Prime Minister Boris Johnson today (22 February) announced the ‘roadmap’ for how the national lockdown will be gradually lifted across England, confirming that further job support will be announced in the Budget on 3 March.
This will include details on the fourth self-employed income support scheme (SEISS) grant, covering lost income during February, March and April 2021.
Separately, the government recently announced it will be waiving the self-assessment 5% late payment penalty on tax that was due on 31 January 2021 that would usually be charged on any outstanding tax on 3 March.
Instead, self-assessors must have either paid the tax they owe by 1 April 2021, or have set up a payment arrangement with HMRC such as Time to Pay. However, 2.6% interest will continue to be levied on unpaid tax – even if a payment arrangement is in place. This interest kicked in on 1 February.
This comes after HMRC waived the £100 late tax return penalty throughout February for those who missed the 31 January tax return deadline.
Here, Which? explains the 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:
- What help is available for self-employed workers?
- What help will self-employed workers get?
- How will self-assessment tax deferral work?
- What happens if I was overpaid for my last grant?
- 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?
- Can I claim from this scheme and be furloughed?
- How to avoid an HMRC scam
- Other help for self-employed workers
- Which? advice on coronavirus
What help is available for self-employed workers?
Self-employed workers will get two more SEISS grants as part of the Winter Economy Plan. However, the level of the third SEISS grant has been tweaked a number of times.
On 22 October, the Chancellor increased the grant from 20% to 40%, to a maximum of £3,750.
Then on 2 November, this changed to cover 80% of average profits in November falling to 40% in December 2020 and January 2021, up to a maximum of £5,160. This would have evened out to 55% of trading profits across the whole three months.
Now, the third SEISS grant covers up to 80% of average monthly profits in November, December and January, up to a maximum of £7,500. It opened for applications on 30 November.
To be eligible this time, you must have had a significant profits reduction – either due to lower demand or capacity, or due to being temporarily unable to trade.
There will be a fourth grant covering a percentage of average income spanning February to April 2021, but it’s not yet known how much this will cover or when the deadline for applying will be.
The Coronavirus Job Retention Scheme, covering 80% of a furloughed employee’s salary up to £2,500, will be extended until the end of April 2021.
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 have been 80% of this average profit, which is £18,133 – equal to £1,511 per month.
The grant was 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 applied to people with self-employed profits of £37,500 to £49,999.
Grants covering June to August
The grant you would have received would have been 70%, which in our example is £15,866 – equal to £1,322 per month.
Annual profits were taken after expenses and capital allowances, but before pension contributions and charitable donations. Therefore, workers who have made significant investments into their businesses were likely to lose out.
Grants covering November to January 2021
The grant is up to 80% of your average profit, which in our example is £18,133 – equal to £1,511 per month.
Grants covering February to April 2021
Details on the fourth grant are due to be announced in the Budget on 3 March 2021.
How will self-assessment tax deferral work?
Self-assessment tax bill payments owed by self-employed workers can be delayed via a Time to Pay arrangement so that they’re spread across several months to January 2022.
Those who deferred their payment on account instalment, which would usually have been due by 31 July 2020, initially didn’t have to pay until 31 January 2021.
But now those who will struggle to pay their tax bill for the 2019-20 tax year, where the tax is due by 31 January 2021, can apply to the government’s Time to Pay scheme.
However, you’ll have to pay 2.6% interest on any outstanding tax after 31 January 2021.
The Time to Pay scheme itself isn’t anything new, but under the Chancellor’s Winter Economy Plan it has been opened out to those who are experiencing financial hardship due to the coronavirus pandemic.
For instance, the scheme only used to be an option for those who owed less than £10,000 in tax – a threshold which has been massively increased.
To be eligible, you must:
- Owe less than £30,000
- Be signed up to gov.uk and have a Government Gateway ID
- Have filed your 2019-20 tax return and know how much tax you owe
- Not have any other outstanding tax returns, or owe any other money to HMRC.
If you owe more than £30,000, or need more than 12 months to pay, you may be able to get a different instalment plan by calling the Payment Support Service on 0300 200 3835.
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
What happens if I was overpaid for my last grant?
If you’ve received an SEISS grant that you weren’t entitled to, or you were overpaid, you should notify HMRC within 90 days of receiving the money and pay it back. Failing to do so may result in being charged a penalty.
If you notify HMRC about the overpaid grant but don’t make a voluntary repayment, the tax authority may recover the full value of the grant by making a tax assessment for the amount that you weren’t entitled to and haven’t repaid. The extra tax payment will be due 30 days after the assessment has been made.
If the assessment hasn’t been made by the time you file your 2020-21 tax return, you should include details of the overpaid grant as part of your self-assessment return.
HMRC will charge penalties to those who knew they were not entitled to the grant, based on how much they weren’t entitled to receive and the amount left outstanding 30 days after the assessment.
If you didn’t know you were overpaid or ineligible, you’ll only receive a penalty if you haven’t repaid what you owe by 31 January 2022.
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 2020 deadline was given four weeks from 26 March 2020 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.
Applications for the third grant opened on 30 November.
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.
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 launched an alternative scheme, called the ‘newly self-employed hardship fund’, which paid grants of up to £2,000 for those who had only been self-employed for a short time.
This scheme has now closed.
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.
- Find out more: Budget 2021 – what will it include?
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.
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 20 March 2020, 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 that 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
On 5 January 2021, Chancellor Rishi Sunak announced that the government would provide £4.6bn in new grants to support businesses during the latest national lockdown.
This includes one-off grants of up to £9,000 for retail, hospitality and leisure businesses, plus a £594m discretionary fund for other affected businesses. You can find out more about government business support on gov.uk.
Self-employed and gig economy workers 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 2020, 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 of more than £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?
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 credit card and loan payment holidays
- How to apply for a coronavirus mortgage payment holiday
- 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
Read the latest coronavirus news and advice from Which?
This story was originally published on 25 March 2020 when the Self-employed Income Support Scheme (SEISS) was announced by the Chancellor. It has since been updated multiple times since then to reflect the changing details of the scheme. The last update was on 22 February 2021 with information about the latest lockdown roadmap and waived penalties on unpaid self-assessment tax.