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Self-employed income support scheme: new rules mean more workers could be eligible to claim

Find out how the UK's self-employed income support scheme and Scotland's newly self-employed hardship fund will work, and whether you’re eligible

Self-employed income support scheme: new rules mean more workers could be eligible to claim

Some self-employed workers who had been unable to get an SEISS grant, may now be able to claim both the first and second grants, thanks to the introduction of extended rules to the eligibility criteria.

Self-employed workers who had previously not been eligible for the grants due to being pregnant or becoming responsible for a new child, along with military reservists, may be able to make claims for the first and second SEISS grants at the same time. This is despite the fact that applications for the first grant have now closed.

To benefit from these extended rules, you’ll still have to fulfil a number of other eligibility criteria.

Chancellor Rishi Sunak announced the self-employed income support scheme (SEISS) on 25 March to help self-employed workers financially impacted by the coronavirus pandemic.

Here, Which? explains the new support for self-employed workers and what it could mean for your finances, as well as how to avoid a scam. You can jump to different sections using the links below:


Help for new parents and military reservists

Extended rules came into force on 17 August, which mean that some parents with new children, along with military reservists, who had previously been outside of the scope of SEISS help, may now be able to claim the first and second grants.

If you’ve had a new child

Under the terms of these rules, you may be able to claim for SEISS if your 2018-19 trading profits and total income were affected by the following life events, or if they meant you didn’t submit a tax return for the 2018-19 tax year:

  • You were pregnant
  • You gave birth – this includes a stillbirth after more than 24 weeks of pregnancy, plus the 26 weeks after giving birth
  • You were caring for a child under the age of one who you have parental responsibilities for
  • You were caring for an adopted child, who had been placed with you for less than a year.

To claim, you must have been self-employed in 2017-18, and have submitted your tax return for that year on or before 23 April 2020.

If you’re already eligible for the SEISS grant based on tax returns for 2016-17, 2017-18 and 2018-19, the grant amount you receive won’t change.

To make a claim, you must fill out this online form by 5 October 2020 asking HMRC to verify information about the new child. If you’re eligible, HMRC will then let you know the date from which you can claim SEISS – it may be one or both grants.

If you’re a military reservist

To make a claim for the first and second SEISS grant as a military reservist, the following must apply:

  • You must be self-employed and carried out specified reservist activities for at least 90 days during the period your 2018-19 profits are determined
  • The reservist activities affected your trading profits or income in 2018-19
  • You were self-employed in 2017-18 and submitted a tax return for that year.

If you started self-employment after 6 April 2018, you may be able to claim the grant if you submitted a 2018-19 tax return by 23 April 2020.

You can make a claim online in the usual way between 17 August and 19 October 2020, and HMRC will let you know what date you can backdate the claim to.

If you’re already eligible for the SEISS grant based on tax returns for 2016-17, 2017-18 and 2018-19, the grant amount you receive won’t change.

What happens if I was overpaid for my first grant?

Those who have received the first SEISS grant may receive a letter from HMRC to say they were overpaid; the government department has said this affects 0.6% of claims, but as a reported 2.7m workers received the first grant, this equates to around 16,000 people.

If you receive this letter, don’t worry – you won’t be asked to pay anything back.

However, if you apply for the second grant you may receive a substantial amount less than the first time round – firstly, the second grant only covers up to 70% of monthly income, and secondly, it should be calculated more accurately.

What help will self-employed workers get?

If you qualify, you will get a taxable grant based on your 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.

Grants covering March to May

The grant you’d receive would be 80% of this average profit, 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.

Grants covering June to August

The grant you’d receive would be 70%, which in our example is £15,866 – equal to £1,322 per month.

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 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 was given 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. The first round of the scheme opened to applications on 13 May.

The second round of applications opened on 17 August.

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 full 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.

This means that people who started self-employment in the 2019-20 tax year, and haven’t submitted a tax return for the 2018-19 tax year, won’t qualify for the scheme.

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 scheme, called the ‘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.

This can be continuing your usual job, or getting another job.

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 coronavirus 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.

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.

He also announced that the Universal Credit standard allowance and working tax credit basic element will both be increased by £1,000 until March 2021.

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.

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.

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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 21 August 2020, adding information for parents with new children and military reservists.


 

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