Much needed relief for the UK’s self-employed workforce was announced on the 26th March. Under the government’s Coronavirus Self-Employment Income Support Scheme, self-employed workers will receive 80% of their declared annual income for a three month period, which is subject to extension as the Covid-19 pandemic develops.
We have created a rundown to simplify for self-employed workers how the scheme operates, who will be eligible and when the grant will be received.
How will the Scheme determine the amount for the grants?
This Scheme is a grant by the government for eligible workers. The allocation is worth 80% of the profits listed by an individual in the taxes filed by them. It is taxable by the government, which means there will be an income tax deduction from the amount.
During this process, the tax years considered will range from 2016-2019. HM Revenue and Customs’ Department will add each worker’s total profit earned during these three years and then divide that sum by three. The result of this calculation will become the monthly amount the government will give to that worker. The maximum receivable amount listed by the government is £2500 per month.
The HMRC will transfer the total grant directly to the qualifying candidates’ bank accounts in a single installment. In other words, instead of the government giving you a monthly allowance, they will transfer the total amount owed for all three months as a lump-sum payment. Keep in mind that you won’t have the government filling up your bank account each month, so don’t spend it all in one go!
So, who’s going to end up getting these grants?
Unfortunately, it is not enough to be self-employed in the UK to be eligible for the Scheme. HMRC has listed an eligibility criterion that determines who can avail the grant.
To be a benefactor of the Scheme, one must show that they would have been conducting their business currently if Covid-19 was not an obstacle. It has to be apparent that they have suffered a loss of trading profits due to the current situation. There must also be proof that the concerned individual engaged in trading during the 2019-2020 tax year. They must also have intentions of continuing to trade after the crisis passes, presumably in time for the 2020-2021 tax year. Lastly, all income tax documentation must be filed and up to date until the 2018-2019 period. HMRC has also established a cap whereby self-employed individuals earning trading profits above £50,000 would not qualify for the grant. In addition to that, it must be true that these trading profits make up more than half of the individual’s income.
What about those who became self-employed as recently as April 2019? The process determines eligibility by analyzing filed tax assessments. Hence, those who recently became self-employed will not qualify for the grant. The reason for this is that their documentation for the 2019-2020 tax year has not been filed; hence the HMRC has no record of their updated status or source of income.
Want to Apply for the Grant?
To become recipients of the Scheme, workers will have to wait till June for it to come into action. There are no mechanisms in place for citizens to apply for the grant themselves. Instead, HMRC will reach out to eligible workers themselves and establish the communication of the payment. Therefore, to receive this government grant in June, a self-employed worker must meet the requirements highlighted earlier.
Until now, three months is the minimum period determined for the payment of this supporting amount. As the situation evolves, so too will the Scheme, which is subject to extension. The government labels the amount ‘grant,’ hence recipients are not obligated to return the amount later.
The International Verdict on Coronavirus and the Self-Employed:
Various countries, including the US, Germany, France, and Italy, have established plans and policies to support their self-employed workers.
In Germany, the coronavirus self-employed support will take the form of enhanced social security payments.
Meanwhile, the five million-strong self-employed workforce in Italy will receive tax relief along with a one-time payment of €600.
In France, if freelancers experience more than a 70% drop in income compared to last year, they may apply for aid worth €1500.
The Federal Government of the US plans to extend unemployment insurance to freelancers for 39 weeks with an additional $600 per week.