The support package importantly only covers self-employed individuals and not those who trade via a corporate. That means, for instance, the support is not available for contractors who trade via a PSC (personal service company) or for individuals who have established trading companies. Support will be available for individuals trading through partnerships.
In determining whether a person is engaged individually or via a corporate, we would expect the contractual relationship to be key – so if clients are looking to understand the position for any part of their self-employed workforce, they should start by considering whether those workers have been engaged directly or through a corporate intermediary.
The logic behind that appears to be that workers trading through personal service or their own established companies will be eligible for the Job Retention Scheme, as employees of those corporates. The reality is that, in practical terms, eligibility under the JRS is likely to be constrained by the fact that company directors may not be able to “furlough” themselves and, even where they can, because they take most of their remuneration as dividend, their salary may be set at a low level (and so the 80% support from the Government will be based on the same low level).
Eligibility under the self-employed scheme is limited to those with trading profits of less than £50,000 provided those trading profits amount to more than 50% of a person’s overall income (so if you are part self-employed and part employed, you may not be eligible). The £50,000 eligibility cap will be determined by HMRC by reference to last year’s taxable earnings or the average taxable earnings from the three previous tax years.
In addition, to be eligible a person must have submitted a self- assessment income tax return for 2018/2019 tax year (and so have been trading prior to 6 April 2019), have traded in this tax year, be currently trading (or would be but for Covid-19) and have suffered a loss due to Covid-19 (although, the amount of loss suffered will not determine the amount of support available). If a person hasn’t yet filed for the 2018/2019 tax year they will have until 23 April 2020 to do so.
Eligible individuals will be entitled to a taxable grant worth 80% of their average monthly profits up to £2,500 per month (with the average deriving from the last 3 years’ trading profits). Payments will be capped at 3 months’ worth and are expected to be made in June (partly to allow late filers to file their returns now) and may be backdated up to March.
Importantly, self-employed people cannot yet apply directly for the support. HMRC intend to write to those self-employed individuals whom it believes are eligible and those individuals can then apply through an online portal.
This publication is intended for general guidance and represents our understanding of the relevant law and practice as at April 2020. Specific advice should be sought for specific cases. For more information see our terms & conditions.