This scheme allows self-employed individuals to claim a taxable grant worth 80% of their trading profits up to a maximum of £2,500 per month for three months ad and capped at £7,500 altogether. 

Below is a list of frequently asked questions from ACCA members.

What support is available to the self-employed?

Those who are self-employed will get a taxable grant worth 80% of average monthly profits over the past three years, up to £2,500 per month. It is the same amount of income as for furloughed employees.

Are there any conditions?

The self-employed can apply if they:

  • have submitted their income tax self-assessment tax return for the tax year 2018/19 
  • traded in the tax year 2019/20
  • are trading when they apply, or would be except for Covid-19
  • intend to continue to trade in the tax year 2020/21
  • have lost trading/partnership trading profits due to Covid-19.

In addition, eligibility is also determined by at least one of the following conditions being true:

  • having trading profits/partnership trading profits in 2018/19 of less than £50,000 and these profits constituting more than half of their total taxable income
  • having average trading profits in 2016/17, 2017/18 and 2018-19 of less than £50,000 and these profits constituting more than half of their average taxable income in the same period.

If the business started trading between 2016 and 2019, HMRC will only use those years for which they filed a self-assessment tax return. 

  • You should not claim the grant if you’re above the state aid limits or operating a trade through a trust.

What happens if all the self-assessment tax returns are not submitted? 

If all the self-assessment tax returns for three years have not been submitted, HMRC will work out the average trading profit based on continuous periods of self-employment, which will be either:  

  • the tax years 2017/18 and 2018/19 
  • the tax year 2018/19 only, even if you were self-employed in the tax year 2016/17. 

The grant will be 80% of your average trading profit divided by 12, which will give a monthly amount. HMRC will pay this or up to a maximum of £2,500 a month for a maximum of three months capped at £7,500, whichever is lower.

Is there a tool to check the eligibility for the claim? 

Yes. HMRC has created an online tool to check the eligiblity for this claim. Taxpayers will need their unique tax reference (UTR) and national insurance (NI) number to hand before they can use the tool. 

Can the self-employed ask their accountants to make a claim on their behalf?

No. HMRC announced on 4 May that the self-employed cannot ask their accountant to make the claim on their behalf.

To make the claim the client has to have a Government Gateway account. If they do not have one, they need to create one sooner rather than later.

Full details are here.

When will the support be available?

The claim portal is now open and claims can be made from the date applicants have been given.

HMRC requires a bank account number and sort code. (Only provide bank account details where a Bacs payment can be accepted.) You’ll have to confirm to HMRC that your business has been adversely affected by Covid-19. It is imperative that HMRC has the correct contact details of taxpayers (current address, phone numbers and email) so that applicants can be notified of their eligibility to claim.

Once the claim has been submitted, HMRC will confirm if the grant is approved. HMRC is aiming to pay the grant within six working days of the claim submission, although it may take up to 10 days in some cases where complications or other issues exist. 

Are the recently registered self-employed who have not filed any tax return yet eligible?

According to the Treasury, it is very difficult to assess the benefit level for recently registered self-employed people. They may instead have to look at alternative financial support, ie Universal Credit or Employment and Support Allowance.  

Is there any extension on filing a 2018/19 return if the taxpayer has missed the deadline?

If the tax return for 2018/19 was not filed in January 2020, the deadline was extended to four weeks from 26 March 2020, ie 23 April 2020. Claims based on late returns submitted between 26 March 2020 and 23 April 2020 will be subject to additional anti-fraud checks. 

Can a taxpayer amend already submitted returns? 

HMRC will use data on the 2018/19 tax returns already submitted to identify those eligible. Any changes made to submitted returns after 26 March 2020 will not be taken into account when working out the eligibility or amount of the grant.  

To avoid scheme abuse, HMRC will use data on 2018/19 returns already submitted to identify those eligible and will risk assess any late returns filed before 23 April 2020 deadline in the usual way.

How are trading profit and total income calculated? 

As per HMRC guidance issued, trading profit is the taxable profit (after capital allowances etc) declared on the self-assessment, prior to off-setting of losses brought forward from previous years and personal allowance. 

Your total income is the total of all your: 

  • employment income 
  • trading profits 
  • property income 
  • dividends 
  • savings income 
  • pension income 
  • miscellaneous income (including social security income). 

HMRC example

If you’re not eligible based on the 2018/19 self-assessment tax return, HMRC will then look at the tax years 2016/17, 2017/18 and 2018/19.

  2016/17 2017/18 2018/19 Average for the three tax years Total
Trading profit £50,000 £50,000 -£10,000 - not eligible £30,000 £90,000
Non-trading income £15,000 £15,000 £15,000 N/A £45,000
Eligibility using the tax year 2018/19 only N/A N/A No N/A No
Eligibility using the three tax years N/A N/A N/A

Yes

 Yes

So even if you made a loss in the tax year 2018 to 2019, you would still be eligible because:

  • your average for the three tax years is £30,000 - which is less than £50,000
  • the sum of the trading profits for the three tax years (£90,000) is at least equal to the sum of your non-trading income of £45,000 for those years.

