In addition to the Coronavirus Job Retention Scheme (‘CJRS’) announced by the Government to support employees and allow employers to furlough staff, the Chancellor announced support for the self-employed on 26 March 2020.
The SEISS was brought about and launched by the Government, in large part as a result of the pressure of the unions, the Federation of Small Businesses (“the FSB”) and freelancers themselves, who argued for consistency for the self-employed with relief provided by the CJRS for employees. The FSB also argued that the small business community would be at the forefront of recovery of the UK economy.
This note considers the particulars of the SEISS; and some of its limitations and anomalies.
Chancellor Rishi Sunak introduced the scheme saying:
“Self-employed people are a crucial part of the UK’s workforce who’ve understandably been looking for reassurance and support during this national emergency.
The package for the self-employed … outlined today is one of the most generous in the world that has been announced so far. It targets support to those who need help most, offering the self-employed the same level of support as those in work”.
The scheme is part of the wider government support and is said to bring “parity with the Coronavirus Job Retention Scheme, where the government committed to pay up to £2,500 each month in wages of employed workers who are furloughed during the outbreak”. It is intended “to help millions of self-employed people, covering a wide range of industries and jobs, whose livelihoods have been adversely affected by the coronavirus”. (HMRC and Government News publication 4 May 2020).
The aim of the scheme is to support the self-employed, including members of business partnerships, whose income has been adversely impacted by coronavirus (HMRC, Guidance and Webinar). It is a temporary scheme, covering a 3-month period, which HMRC says may be extended. That is particularly so given that the CJRS has now been extended until October 2020, albeit with an expectation that or subject to employers sharing the cost from August 2020.
Those who are eligible will at present be able to claim a taxable grant worth 80% of their average trading profits, to a maximum of £7,500, covering a 3-month period. If a claim under SEISS is approved, the sum will be payable in a single instalment, by 25 May 2020 or within 6 working days of making a claim. Claimants will be given a date when they can submit a claim, after completing an online eligibility check.
From Monday 4 May 2020 HMRC started contacting people who may be eligible for the SEISS, by letter, email and text. The claims service opens on 13 May 2020.
Eligibility for the Scheme
Taxpayers will be eligible if they are a self-employed individual or a member of a partnership and:
HMRC Guidance (updated 4 May 2020) describes what is meant by business being adversely affected by coronavirus, by giving the following examples:
Only those who have self-employed trading profits of no more than £50,000 are eligible for any support. In addition, at least half of the Taxpayer’s total income must come from self-employment. Non-trading income, which may be earned by the self-employed Taxpayer in addition to trading profits, includes income from employment, property income, dividends, savings income, pension income, overseas income and miscellaneous income, including social security. It follows that an eligible self-employed Taxpayer can have a total income of up to £100,000, provided up to £50,000 and not more is trading profit from self-employment and the other income (which is not more than half of the total) up to £50,000, is non-trading income.
In order to assess the Taxpayer’s profit level HMRC will first consider the 2018-19 Self-Assessment tax return and trading profits for 2018-19. If the taxpayer is not eligible based on the 2018-19 Self-Assessment tax return HMRC will then consider whether the Taxpayer has average trading profits in 2016-17, 2017-18 and 2018-19, averaged over those years, of not more than £50,000 and these profits constitute at least half of average taxable income in the same period. If the self-employed individual’s trading began between 2016-19, HMRC will only use those years for which a Self-Assessment tax return has been filed. However, according to the guidance if the Taxpayer did not trade continuously between 2016 and 2019, not trading in 2017/18, then HMRC will only consider whether the Taxpayer is eligible based on the trading profits from 2018/19.
In the case of a partnership HMRC will consider how the trading profits are distributed between the partners to determine individual partners eligibility. As such a partner will be eligible for the SEISS if he or she has a distribution of trading profits in 2018/19 or otherwise an average distribution of trading profits for 2016/17, 2017/18 and 2018/19 of not more than £50,000 and has other non-trading income of not more than half of total income.
If the tax return for 2018/19 was not submitted before 23 April 2020, the Taxpayer is not able to claim. There are also specific provisions for late tax returns submitted between 26 March 2020 and 23 April 2020, for amended tax returns and those under enquiry.
When working out eligibility or the amount of any grant HMRC will not take into account tax returns for 2016/17 or 2017/18 if they are submitted after 23 April 2020.
Those who have taken parental or adoption leave and are taking a break from their work or trade, because of a new baby or adoption, or have done so since 6 April 2019, may still be eligible for a grant because HMRC will treat them as still trading. A claim for Maternity Allowance will not affect eligibility for the grant.
Some self-employed people who are non-resident in the UK or who are resident in the UK but have chosen the remittance basis for the payment of tax in the UK may be eligible under SEISS.
The SEISS is a state aid granted under the European Commission’s Temporary Framework for state aid designed to respond to coronavirus. As such a Taxpayer should not claim the grant if he or she is already above the state aid limits or if claiming the grant would take them above those limits. The maximum level of aid that a business may receive under the Temporary Framework is €800,000 (€120,000 per undertaking active in the agriculture and aquaculture sector or €100,000 per undertaking active in the primary production of agricultural products). The limit applies to any aid under the SEISS and to any aid claimed across all measures granted under the terms of the Temporary Framework.
