Business Advice for the Self Employed

James Tucker, Business Advisory Partner, examines the concerns of the self-employed and small business owners during the coronavirus crisis.
 
Whether the lockdown has partially or entirely affected your ability to trade, there are a number of schemes to support you, as well as opportunities you should be considering.  
 
The primary announcement regarding help for this sector comes in the form of the new Self-employment Income Support Scheme (SEISS).
 
Under this scheme, self-employed workers will be able to apply for taxable grants to support them following a loss of income due to the coronavirus pandemic. The key elements and eligibility criteria are:
 

• You must have filed a tax return for 2018/19. This is the first, key eligibility test: you must have been self-employed prior to 6 April 2019 and have submitted a tax return for the year 2018/19. The deadline for filing a 2018/19 tax return in order to qualify for the scheme was Thursday 23 April. Even if you only had a few months' self-employment on your 2018/19 return, this will be counted as your total profit for the year. Missing the 23 April deadline extension will, unfortunately, mean that a self-employed person is ineligible for the SEISS.

• Grants are decided on your profits over the last three years. HMRC will add up your profits and losses for the three years from 2016/17 to 2018/19 inclusive and divide by three to come up with an average annual trading profit figure. If you haven’t been in business for three years, HMRC will use as many years as you have filed returns.

• Your average trading profit must be less than £50,000/year. The scheme has no upper taper, but a ‘cliff edge’ limit. Anyone whose average annual trading profit is calculated to be more than £50,000 won't be able to get any support from this scheme.

• The grants are worth up to 80% of your profits. The grant will be 80% of your average annual trading profit for the previous three years pro-rated over the months claimed, with payments capped at £2,500 a month. The sum paid is taxable, but as it’s a grant, it means you don't have to pay it back after the crisis has passed.

• You must earn more than 50% of your total income from self-employment. This must have been the case for either your 2018/19 tax return or, if not, the average of your 2016/17, 2017/18 and 2018/19 tax returns.

 
Eligibility summary
The Government says it will check your 2018/19 tax return first. If you met the requirements that year, you'll be eligible. However, if you earned more than £50,000 (or earned less than half of your income from self-employment) in 2018/19, the Government will then check your 2016/17 and 2017/18 tax returns, if you filed them for those years. If on average over the three years you earned less than £50,000 and made more than half your income from self-employment, you'll still be eligible.
 
When looking at what your total income has been, HMRC will take into account the following:

• Income from earnings
• Trading profits
• Property income
• Dividends
• Savings income
• Pension income
• Miscellaneous income

 
The SEISS Process
 

• Unlike the employee furlough scheme, self-employed people can keep working. Whether you are trading through the lockdown or not, you can continue to work on any aspect of your business and you do not need to prove that your business has been impacted by coronavirus as part of the process. However, HMRC has stated that it expects people to use the Self-Employment Income Support Scheme only if they have been negatively impacted, and will be introducing checks to prevent fraud.

• You don't need to apply – you'll be contacted. If you're eligible for the scheme, HMRC will contact you! HMRC says it hopes to have made that initial contact by mid-May 2020 though hasn’t given a set date. Once you have been contacted, you will be directed to an online form and any grant payable will be paid directly into your bank account.

• The scheme is expected to start paying out in June 2020. Payments will likely be backdated to cover March, April and May 2020 (in the form of a lump sum). The scheme is set to last for at least three months, though this could be extended depending on the period of lockdown.

• You can apply for both the SEISS and Universal Credit. The best approach is to apply for Universal Credit now, and if you start receiving SEISS support in June too then this will be classed as income, meaning the amount of universal credit you receive will decrease.

 
Some immediate actions you can take are:

• Talk to your customers. Are you able to continue to provide them with your goods or services during the coronavirus lockdown whilst adhering to social distancing measures?
• Chase up any old debts. Whilst many businesses will be facing cashflow issues, you may be able to secure monies owed by offering a discount for early or immediate settlement of any outstanding invoices.
• Contact your own business suppliers to arrange payment plans or holidays. This could include landlords and utility companies. Also consider contacting household suppliers – utility companies and local councils (for council tax) should all be prepared to support economically vulnerable households.
• Use money you have set aside for your July 2020 tax bill to cover immediate expenses until the grant comes through. The government has stated that the July self-assessment tax payment due in July 2020 can be deferred until January 2021.
• Take advantage of the ability to defer your VAT payment falling due in April, May or June to 31 March 2021.
• You can try applying for a business interruption loan, if eligible, or Universal Credit. Any Universal Credit received will be treated as earnings, in the same way as the SEISS grant.

 
 
Help for limited company directors whose small firms are struggling
Many people operate via small limited companies of which they are a directors and shareholders. People in this position have very limited state support available to them but should be aware of the following:
 

• No official scheme exists for limited company shareholders. There is no cover for lost dividends
• Limited company directors, even if they are the only employee, can furlough the PAYE element of their income by way of the Coronavirus Job Retention Scheme, i.e. receive 80% of their salary up to £2,500/month. Depending on how their PAYE/dividends income has been split, this may not be a significant payment
• If a director does furlough themselves, they can't then work for the firm, but must continue to perform their statutory obligations as directors, e.g. timely filing of official documents such as annual accounts
• Furlough can be for as short as three weeks, so there is flexibility if new work is on the horizon
• When furloughed, it seems acceptable that you can work for other people, so you can work in a freelance capacity outside of your limited company
• Those struggling for income should claim Universal Credit