Like many businesses, in light of COVID-19, many individuals who are self-employed are facing the significant challenges of business continuity and cash flow. Having provided a summary of how the Government is assisting UK businesses and useful guidance on how employers can implement contingency planning and what help employees can seek from the Government, we now set out below a brief description of the measures to be put in place to help self-employed individuals in these unprecedented times.
Government assistance to the self-employed
The Self-Employed Income Support Scheme
The Chancellor announced last Friday (26th March) that the Government intends to introduce a scheme for self-employed individuals which is similar to the Coronavirus Job Retention Scheme available for UK businesses and which should be available to all eligible self-employed individuals no later than the beginning of June. Under this scheme, which will be available for the next three months (and extended if necessary) individuals who are self-employed can seek a taxable grant worth 80% of their average monthly profits over the last 3 years, up to a cap of £2,500 per month for each individual concerned. However, the scheme will only be available for those individuals with an annual income of £50,000 or less; who make a majority of their income from self-employment; and who are already in self-employment i.e. those who have filed a tax return for 2019.
Your Self-Employment Income Support Scheme will be treated as earnings for the purposes of Universal Credit and any Universal Credit payment will be adjusted in response to changes to your earnings. Details of Universal Credit are set out below.
People cannot apply for the scheme just yet. If you have a tax return for 2019, HMRC will contact you directly in order to discuss your eligibility but do be careful to ensure the mode of contact is legitimate and not a scam, prior to disclosing any personal details. If you have not filed your 2019 tax return, the Chancellor announced a 4-week window to facilitate those persons needing to make a filing.
Universal Credit is a relatively new benefit introduced in 2013 and rolled out in the UK in 2016 to support low income or unemployed individuals. It replaces the legacy benefits including Housing Benefit, Working Tax Credit, Child Tax Credit, Income-based Job Seekers Allowance amongst other benefits.
To support the economic impact COVID-19 is having on individuals who are self-employed and allow the self-employed to follow Government guidance on self-isolation and social distancing, from 6 April the requirements of the “Minimum Income Floor” will be temporarily relaxed. This will apply to all Universal Credit claimants and the self-employed may access Universal Credit in full. The Government also increased the standard allowance in Universal Credit and basic element of working tax credit by £20 per week on top of planned annual updating. This means that for a single Universal Credit claimant (aged 25 or above), the standard allowance will increase from £317.82 to £409.89 per month.
If you have an online Universal Credit account and are self-employed, earnings or losses from one month can be taken into account when working out how much Universal Credit you receive in a later month. For example, if you make a loss in on month, the loss will be stored and taken into account in months when you make a profit. In order to apply, we recommend following the Government guidelines on their website.
Mortgages, rental payments, loans and credit card payments
The Government has also recently announced that individuals facing financial difficulty meeting his or her mortgage repayments as a result of COVID-19 may be entitled to a mortgage or rental holiday for 3 months. This includes if you are a landlord whose tenants are facing financial difficulties as a result of COVID-19. Banks and landlords will not be able to evict borrowers or tenants, but the Government is encouraging communication between the parties, as the expectation is that they will be able to work together to establish an affordable repayment plan in the future.
Additionally, the FCA called on lenders to use flexibility built into their rules to support customers affected by COVID-19. If a payment holiday is agreed, this should be recorded in a way which will not impact the borrowers credit score.
Local Housing Allowance
Support for rental costs will be paid through Universal Credit. From April, the Government are increasing the Local Housing Allowance rates to the 30th percentile of market rents. This will apply to all private renters who are new or existing Universal Credit housing element claimants and to existing Housing Benefit claimants.
Contributory Employment & Support Allowance (ESA)
Similarly, to the changes to statutory sick pay, individuals who are self-employed may be able to receive employment and support allowance worth approximately £73.10 per week (or £57.90 per week for those under 25) from day 1 of any COVID-19 related sickness, rather than day 8. Details of how to make a claim can be found on the Government website.
Local Council Hardship Funds
Local Authorities in England have also been given an ability to financially support individuals in their boroughs through a £500 million Hardship Fund. Whilst most of this fund will be used to provide more council tax relief, the Ministry for Housing, Communities and Local Government will set out more details on this funding, including allocations and how to apply, in due course.
HMRC Time to Pay Scheme
A Time to Pay Scheme will be implemented on a case by case basis and will be tailored to individual circumstances and liabilities to support an individual’s tax liabilities.
Income Tax and VAT
Similarly to VAT payments for UK businesses, the Government announced that income tax payments will be deferred (if required). Therefore, self-employed individuals will not need to pay their self-assessment income tax bill due in July 2020, and will instead pay this at the end of January 2021. If VAT registered, VAT payments are also being deferred for three months, from 20 March 2020 to 30 June 2020. These deferrals will be automatically applied so no action is required in order to benefit from this support.
Additionally, any individual who is self-employed with a non-working partner and two children, living in the social rented sector, may be able to receive welfare support of up to £1,800 per month.
Other funding sources
Please also read our article called “COVID 19 – Are you accessing UK Government support for your Business?” which includes further details of grants and schemes available to small businesses, which may also be beneficial.
The most recent financial package announced by the Government promises assistance for self-employed workers, for example, taxi drivers, hairdressers, childminders etc. Whilst a majority of self-employed workers will be covered, some of the benefits above will not extend to those who have recently become self-employed or those who’s trading profits are more than £50,000 per annum.
Additionally, if an individual has set up a limited company and pays himself or herself both a wage and dividends (or to put more simply, a shareholder of a small business who doesn’t take much or any wages), a claim under the Coronavirus Job Retention Scheme may be possible in respect of 80% of his or her wages and most certainly 80% of the wages of any employees. However, the Government has not announced that there is or will be any benefit provided to assist such individuals with their loss in respect of any dividends. Perhaps the Government may consider this in the near future, and make a further announcement on this subject.