Who can make a claim and what is the criteria?
- The self-employed (including members of LLPs/Partnerships).
- Must have been trading pre 2019/20 tax year.
- Must be continuing to trade or would be but for the coronavirus.
- Must be intending to trade in the 2020/21 tax year.
- Their trading profits must have been adversely affected by COVID-19. Note that HMRC will be carrying out risk assessment checks in this respect.
- With the exception of those self-employed who are caught by the loan charge issue, they must have submitted their 2018/19 Self-Assessment Returns by 23rd April 2020.
- ‘Trading profits’ must be no more than £50,000 and be more than half of the individual’s ‘total income’ for either:
- The 2018/19 tax year
- The average of the tax years 2016/17, 2017/18 and 2018/19.
- The claim, if eligible, will be 80% of the ‘trading profit’ up to a maximum of £2,500 per month.
- The Scheme is, at present, set to run for 3 months but may be extended.
What are ‘Trading profits’?
‘Trading profit’ will effectively be the total trading income less:
- Allowable business expenses
- Capital allowances
- Flat rate expenses
- Trading allowance
- Qualifying care relief (i.e. foster carers)
Note personal allowances will not be deducted when working out the ‘trading profit’.
HMRC will use the ‘trading profit’ before the impact of the averaging claim to work out if the self-employed person is firstly eligible for a grant and secondly, when also calculating how much grant they would be entitled to receive.
What is ‘Total income’ in this respect?
It’s important to remember that the ‘trading profit’ must be more than 50% of the individual’s total income. Total income is all the individual’s income from:
- Trading profits
- Income from earnings
- Property income
- Savings income
- Pension income
- Miscellaneous income (including social security benefits)
What happens regarding trading losses and the interaction with averaging?
- When calculating both the eligibility for the scheme or the amount of grant to be given, you don’t take account of trading losses brought forward from tax year’s pre 2016/17.
- Trading losses arising in 2016/17, 2017/18 and/or 2018/19 do have to be taken into account when looking at both the eligibility criteria and the 80% calculation. Please see example below:
|2016 to 2017||2017 to 2018||2018 to 2019||Average for the 3 tax years|
|Trading profit are more than half of your total income||Yes||Yes||No||Yes|
In this case the loss in 2018/19 is factored into the averaging process over 3 years. Although in 2018/19, because of the trading loss, the self-employed person failed to pass the 50%+ of total income criteria test for that particular year, over the course of the three years, because of averaging, they did. Therefore they qualify with an average trading profit of £30,000. Assuming they have complied with all the other criteria stated above, they would presumably be entitled to a grant of (£30,000 x 80%) x 3/12months = £6,000.
What happens if I am caught be the Loan Charge issue
- The person does not need to submit their 2018/19 Tax Return by 23td April 2020. They can delay submission, as originally agreed, until as late as 30th September 2020.
- The averaging criteria will be based upon the ‘trading profits’ of the tax years 2016/17 and 2017/18. If they were not trading in 2016/17 then 2017/18 would be looked at in isolation.
What happens if I amend an earlier year’s Return?
If a submitted SA Return is amended after 26th March 2020, those changes will be ignored when looking at eligibility and the grant calculation itself.
What happens next?
- HMRC intend to contact any eligible self-employed by mid May 2020, presumably by letter to avoid scam calls. Do not contact HMRC direct.
- Any claim will need to be made using the GOV.UK online service.
- HMRC aim to make a one off payment into the s/e bank account by early June 2020.
- Whilst waiting for the grant payment the s/e can make a claim for Universal Credit.
- Once the claim has been made and HMRC have approved it, they will notify the s/e individual of their approval and the amount of the grant.
Other things to note
- The grant will be need to be reflected within the s/e accounts and will be liable to tax and NI.
- The s/e person can continue to work and receive the grant if all the criteria stated above is met.
- If the s/e person is also employed, they may also benefit from the Job Retention Scheme, through their employer.