How is the government supporting the self employed?


Date: 22 February 2021

A young Asian man worries about how he will pay his self assessment tax bill

As the pandemic continues to impact our way of life, it's more important than ever that you manage your finances and plan ahead. This includes understanding the latest tax changes and how they will affect you. These changes include the government's Self-Employment Income Support Scheme (SEISS).

However, we appreciate that it's difficult to stay on top of tax law at a time of such uncertainty. That's why we've asked Mike Parkes from GoSimpleTax to break down the biggest support package of 2020, and how it could impact you in 2021.

Support for the self employed

On 26 March 2020, Rishi Sunak announced that the government would support self-employed workers in the form of a grant worth 80% of their profits for a period of three months. The Self employed income support scheme (SEISS) was capped at £2,500 per month.

To qualify, you had to meet a number of requirements. Firstly, more than half of your income had to come from self-employment. Secondly, to protect against fraud, you had to already be self-employed and have submitted your tax return for 2018/19 before the 31 January 2020 deadline. This enabled HMRC to calculate the grant payment due if you were eligible. Applications for this first tranche of support closed on 13 July 2020.

On 29 May 2020, SEISS was extended by a further three months, allowing those previously eligible to claim a second grant. This instalment was worth 70% of average monthly trading profits, paid out in a single sum covering three months' worth of profits and capped at £6,570 in total.

The third grant, announced on 24 September 2020, covered the three month period from 1 November 2020 until 29 January 2021. This was worth 80% of average monthly trading profits and paid like before.

The fourth grant is set to cover the next three-month period, from the start of February until the end of April. However, the level of support available will not be published until the Spring Budget, which takes place on 3 March 2021.

As there's currently no information concerning the rules for the fourth SEISS grant, here at GoSimpleTax we are urging all our users to submit their tax return immediately. After all, there's a strong possibility that it will be used to determine your eligibility. Besides which, you must submit your return in order to set up a payment plan.

Whilst the support from the government has been welcomed with open arms, by most, it is worth noting that these grants are taxable. Each grant should be reported on your tax return as income in the accounting period they were received. This means there may be tax and NIC due on these payments and therefore it may impact your tax liability due 31 January 2022.

The extension of the Self Assessment filing deadline

In recognition of the ongoing impact of COVID-19, HMRC announced that sole traders would be exempt from a late filing penalty, provided that they filed their self assessment tax return online by 28 February 2021. However, this has proved somewhat confusing as self-employed individuals were still expected to pay their tax bill by 31 January 2021.

HMRC has subsequently updated their guidance. The initial 5% late payment penalty will now not be charged providing any tax owing has been paid or a 'time-to-pay arrangement' has been agreed by 1 April.

Taxpayers now have until 28 February to file their self assessment if they are to avoid a late filing penalty of £100. They then have until 1 April to pay any outstanding tax or make a time-to-pay arrangement and sidestep a late payment penalty.   

If you're unable to pay your tax bill on time, the government is advising you to pay in instalments. This enables you to spread the cost of your tax bill over a few months. Bear in mind that you must owe £30,000 or less and have no other existing payment plans or debts with HMRC. Your tax returns must be up to date, and you must sign up within 60 days of the payment deadline. It's worth noting that you'll have to pay interest too.

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The revised self assessment timeline

The government's announcements now mean that the self assessment tax returns and payments are due by the following dates:

  • 31 January – Self Assessment deadline (paying and filing) 
  • 1 February – interest accrues on any outstanding tax bills 
  • 28 February – last date to file any late tax returns to avoid a late filing penalty 
  • 1 April – last date to pay any outstanding tax or make a Time to Pay arrangement, to avoid a late payment penalty 
  • 1 April – last date to set up a self-serve Time to Pay arrangement online 

Any individuals that failed to pay the tax owing would be charged interest from 1 February on any late payments. This became even more costly if you had delayed your payment on account from July 2020 (another COVID-19 response measure), both payments were due on 31 January 2021 and each accrued interest.

The cost of supporting the self employed and small businesses

Government borrowing has ballooned as a result of the coronavirus. The Office for National Statistics revealed that the government borrowed £22.3 billion in October 2020, £10.8 billion more than it borrowed in October 2019. It's expected that the government will need to introduce significant tax measures to recoup the costs of the COVID-19 support measures.

While it has already been suggested that the Chancellor won't introduce any that will impact spending, rumours of changes to National Insurance, fuel duty and pension relief have all continued to circulate.

A new tax aimed at online sellers has also made many prediction lists in the run-up to the Spring Budget. Many online sellers have seen a significant increase in demand over the pandemic compared to the high street. By introducing new charges, the government may hope to redress the balance.

In the meantime, it's important that the self employed keep a keen eye on further announcements relating to additional support measures. While filing your tax return may help prove your eligibility, there's no guarantee that you'll still qualify (even if you were able to claim the previous three grants). Keeping yourself well informed will help you to know where you stand.

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