Last updated: Friday 27th March 9am
NOTE: if you’re structured as a limited company, this post will be more relevant to you.
On Thursday, the chancellor heeded calls to do more to help the UK’s self-employed, bringing them into line with employees.
“Today I’m announcing a new self-employed income support scheme,” opened chancellor Rishi Sunak. The measures he went onto announce were a response to mounting pressure to do more for the self-employed, and will apply to 3.8 million of the UK’s 5 million self-employed workers. They go much further than the measures he announced back on Friday 20th March.
With so many Race Directors operating as sole traders (i.e. self-employed), we wanted to distil the latest information to help you understand what help is available.
State support for the self-employed now comes in three forms:
1. the “Coronavirus Self-Employed Income Support” scheme
2. Universal Credit
3. deferred tax payments
1. Coronavirus Self-Employment Income Support scheme
Who is eligible?
The scheme is open to those who have had taxable profits of up to £50,000, and who have earned at least 50% of their income from self-employment.
These criteria will be assessed according either to your 2019-2020 tax return (filed in January) or to the average of your last 3 years’ tax returns. If the conditions are true for either of these, then you are eligible.
To ensure no-one misses out, the government have given anyone who missed the January tax return deadline until 23rd April to submit theirs. So if you haven’t yet done so – don’t delay.
How much will I get?
The scheme closely mirrors that which the chancellor announced a week earlier for furloughed employees: you will receive 80% of your average monthly profits over the last 3 years (or from when you started as a sole trader, if you’ve been doing it less than 3 years), up to a maximum of £2,500 per month.
The scheme will last for 3 months, but the chancellor has left the door open to extend it, depending on how the crisis develops.
Note that the payments will be taxable in January 2022 tax returns.
How will I get the money?
HMRC will contact you if you are eligible for the scheme and invite you to apply online. You do not need to do anything until contacted by them.
The payment will arrive directly into your bank account in one instalment for all 3 months. It will arrive “no later than the beginning of June”.
Note that applications will be made through the gov.uk website – any other application portal is a scam.
Can I continue working?
Yes. Unlike furloughed employees, you can continue working and still get the income support payment. But note that one eligibility criterion is “must have lost trading profits due to COVID-19”.
2. Universal Credit
No Minimum Income Floor
In his speech on Friday 20th, the chancellor said that, from 6th April until the end of the outbreak, he is suspending the Minimum Income Floor (MIF) for all self-employed workers affected by the economic impact of Coronavirus. Before this intervention, any self-employed worker claiming Universal Credit was assumed, for the purposes of their claim, to be earning at least the MIF, whether or not they were actually earning that much. That meant that if their earnings dropped below the MIF, their benefit payments from Universal Credit did not correspondingly go up. It was a harsh rule.
The MIF is specific to each individual, and is calculated by multiplying the number of hours the individual could be expected to work (this varies according to health and parenthood, but generally 35 hours) by the National Minimum Wage for the individual’s age. Suspending the MIF increases the amount of Universal Credit that self-employed people can claim if they can’t work/earn during the pandemic (whether or not they are actually sick themselves).
Increased Standard Allowance
The chancellor announced that the Universal Credit standard allowance (one of many components that make up the amount that any Universal Credit claimant is entitled to) will be increased by £1000 per year, for the next 12 months. For context, the standard monthly payment for a single person over 25 was £317.82. The increase takes that figure to £401.15.
Am I eligible?
To be eligible for Universal Credit, you and your partner between you cannot have more than £16,000 in savings.
In addition, to be eligible, either you or your partner must be under the state pension age. Full eligibility criteria can be found on this government webpage.
How much will I get?
The chancellor said that “every self-employed person can now access, in full, Universal Credit at a rate equivalent to Statutory Sick Pay for employees.” That’s currently £94.25/week, rising to £95.85/week on 6th April. However, if this is relevant to you, I’d encourage you to use a benefits calculator (like this one) to see how much you’re entitled to.
How to apply for Universal Credit
The government has said it will make it “quicker and easier” for self-employed workers seeing a sudden drop in income to access benefits. New claimants will not need to attend the jobcentre; applications can be done online or on the phone.
It takes at least 5 weeks from making your claim to receiving your first payment – so don’t delay. (Although you can get an advance on your first payment in the form of a loan.)
3. Deferred tax payments
The third tactic that government is using right now to help the self-employed is deferring certain tax payments. All the tax will still need to be paid eventually, but, by deferring the dates that it’s due to be paid, the government is hoping to help the self-employed with short-term cash flow.
The government is deferring the next round of self-assessment payments from 31st July 2020 to 31st January 2021.
For VAT-registered businesses (including self-employed workers), any VAT liabilities accumulated between 20th March and 30th June do not need to be paid to HMRC until the end of the 2020/2021 tax year, i.e. 6th April 2021.
What about Race Directors who operate as a limited company?
I did another post on this a few days ago, but in a nutshell: if your business occupies a property and is eligible for Small Business Rates Relief, then you’re eligible for a £10,000 grant. If you don’t occupy property, you won’t be eligible for the grant.
Beyond that, it’s not clear what you’ll get. Regarding the self-employment income support scheme outlined above, this BBC article clearly says that “Company owners who pay themselves a dividend are not covered.”
Will you benefit from the 80% salary protection scheme for furloughed employees that the chancellor announced on Friday 20th? My best guess (and it is only a guess at this stage) is this: the 80% protection scheme is based on an employee’s February earnings. So if you paid yourself a salary in February, then the government will offer to cover 80% of that salary (up to a maximum of £2500 per month). But if you did not, then you will have to fall back on Universal Credit (as outlined above).
Best of luck once again to everyone through this turbulent and uncertain period.
Coronavirus Self-employment Income Support Scheme
The government webpage on the Coronavirus Self-employment Income Support Scheme
The chancellor’s speech from Thursday 26th March
The government webpage on Universal Credit (apply online via here)
Universal Credit information website on Coronavirus
Money Advice Service on Coronavirus and on Universal Credit
The chancellor’s speech from Friday 20th March