Self-Employment Income Support Scheme Explained

by Faareen Ali

Around 5.03 million people are self-employed in the UK, which forms 15.2% of the employed market. The Self-employment Income Support Scheme (‘SISS’) has been brought into place to fund smaller businesses who find themselves unable to operate as a result of Coronavirus. 

There is no obligation upon businesses to stop trading whilst they receive their grant. The grant will be subject to Income Tax and National Insurance Contributions, but will not need to be repaid.

The first grant is worth 80% of trading profits capped at a maximum of £2,500 a month, and £7,500 in total over a 3 month period. Following the recent announcements by the government, those who are adversely affected on or after 14 July 2020 can now claim a second and a final grant with a cap of £6,570.

Who can apply?

You can claim for this grant if you meet any of the following:

  1. You are self-employed or part of a partnership
  2. You have submitted your self-assessment tax return for the tax year 2018 to 2019
  3. You were trading at the time of applying and are now unable to due to Coronavirus
  4. You intend to trade in the tax year 2020 to 2021
  5. You have lost trading profits due to Coronavirus
  6. Your trading profits do not exceed £50,000 or are at least equal to your total income for either tax years 2018 to 2019 or  2016-2017, 2017-2018, 2018-2019
  7. Your Self-Assessment Tax Return for 2018-2019 has been submitted on or before 23 April 2020.

If you have been trading for less than a year, unfortunately you will not be eligible for the scheme, and should instead apply for Coronavirus Job Retention Scheme and/or Universal Credit where possible. The same applies to those of you who are registered under the PAYE Scheme, and take dividends from your company (i.e. from your profits).

You will be required to prove that you have been affected by Coronavirus and cannot trade, if for example:

  • You are off on sick leave because of Coronavirus
  • You are self-isolating in accordance with the government guidelines
  • You are shielding as you are clinically vulnerable
  • You have caring responsibilities and cannot operate your business
  • Your cash flow has reduced and trade has stopped as you have no clients or employees.
How will HMRC work out my trading profit? 

The HMRC will begin by calculating your trading profits for 2018 -2019, and so, your eligibility is predicated upon your tax returns being submitted by 23 April 2020.

If you are not eligible on the basis of the trading profits submitted in 2018-2019, then HMRC will look at your tax years 2016, 2017, 2018 and 2019. The amount payable will be the average of the trading profits over the 3 tax years. The HMRC will add the trading profits or losses and divide by 3. 

https://www.gov.uk/guidance/how-hmrc-works-out-total-income-and-trading-profits-for-the-self-employment-income-support-scheme

What if my accounts for the 3 financial years have not been submitted or I have only been trading for a year?

The HMRC will work out the average of the trading profit history which is available; so, the average of 2017-2018 and/ or 2018-2019 for example. If you have only been trading during 2016-2017, and 2018-2019, the HMRC will only consider the most recent year of trade.

How are the grants calculated?

Grant 1 – The grant will be calculated at 80% of your average trading profits for applicable years, divided by 12 to receive a monthly total. The government will pay the average or £2,500, whichever is lower.

Grant 2 – The second and final grant will be worth 70% of your average monthly trading profits, capped at £6,570 in total for the claim period.

When will I be paid?

Payment are expected to be made in one lump sum by June (Grant 1) or August (Grant 2).

In order to apply for the second grant, businesses will need to prove that they were adversely affected on or after 14 July 2020. You can claim for the second grant even if you did not claim for the first one.

If you have not already claimed for the first grant, you have until 13 July to apply.

How do I claim?

You should claim using the Gov.UK online portal or contacting HMRC on 0800 024 1222.

NB: Third parties must not make a claim on your behalf, as it will trigger a fraud alert and in turn cause undue delay in your application process.

Useful links:

https://www.gov.uk/guidance/claim-a-grant-through-the-coronavirus-covid-19-self-employment-income-support-scheme

https://www.tax.service.gov.uk/self-employment-support/enter-unique-taxpayer-reference

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