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Self-employed support and furloughed workers - an explanation: Nick Haines from Hazlewoods

By Nick Haines, tax partner at Hazlewoods 

Rishi Sunak, Chancellor of the Exchequer, last night unveiled the long-awaited support package for the self-employed, as well as confirming that further detail would finally be released on 'furloughed' employees that evening.

Nick Haines, tax partner at Hazlewoods looks at the measures and what they mean for both the self-employed and furloughed workers.

Self-employment Income Support Scheme

A new self-employment income support scheme was announced with HMRC, pledging to cover up to 80 per cent of average monthly trading profits but capped at £2,500 per month. The Chancellor estimated that up to 95 per cent of the self-employed would benefit from this scheme but there was a raft of eligibility criteria to be satisfied including:

  • The scheme will only be available where the individual has trading profits of less than £50,000 from self-employment. Trading profits can be determined by reference to either trading profits assessed on the individual's 2018/19 tax return or average trading profits over the past three years (i.e. 2016/17, 2017/18 and 201819).
  • The individual's self-employed income must make up the majority of their total income. This could impact those who have significant other income such as rental income or dividends.
  • The scheme will only be available to those who have filed a tax return for the 2018/19 tax year. Therefore, those who have entered self-employment post 6 April 2019 will not be able to benefit. For those that missed the 31 January 2020 filing deadline, the Chancellor has granted a four-week grace period commencing from 26 March 2020 to file their return (but will also likely have a tax liability to pay for that period!).
  • The individual must have traded during 2019/20, be trading at the point of application (or would be if it wasn't for COVID-19), intend to continue to trade in the tax year 2020/21 and have lost trading or partnership trading profits as a result of the coronavirus pandemic. It is not yet clear what evidence will be required to support some of these requirements, for example, where the intention is to continue trading, however, this was not subsequently possible for some reason.

This scheme is not expected to be up and running until early June, which could be too late for some, so in the meantime a business interruption loan could be considered. The grant will be backdated until March 2020 and will initially be available for three months but will be extended if required. HMRC will contact those eligible directly and, once available, the grant can be applied for via an online form. Once processed, the grant will then be paid directly into the individual's bank account.

Rishi did conclude his speech yesterday by saying that "if we all want to benefit equally from state support, we must all pay in equally in the future". It will not be a surprise, therefore, if the Chancellor looks to closer align tax rates for the self-employed to that of employees in the not too distant future.

Furloughed workers

Further guidance has now also been released on the coronavirus job retention scheme for furloughed workers which provides a grant of 80 per cent of an employee's salary, capped at £2,500 per month. A lot more welcome guidance has been included on who will be eligible, how the scheme will operate and how the 80 per cent grant will be calculated.

The Government has confirmed that an employer will receive 80 per cent of the employee's salary capped at £2,500 per month plus the associated employer's national insurance contributions and the minimum automatic enrolment employer pension contributions on that subsidised wage.

The 80 per cent furloughed pay should be calculated based on the employee's actual salary before tax, as at 28 February 2020. Fees, commission and any bonus payments should be excluded from this. There are slightly different provisions in place where an employee's pay varies, for example, seasonal workers to calculate a 'fairer' furloughed pay.

From a tax perspective, normal income tax and NIC deductions should be applied. For businesses, the grant received should be treated as taxable income and a corresponding deduction for employment costs can also be taken.

As previously announced, claims will need to be made via a new online portal which is expected to be available at the end of April. As mentioned above for the self-employed, those with immediate cash-flow concerns should consider the coronavirus business interruption loan scheme in the interim period.

Hazlewoods Tax partner, Nick Haines commented: "Whilst this is welcome news for the self-employed, there will be individuals that are unable to benefit; those who commenced self-employment after 5 April, or those that are still in the start up phase and have incurred losses in their first year or two.

"These self-employed individuals will need Government support as well, so I hope that the Government makes further announcements in due course to widen the scope of this support package."

Hazlewoods have a designated COVID19 page to help businesses and individuals stay well-informed, keep up to date here: www.hazlewoods.co.uk/responding-to-the-coronavirus 

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