HMRC further guidance on calculation of profits can be accessed here.

Does farmers' averaging affect the grant relief?  

HMRC has confirmed that it will use profit figures before averaging the claim, to work out the eligibility and the amount of the grant.  

Can a company director make a claim?

A director of their own company who is paid through PAYE may be eligible to get support using the Coronavirus Job Retention Scheme

A director/shareholder cannot be treated as self-employed for this purpose.A director can continue to run their business in terms of performing their statutory duties as officeholders, but they must be furloughed from other day-to-day activities for raising any revenue for the company. Guidance issued up to 6 April 2020 states: 

‘Where furloughed directors need to carry out particular duties to fulfil the statutory obligations they owe to their company, they may do so provided they do no more than would be judged reasonably necessary for the purposes, ie they should not do work of a kind they would carry out in normal circumstances to generate commercial revenue or provide services to or on behalf of their company. This also applies to salaried individuals who are directors of their own personal service company (PSC).’

The chancellor has confirmed that ‘Work undertaken by a director of a company to fulfil a duty or other obligation arising by or under an Act of Parliament relating to the filing of company accounts or provision of other information relating to the administration of the director’s company must be disregarded for the purposes of cessation of all work in relation to furloughed employees’.

The claim will be only for the 80% of their salary processed through PAYE. Dividends are not included for the calculations of this grant. If a director is furloughed under the scheme, the company should document it and also communicate to the director in writing.

To avoid fraud, there are expected to be cross-checks between the applications for grants against PAYE records for each employer.

What should the self-employed do if they are contacted about the scheme? 

  • The self-employed should access this scheme only through GOV.UK. If someone texts, calls or emails claiming to be from HMRC, saying that you can claim financial help or are owed a tax refund, and asks you to click on a link or to give information such as your name, credit card or bank details, it is a scam. HMRC contact with taxpayers will not contain any links to click, so if such an email or text is received, it will likely be a scam.

How is the grant accounted for?

You must keep a copy of all records in line with normal self-employment record- keeping requirements, including: 

  • the amount claimed 
  • the claim period
  • the claim reference number for your records 

evidence that your business has been adversely affected by Covid-19.

Additionally, the grant must be reported:

  • on self-assessment tax returns
  • as self-employed income for any Universal Credit claims

as self-employed income and that the person is working 16 hours a week for any tax credits claims.

Ask your clients to retain records for: 

  • business accounts showing a reduction in turnover 
  • confirmation of any Covid-19-related business loans received 
  • dates their business had to close due to lockdown restrictions 
  • dates where they or their staff were unable to work due to Covid-19 symptoms, shielding or school closures.

Is VAT payable on the grant?

The basic principles of supply and consideration can be expected to apply. VAT is a tax on supplies for consideration, so where a grant is made, and nothing is expected to be done in return, it will not be subject to VAT. HMRC guidance on supply and consideration can be seen here.

Hence, the business support funding being made available to alleviate the Covid-19 impact does not fall into this category and will be outside the scope of VAT.

Can a self-employed person still work while claiming this grant?

Yes.  A self-employed person who is claiming the grant can. continue to work, start a new trade or take on other employment, including voluntary work or duties as an armed forces reservist.

What happens if the self-employed individual has not lost any trading profits due to Covid-19? (Updated 6 May 2020)

HMRC has stated that provided claims are genuine and in accordance with the guidance issued for businesses affected by Covid-19, the grant will not be repayable. The guidance states that HMRC will consider the business has been affected if:

You’re unable to work because you:

  • are shielding
  • are self-isolating
  • are on sick leave because of Covid-19
  • have caring responsibilities because of Covid-19

You’ve had to scale down or temporarily stop trading because:

  • your supply chain has been interrupted
  • you have fewer or no customers or clients
  • your staff are unable to come in to work.

What support is available for limited liability partnership members?

Members of limited liability partnerships (LLPs) who are designated as employees for tax purposes (‘salaried members’) under the Income Tax (Trading and Other Income) Act (ITTOIA) 2005 are eligible to be furloughed and receive support through the Coronavirus Job Retention Scheme. 

To implement any furlough, the LLP agreement may need to be varied. This may include a separate agreement between the LLP and an individual member, setting out the terms applicable to that member’s relationship with the LLP. For an LLP member who is treated as being employed by the LLP (in accordance with s863A of ITTOIA 2005), the reference salary for this scheme is the member’s profit allocation, excluding any amounts that are determined by their performance, or the overall performance of the LLP.  

If any LLP members are not designated as employees as stated above, they should be able to claim the self-employment income support. 

ACCA continues to raise areas with government where policy change is required, as well as requesting further clarification with departments such as HMRC.

For further enquiries please contact:

Lilly Aaron
Policy lead - Europe
Email
+44 (0)7802381494

Jason Piper
Head of tax and business law
Email
+44 (0) 771175579