax and NICs treatment of the employed and the self-employed and a reinforcement of the requirement for good tax compliance.   

To be eligible for the scheme, tax compliance is key. You must have filed your self-assessment tax return for the tax year 2018-19 and if you have not then you are being given 4 extra weeks to do this (by 23 April 2020).   This will allow late filers to access the help for the self-employed.  

In addition, you must have traded in the tax year 2019-20, continue to be trading at present (but for COVID-19), have lost profits due to COVID-19 and intend to continue to trade in the tax year 2020-21.

Your self-employed trading profits must also be less than £50,000 and more than half of your income must come from self-employment. 

This is determined by at least one of the following conditions being true: 

a) you have 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; and/or 
b) you have 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 or whichever years you have submitted self-assessment tax returns for during that period.

From the Government guidance, the strict position is that if you have started your business since 6 April 2019 you are unfortunately not eligible for a grant under this scheme. It is unclear whether there will be any leniency for these traders, with some in Government suggesting that these self-employed individuals may be able to send HMRC what evidence they have, but there are no guarantees. More clarity is awaited on this but if you are in this group it may make sense to start work on your self-assessment tax return for submission in the early part of the new tax year starting on 6 April 2020. 

Supporting a large proportion of the self-employed through this crisis is an enormous challenge for the Government. The commitment by the Government to put the self-employed on an equal footing with employees on company payrolls at 80% of earnings is a fair decision but one that will prove costly for Government. 

The main difference between the job retention scheme announced for the employed and this arrangement is that HMRC will contact you if you are eligible for the scheme and invite you to apply online and this is not likely to occur until sometime towards the end of June 2020.

For those who operate via a personal service company or those owner managers who take low salary and high dividends the requirements of the scheme pose a problem.  Can you furlough yourself as a sole director and claim under the job retention scheme?  This is a difficult question and the Government is being pressed for an answer on it.  

What is clear is that Rishi Sunak will continue the Government's quest to narrow the tax and NICs distinctions between being employed or self-employed, as well as discourage operation via personal service companies to gain a tax advantage.

Much to watch out for in future Budgets.  As the saying goes: there is no such thing as a 'free lunch'…!  

For further information on the job retention scheme please click here >

Further Reading

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