Today, 13 May, marks the first day that self-employed workers are able to apply for the government’s self-employed income support scheme.
HMRC will tell eligible workers when they’re allowed to backdate their claim from (it could potentially cover earnings from March onwards). Successful claims will be paid within six working days.
Chancellor Rishi Sunak announced the self-employed income support scheme (SEISS) on 25 March, offering financial help to self-employed workers impacted by the coronavirus pandemic.
It will cover up to 80% of each self-employed worker’s average taxable monthly profits (judged on average profits over the past three years) and monthly payments will be taxable and capped at £2,500.
The scheme was revealed six days after the Chancellor announced the coronavirus job retention scheme, which pays 80% of employed workers’ wages up to £2,500.
On 21 April, it was announced that self-employed workers in Scotland who aren’t eligible for the self-employed income support scheme could apply for a grant from the newly self-employed hardship fund. This is being managed by Scottish local authorities.
Here, Which? explains the new support for self-employed workers, what they could mean for your finances and how to avoid a scam. You can jump to different sections using the links below:
- What help will self-employed workers get?
- Who is eligible for the scheme?
- When will the help be available?
- What if I don’t have three years of tax returns?
- Scotland’s newly self-employed hardship fund
- Will I have to pay the money back?
- Can I continue working, or get another job?
- Will the payment affect my benefits?
- Can I claim from this scheme and be furloughed?
- How to avoid an HMRC scam
- Other help for self-employed workers
- Self-employed tax bills delayed
- Which? advice on coronavirus
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 past three tax years.
To calculate the average, HMRC will add up the total trading profit for the three tax years, divide this amount by three and use this to calculate the monthly amount.
So, say your profit stood at:
- £25,000 for 2016-17
- £21,000 for 2017-18
- £22,000 for 2018-19
HMRC would base your grant on the average of these three years: a total of £68,000 divided by three, giving £22,666. The grant you’d receive would be 80%, which is £18,133 – equal to £1,511 per month.
The grant will be worth up to £2,500 a month for three months, paid directly into your bank account in one instalment.
The upper limit of £2,500 a month applies to people with self-employed profits of £37,500 to £49,999.
Annual profits are taken after expenses and capital allowances, but before pension contributions and charitable donations. Therefore, workers who have made significant investments into their businesses are likely to lose out.
Who is eligible for the SEISS?
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 a year
- earn the majority of your income (ie 50% or more) 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 is being run through HMRC, and is open to applications from 13 May.
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.
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 of people signing up to the scheme without any proof of being self-employed.
Scotland’s newly self-employed hardship fund
In a bid to help those who don’t qualify for the UK government’s self-employed income support scheme, the Scottish government has launched an alternative ‘newly self-employed hardship fund’.
Those who have only been self-employed for a short time, and are facing hardship due to the coronavirus pandemic, could get grants of up to £2,000.
This includes those who are ruled out of the UK scheme because they became self-employed during the 2019-20 tax year, and who therefore can’t fulfil the requirement to have submitted a 2018-19 tax return.
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.
Can I continue working, or get another job?
As long as you intend to continue trading in the self-employed business you’re claiming for in 2020-21, you can claim the money and continue to work in whatever capacity is possible.
Will the payment affect my benefits?
Many people have already been turning to Universal Credit to plug the income gap before the self-employed income support scheme kicks in – and, of course, many people will have been claiming either tax credits or Universal Credit before the coronavirus crisis began.
The payment in June will be treated as earned income for that month, which means it will probably wipe out any Universal Credit you were due to receive and cause it to stop.
This also means you’ll have to re-apply for Universal Credit in July – however, this process is usually much quicker and easier than the initial application, and you don’t usually have to wait five weeks for the first payment.
Can I claim from this scheme and be furloughed?
If you already have more than one job, and are both employed and self-employed, as long as the income from your self-employment makes up at least 50% of your earnings, you could feasibly take the self-employment grant and be furloughed from your employment.
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.
This is only suitable for those who are under state pension age; older workers should apply for pension credit instead.
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’s equivalent to statutory sick pay.
The effect of savings on Universal Credit
As Universal Credit is means-tested, it not only takes your income into account, but also any savings you have to your name.
Universal Credit payments will be incrementally reduced for every £1 of savings over £6,000, and anyone with more than £16,000 saved won’t be eligible to claim. If you’re part of a couple, your partner’s savings will also be taken into account, even if you’re making a claim as an individual.
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.
- Coronavirus: advice for small businesses and the self-employed
- Coronavirus: how to shop safely at the supermarket
- Coronavirus: your rights if an event is delayed or cancelled
- Coronavirus: how to protect your pension and investments
- Coronavirus: what it means for your travel insurance
- Coronavirus: what it means for rent, mortgages, savings, borrowing and benefits
Read the latest coronavirus news and advice from Which?
This story was originally published on 25 March when the self-employed income support scheme was announced by the Chancellor. It has since been updated to reflect the details of the scheme. The last update was on 13 May 2020, when applications for the scheme first opened.