On the 25 March 2020, Chancellor Rishi Sunak announced the Self-Employment Income Support Scheme (SEISS). This allowed HMRC to calculate and provide an appropriate taxable grant to self-employed individuals 'whose livelihoods are adversely affected by coronavirus', based on their average income.
The news was well-received. There had been concern that the self-employed would need to wait on Universal Credit until their industries were able to operate again. Now, with the scheme being extended with a second grant, a large number of sole traders are able to come out of lockdown relatively unscathed.
However, accessing this scheme is no small feat. To ensure you qualify for the additional support through June, July and August, we've asked Mike Parkes from GoSimpleTax to explain the application process and your role within it.
What is the SEISS?
SEISS is a scheme set up to support self-employed workers unable to earn as a result of COVID-19. The scheme opened to applications of its first grant on the 13 May 2020 – covering income for March, April and May – with HMRC identifying eligible self-employed workers and inviting them to enter their bank details online.
The support is determined by the individual's average profits from the past three tax years. HMRC adds up the total profit for the combined three years, divides it by three, and uses that to calculate the monthly amount – a useful method if the earnings in one of your three years was significantly different from the other two.
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In the initial period (March-May), the grant you receive would be 80% of the determined average profit – much like the employee furlough payment. There is a limit though. The grant is capped at £2,500 a month for those that are eligible, and it is taxable (meaning you must declare it on your self assessment tax return). From June to August, this percentage will drop to 70%. It'll be paid as a single instalment that covers three months' profits and is capped at £6,570 total.
The deadline for applying for the first grant is 13 July 2020. Applications for the second grant are due to open from 17 August 2020, but you must confirm that your business has been adversely affected by COVID-19 either on or after 14 July 2020.
Who qualifies for SEISS?
To be eligible for SEISS, there are a series of requirements you'll need to meet. These are:
- you must earn the majority of your income through self-employment
- your average trading profits need to be less than £50,000 a year
- you've filed a tax return for the 2018/19 tax year
- you've traded during the 2019/20 tax year and intend to continue trading in 2020/21
Of course, this will allow some self-employed individuals to get support even without three years' worth of tax returns. If that applies to you, then averages will be taken using any self assessment history that is available.
However, those without a single, full year's self assessment history (those who became self-employed in the 2019/20 tax year) won't qualify. This is to prevent fraudulent claims.
Can I keep working if I receive SEISS?
Yes, provided you intend to continue working as a self-employed individual in the 2020/21 tax year. You can even work at another job in order to support your household income while receiving payments. However, you will still need to prove that your payments represent the majority of your income (ie greater than 50%).
As the SEISS payment will constitute earned income, you should beware if you were on Universal Credit to supplement your income. This may stop, and you may need to re-apply for Universal Credit in July.
How do I stay compliant with HMRC?
Provided you qualify for the SEISS and you submit your self assessment tax return with all the relevant information, you should stay on the right side of the taxman.
However, you should also bear in mind that the second payment on account deadline has been extended. Usually, some self-employed individuals are required to pay their second payment on account on 31 July. However, with COVID-19 causing a significant disruption the cash flow of many sole traders', HMRC has decided to delay this deadline until 31 January 2021.
While this initially sounds beneficial, if you normally make a second payment on account, it could result in the perfect storm next year when all your tax responsibilities come at once – causing greater harm to your cash flow and potentially leaving you with little in the bank in January. It'll pay to file your self assessment early, be aware of your tax bill, and put any plans in place to meet your obligations.
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