[UPDATED 3 MAY 2020]
Are you worried about the impact of coronavirus (or COVID-19) on your self-employed business? There is some financial support available to you – watch our video to find out more or read about it below.
Please note that the video was recorded on 27 March 2020 and amendments have been made since. The text is being updated for these amendments.
Who is classed as self-employed?
Self-employed is quite an open term, and people have different views on the definition.
For the purposes of coronavirus financial support, self-employed people are people that fill in the self-employment section of the Personal Tax Return.
As such, Directors of limited companies are not classed as self-employed because they fill in the employment section and put their dividend payments in. Landlords are also not self-employed as there is a separate section for UK property holders.
Self-employment is strictly for sole traders and partnerships running a trade.
Self-Employment Income Support Scheme
Last week, the Chancellor announced that the Government will roll out the Self-Employment Income Support Scheme, and the details are as follows:
- You could be paid 80% of your lost profits for March, April and May
- This is capped at £2,500 per month (or £7,500 in total)
- The full amount will be paid in June 2020
- The coronavirus situation will be assessed in June and the scheme could be extended
- The grant will be applied automatically using HMRC’s records – you will be contacted to fill in a form to confirm
Am I eligible?
To be eligible, you must meet all of these criteria:
- You have filed your 5 April 2019 Self-Assessment Tax Return. (If you haven’t filed it yet, you have until 23 April to do so.)
- You have over half of your income on your personal tax return in 2018-19 from self-employment.
- Your trading profit in 2018-19 is less than £50,000.
- You traded in the year ended 5 April 2020 and are trading now (or would be if you weren’t affected by coronavirus)
- You have lost profits due to coronavirus
- You intend to trade in the year ended 5 April 2021
For criteria 2 and 3, you can average your income over your 2017, 2018 and 2019 tax returns to meet the criteria if your 2019 return alone doesn’t, ie you can average over 50% of your income in the 3 years and average under £50,000 profit.
If you are a director of a limited company, you’re not going to be eligible for this scheme, because you pay yourself in salary, which is fine, but dividends do not count as self-employment.
How much will I get?
The grant will cover 80% of your average monthly profits, calculated over the 2017, 2018 and 2019 tax returns. If you didn’t need to do returns in all three years, they’ll use the average profits from one or two returns.
The most you can receive is £2,500 per month. You’ll get this if your profits were £37,500 per annum or more.
Can I still work?
Yes – you can. You’ll receive the grant even if you’re still working as a musician. You might not be able to play “real” gigs right now but you can be earning through recording or virtual gigs.
You simply need to confirm that coronavirus has affected your income.
How do I claim it?
HMRC will contact everyone who is eligible. They’ll check your eligibility by looking at your personal tax returns. When they do contact you, you’ll have to fill in an online form.
If you haven’t heard by 30 April, we recommend you give them a ring. For the moment, they’re very keen that you don’t contact them as it will delay the process.
Also, you should only fill in any details via the GOV.UK website. HMRC are warning of scammers who are likely to use this as an opportunity to contact you via phone/text/email to try and get you to give your bank details.
When will I get the cash?
The payments will be made in June 2020. You’ll get paid for all three months in one payment. This does cause some cash flow issues as you’ll get nothing until then.
Income Tax payment deferral
There will be a six-month deferral on your personal tax Payment on Account due on 31 July. The payment date will now be 31 January 2021.
This will still have to be paid but, for now, it should help you with some cash that can be used elsewhere.
The Government have asked mortgage lenders to give three months holiday on these repayments. It’s just a deferral once again, and it will be repayable on the interest paid on the mortgage holiday. But this will at least free up some cash for the next three months for other uses.
This is only available on residential and Buy-to-Let mortgages.
Not every application will be approved as your lender will look at whether it would actually be helpful. The banks have confirmed it will not affect your credit rating.
Coronavirus Business Interruption Loan Scheme
The self-employed, sole traders and partnerships are all eligible for this scheme. You need to have a business bank account and the details are as follows:
- Loans are available between £50,001 and £5m
- The Government will cover 12 months’ worth of interest payments
- The Government will back the loan – meaning it will be easier to get credit
- The Government are not guaranteeing they will pay it off if you can’t (speak to the lender about this).
- The lenders will not need a personal guarantee for loans up to £250,000 but will do so for amounts larger than that.
If you do want the loan, the first port of call would be your bank.
Bounce Back Loan scheme
A “mini” version of the scheme above, this is for loans between £2,000 and £50,000.
This loan is 100% backed by the Government, will have an interest rate of 2.5% per annum, and no capital or interest repayments in the first 12 months.
- Borrowing from £2,000 to £50,000
- Amount capped at 25% of turnover
- No interest or capital repaid in first 12 months
- Loan lengths up to 6 years
To be eligible, you need to tick three boxes:
- You’re based in the UK
- You’ve been negatively affected by Coronavirus
- You weren’t an undertaking in difficulty on 31 December 2019
Delays to paying your taxes
HMRC has a dedicated coronavirus helpline on 0800 024 1222 if you’re struggling to pay a tax bill due to coronavirus / COVID-19. You should be able to get a Time To Pay agreement to delay or stagger any tax payments.
If you are VAT registered, you won’t have to pay any VAT in this quarter. Payments due between 20 March 2020 and 30 June 2020 do not need to be paid until 31 March 2021.
However, if you’re on a Direct Debit, you do need to cancel it so they don’t automatically take the cash.
Like the income tax Payments on Account, the VAT will still have to be paid but, for now, it should help you with some cash that can be used elsewhere.
HOW CAN WE HELP?
At this time, it’s vital to understand your cashflow and access to finance. You also need to know which costs you can cut, or where you can increase sales.
We can help in all of these areas and would be happy to do so. If you need more information or guidance, then we would be happy to arrange a phone call/video call with you so that you know what you need to do.
If you’d like to (virtually) meet, please ring us on 0151 380 8080 or email your favourite Liverpool accountants at firstname.lastname@example.org . We look forward to hearing from you.