It’s now been a couple of weeks since the Chancellor announced the latest financial support for businesses feeling the effects of the COVID-19 pandemic. To find out what’s available and what you’re eligible for, head over to COVID-19 financial support post. Understandably, it’s just the top level details that have been announced at the daily briefings, with the finer details following later, and often being drip-fed into HMRC’s guidance. This has led to a lot of speculation being passed around as fact, so I thought I’d look at some misconceptions that I’ve seen being discussed. I’ll be concentrating on the Self Employed Income Support Scheme (SEISS) here, but will be covering limited companies and some other schemes available in future posts.
Now I have a bit of a bee in my bonnet about this one and it shows why language is really important. Many people see the “self-employed” in the name and assume that it’s for them, but in reality it’s a scheme for sole traders and partnerships. If you’re the sole director of a limited company, with no employees, you might consider yourself to be self-employed, but the Chancellor doesn’t. You might be eligible for the Coronavirus Job Retention Scheme (CJRS), but most directors will not be able to use this if they still have some client work.
The Chancellor was very clear that the SEISS would look at the 2018-19 self assessment tax return, as well as the previous two years if available, and not the 2019-20 return. Whilst I’d always advise completing your tax return as soon as possible after the end of the tax year so that you know how much tax you owe, doing so for 2019-20 won’t result in you receiving a higher grant. Actually this year might not be such a good one to suddenly start submitting your return in April, particularly if your profits are likely to be much lower in 2020-21, as you may end up payment higher payments on account than you really need to. Still prepare it early, but you might want to hold off submitting so that you can reduce your payments on account for 2020-21 if your tax liability looks like it’s going to be much lower than for 2019-20.
Unfortunately if you started your self-employment after 6th April 2019, then you’re one of the many businesses who aren’t eligible for the SEISS. There are many groups who are lobbying for this to be changed, but as it currently stands those who’ve recently become self-employed won’t benefit from this support. Whilst this will leave lots of people falling through the cracks, I can understand why they’ve chosen to do this. Including the newly self-employed would create a massive administrative burden for HMRC, at a time when they’ll already be dealing with a huge unplanned workload, and the potential for fraud would be extremely high. However, having said that, it makes their decision to accept late 2018-19 returns until 23rd April appears a little strange as surely the risk of fraud with those returns is just as high (although granted the number of outstanding returns will be much lower.)
This is actually one of the best things about the SEISS, although I’ve no doubt that it’s only been designed this way because trying to monitor the alternative would be virtually impossible to do. You need to have been impacted by the COVID-19 pandemic, but that doesn’t mean you need to have lost all of your work, just that you’ve had some sort of hit. So you can claim the grant and continue to pick up work where you can. This makes it much better than the equivalent scheme for employees (the CJRS) where employees cannot carry out any work for that employer whilst furloughed.
This one seems to be causing a lot of confusion, in part due to the Chancellor’s use of the term “trading profits” which very few non-accountsy people use in real life. The 80% will be calculated based on your profit, i.e. the number that you paid tax on. Broadly speaking, this is your sales minus your expenses. A lot of people, particularly in the early days of their business, reinvest profits back into the business, whether that’s by buying equipment or training, etc. Whilst that will have benefited them at the time by reducing their profit and therefore their tax, it will now also mean a lower grant.
The support through the SEISS is a grant, which means that it does not need to be repaid. It will, however, be classed as income and will therefore need to be included in your 2020-21 tax return (the one due January 2022).
I know that HMRC’s website can be difficult to navigate (trust me, I’m on there every day, I know it can be as clear as mud), but please don’t rely on Dave down the (Zoom) pub for your information. Updated guidance is being released almost daily and can be found on the Government’s Coronavirus website. If you’re not quite sure how this all relates to your specific situation and want to talk it through with someone, give me a shout.