Chancellor Rishi Sunak has announced a new self-employed income support scheme, which will cover up to 80% of self-employed workers’ average taxable monthly profits.
The monthly profits will be judged on average profits over the past three years, and monthly payments will be taxable and capped at £2,500.
This comes six days after the Chancellor announced a raft of measures, which included paying up to 80% of employed workers’ wages, as well as allowing deferred VAT and payment on account tax bills.
Here, Which? explains what the new measures for self-employed workers are, what they could mean for your finances and how to avoid a scam.
What help will self-employed workers get?
If you qualify you will get a taxable grant amounting to 80% of the average profits from the last three tax years.
To calculate the average HMRC will add up the total trading profit for the three tax years and divide this amount by three and use this to calculate the monthly amount.
The grant will be worth up to £2,500 per month for three months, paid directly into your bank account in one instalment.
Who is eligible for the scheme?
According to the latest data from the Office for National Statistics (ONS), there are currently 5.02 million self-employed workers in the UK, many of whom would have been among the first to feel the effects of closures and restrictions caused by the coronavirus outbreak.
The Chancellor says that the measures he’s introduced will benefit 95% of self-employed workers – but not everyone will be eligible.
To apply, you must be a self-employed individual or a member of a partnership and:
- traded in the tax year 2019-20 and intend to continue trading in 2020-21;
- have trading profits of less than £50,000 per year;
- earn the majority of your income through self-employment;
- have filed a tax return for the 2018-19 tax year – anyone who missed the 31 January deadline has four weeks from 26 March to file their 2018-19 return and benefit from the scheme.
You can see further details on gov.uk.
When will the help be available?
The scheme will be run through HMRC, but it’s yet unclear when it will be available.
The Chancellor said it will begin ‘no later than the beginning of June’ and will run for three months, or for however long it’s needed.
So if it’s brought into force in June, workers will be backdated to March, so the payment would be given all in one go.
HMRC will identify and contact self-employed workers who qualify for the scheme, inviting them to enter their bank details online. The government payment will then go directly into workers’ bank accounts.
- Find out more: our coronavirus advice hub brings together all of the latest information on coronavirus changes, from what it means for your rent, mortgage, savings and loans to supermarket restrictions.
What if I don’t have three years of tax returns?
For any self-employed workers who don’t have three years’ of self-assessment history, averages will be taken from whatever history is available – be it one year or two years.
For those who don’t have a year’s self-assessment history, the Chancellor said there is little the scheme can do due to the fraud risk.
Will I have to pay the money back?
The money available through the new self-employed income support scheme won’t have to be paid back.
However, the Chancellor indicated that self-employed workers’ tax might need to be reviewed.
The Chancellor remarked that the equal level of help received by employed and self-employed workers may lead to questions of whether self-employed workers should pay the same levels of National Insurance in future.
How to avoid an HMRC scam
Unfortunately, the COVID-19 crisis has caused a huge increase in scams; on Friday 20 March the City of London Police reported a 400% increase in scams as a result of coronavirus-related fraud.
HMRC scams have been around for some time, so it’s likely fraudsters may also try to use the self-employed income support scheme to their advantage.
If you qualify for the scheme, HMRC will contact you to let you know. It will send you a link to an online form, where you’ll be asked to enter your bank details. You’ll then receive a payment from HMRC directly into the bank account you’ve given details for.
If you’re contacted and asked to do anything different to this; don’t do it. Check whether or not it’s actually HMRC contacting you; you can call its helpline or use its webchat services.
Also be wary of phone calls claiming to be from HMRC, and carefully check the details of email correspondence you receive.
- Find out more: coronavirus scams – how to spot them and stop them
Other help available for self-employed workers
Self-employed and gig economy workers were told a couple of weeks ago that they can apply for Universal Credit or new-style employment and support allowance (ESA) to compensate for the fact that they’re not entitled to statutory sick pay.
Advances for Universal Credit are available immediately (as the benefit usually takes around five weeks to set up).
On 20 March, the Chancellor said that the minimum income floor will be suspended, meaning that self-employed workers will be able to apply for a rate of Universal Credit that is equivalent to statutory sick pay.
He also announced that the Universal Credit standard allowance and working tax credit basic element will both be increased by £1,000 for the next 12 months.
Renters will also benefit from increases to housing benefit and the housing element of Universal Credit, so that the Local Housing Allowance will cover at least 30% of the market rents in each area.
- Find out more: what is Universal Credit?
Self-employed tax bills delayed
Self-assessment tax bill payments owed by self-employed workers are being deferred to January 2021.
This will particularly affect those who pay tax by payment on account (in which case, the next payment would be due 31 July 2021), or those with alternative tax payment arrangements.
If you’re a self-employed trader, or run your own small business, see our story on Which? Trusted Traders: Coronavirus: advice for small businesses and the self-employed.
- Find out more: paying tax if you’re self-employed
Which? advice on coronavirus
Experts from across Which? have been compiling the advice you need to stay safe and make sure you’re not left out of pocket.
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You can keep up to date on our latest coverage on our coronavirus advice hub.