HMRC is hosting a Self-Employment Income Support Scheme eligibility checker.
What you will receive
If you are eligible for the scheme, in line with the criteria set out above, HMRC will pay a taxable grant equal to 80% of the average trading profits for a 3 month period, capped at a maximum of £7,500, based on the tax year(s) 2016/17, 2017/18, and 2018/19.
If you have only been trading for the 2018/19 tax year or, it appears from the guidance (which is not entirely clear), you did not trade continuously, not trading in 2017/18, then HMRC will only take into account your tax return for 2018/19. As above if the tax returns for 2016/2017 or 2017/18 were not submitted before 23 April 2020 HMRC will not take account of them. As a result to work out the average HMRC will calculate an average monthly amount from:-
Claimant’s under the scheme will then be eligible to receive up to a maximum of £2,500 per month for 3 months which will be paid directly into the claimant’s bank account, in one instalment. This payment is taxable.
Limitations with the Scheme
Though the Scheme is welcome support to those who are self-employed, there are clearly some significant gaps whereby many genuinely self-employed people will receive no support through the scheme. It also gives rise to some anomalies. These are highlighted below:
The Earnings Cap
Unlike the CJRS, where high earners who are furloughed are able to avail themselves of that scheme, with the SEISS, all those who earn even one penny more than £50,000 (on average over the relevant tax returns) will receive no support whatsoever. This leads to a rather anomalous situation where someone who’s profits were £50,000 will receive the full amount of support under the SEISS, to the tune of £7,500 (taxed) whereas an individual with profits of 50,000.01 will receive nothing! It would have perhaps been fairer to have a tapering entitlement, whereby for every £1 of profit over £50,000 there is a corresponding drop off in support.
The difference between the CJRS and SEISS schemes are significant in this regard, as Melanie Tether and Nadia Motraghi highlight in their recent article “Pandemic Law by Twitter: How the Coronavirus Job Retention Scheme has already changed” 6th April 2020:
“ This striking difference in treatment between the employed and the self-employed has not been satisfactorily explained by the Government. It has been said by the Chancellor that even with the £50,000 cut-off the SEISS captures 95% of the self-employed. But if the rationale for the cut-off is that higher rate tax payers either do not or should not require support for their incomes during the pandemic, this fails to explain why there is no earnings cap under the CJRS.”
For this reason it is clear that the SEISS does not have parity with the CJRS.
Arbitrary 50% of earnings threshold
The decision by the Chancellor that at least 50% of an individual’s earnings must come from self-employment in order to be eligible for SEISS, will leave many unsupported under the scheme, in particular those on lower paid work or those working in part in the GIG economy, who are reliant on both their employed income and self-employed work and income. Take the example of a cleaner employed on a part time basis, also undertaking some self-employed work, whose employed (non-trading income) is greater than his or her self-employed income or trading profit. Such an individual who may be highly reliant on that additional self-employed income, but which is less than 50% of total income, will not be eligible under the SEISS for any grant.
In addition the threshold can lead to the anomalous and unjust situation where a Taxpayer, who has a total income of up to £100,000, including trading profits of £50,000, is eligible for support under the SEISS, while a low paid worker exampled above is not. That will be exacerbated where such a low paid worker is furloughed from their employment.
The Self-Employed can continue to work
At present, unlike the position under the CJRS, there is no prohibition on the self-employed continuing to work in their trade or profession. Further, despite HMRC’s Webinar on the SEISS, the HMRC Guidance does not require the self-employed to show a reduction in profits or turnover in the 3-month period or over the trading year, which would be difficult to assess for the purposes of making a current claim. Rather they have to show that their business is being adversely affected by coronavirus. As a result of this there is also no parity between the schemes.
However, the position in respect of the CJRS will or is likely to change in August 2020, following the Chancellor statement (on 12 May 2020) that employers using the scheme will then be able to bring furloughed workers back part-time.
Issues for those who have not yet filed a tax return
There is a significant gap in the SEISS, for those who have not filed a tax return for 2018/2019, in that no support under the Scheme is available. The Chancellor’s explanation for this cut off was, at least in part to avoid the risk of fraud, however, such a risk could surely be mitigated by the fact that self-employed individuals who began trading after 5th April 2019 will have to submit a tax return for that year. Further HMRC have significant investigatory and prosecution powers when it comes to fraudulent tax returns.
Other Government Support for the Self Employed
The government is also providing further help for the self-employed through the deferral of Self-Assessment Income Tax and VAT payments; grants for businesses that pay little or no business rates; the Business Interruption Loan Scheme and the Bounce Back Loan.
Extension of the SEISS?
It seems likely following the extension of the CJRS that there will be a demand for an extension of the SEISS, possibly with some changes, but at present there has been no indication of such an extension.
This article does not constitute legal advice. Legal advice should be sought to address specific circumstances. For legal advice or media enquiries from Giles Powell, Conor Kennedy or any of the barristers at Old Square Chambers, please contact the clerks team.