Public Health England and the Department for Business, Energy & Industrial Strategy recently published the Self-Employed Income Support Scheme (SEISS) to assist eligible self-employed individuals affected by COVID-19. This guidance is in line with their support to employees through the coronavirus Job Retention Scheme (JRS).
Eligibility and entitlements under the SEISS
The SEISS will provide grants to self-employed individuals for three months, which could be extended. Under the SEISS, qualifying self-employed individuals or those who are part of a partnership will receive a grant worth 80 percent of their gross average monthly profits, capped at £2,500 per month. The sums paid under the grant will be subject to tax.
The SEISS is open to all qualifying UK self-employed individuals or those who are a member of a partnership and have lost trade (or their partnership) profits because of COVID-19 and who meet the following criteria:
- filed a tax return for 2018-2019 tax year as “self-employed” (or as a member of a trading partnership);
- traded in the tax year 2019-2020, will continue to trade at the point of application (or would be trading but for COVID-19) and intends to continue to trade in the tax year 2020-2021; and
- have trading profits of less than £50,000.
To qualify, more than half of income in these periods must come from self-employment. Income will be calculated by reference to trading profits and total income in tax year 2018-2019 and/or average trading profits across total income through the past three tax years between 2016-2017, 2017-2018 and 2018-2019.
Individuals who earn or have earned more than £50,000 in trading profits are excluded from the SEISS. Individuals who pay themselves a salary and dividends through a personal service company (PSC) or receive profit through rental yields, also are excluded from the SEISS (individuals engaged through a PSC and paid through “pay as you earn” (PAYE) would then be eligible under the JRS).
The government believes this scheme covers 95 percent of self-employed individuals, although individuals with new businesses that started after 5 April 2019 will not qualify under the SEISS.
Individuals who have not yet filed a tax return for 2018-2019 will have an additional four weeks (to 23 April 2020) to do so.
Accessing grants through the SEISS
Her Majesty’s Revenue & Customs (HMRC) is responsible for delivering the grants through the SEISS. It is anticipated that the first grants are to be paid directly into self-employed individuals’ personal bank accounts as a lump sum by the beginning of June 2020. Unlike furloughed employees through the JRS, who are not permitted to carry out work for their employers, self-employed individuals can continue to operate their businesses whilst accessing the grant.
HMRC will contact eligible individuals and invite them to apply and the guidance explicitly requests that HMRC not be contacted to avoid an implementation delay. Once invited, those individuals will apply directly to HMRC for the grant using a simple online application form.
Self-employed individuals with cash-flow issues in the interim should be eligible to access the welfare system in the form of Universal Credit, grants made available for businesses that pay little or no business rates. Those with a business-linked bank account should also be eligible to apply for finance through the Business Interruption Loan Scheme.
The Advisory, Conciliation and Arbitration Service (ACAS) also has suggested that those who engage self-employed individuals may wish to make payments equivalent to statutory sick pay in circumstances where it would be available to employees, although the self-employed have no rights to such payments.
A separate but related point is that the proposed changes to the IR35 tax rules (requiring self-employed workers engaged through an intermediary such as a PSC to be taxed like employees through the end user’s PAYE payroll system) have been postponed by a year, to 6 April 2021, to assist businesses through this period.
However, the government has suggested that, because the self-employed will benefit from the proposed state support, they should in future anticipate making National Insurance contributions comparable to those paid by employees. We await further details on these potential future developments.
McGuireWoods has published additional thought leadership related to how companies across various industries can address crucial COVID-19-related business and legal issues.