According to the government’s Coronavirus Self-Employed Income Support Scheme which went live in May, self-employed workers may be eligible to receive a grant for 80% of their average monthly profits up to a maximum of £2,500 a month. These taxable grants are based on people’s average monthly profits over the last three years, and it is estimated that 3.8 million of the five million self-employed workers in the UK will be covered through the scheme. But what about the other 1.2 million who don’t qualify for government help for the self-employed?
Who can claim?
You can claim if you’re a self-employed individual or a member of a partnership and you:
- Have submitted your Self Assessment tax return for the tax year 2018-2019
- Traded in the tax year 2019-2020
- Are trading when you apply, or would be except for Coronavirus
- Intend to continue to trade in the tax year 2020 to 2021
- Have lost trading profits due to Coronavirus
Your trading profits must also be no more than £50,000 and more than half of your total income for either the tax year 2018-2019 or the average of the tax years 2016-2017, 2017-2018 and 2018-2019. Those who are eligible to claim will need to confirm to HMRC that their business has been adversely affected by Coronavirus, and HMRC will use a risk-based approach to compliance.
Who doesn’t qualify?
Company owners who pay themselves a dividend or wage through a Personal Service Company won’t be covered, and the grant is also only open to those with a trading profit of less than £50,000 in 2018-19 or an average profit of less than £50,000 from 2016-17, 2017-18 and 2018-19. Additionally, those who are recently self-employed and don’t have a full year of accounts won’t receive help and a family with one earner on £51,000 or more will get nothing. Some people with a mix of self-employed and earned income may not qualify either.
Solutions for those who don’t qualify
So, what if you don’t qualify for the scheme? Well, there are still some options available to help relieve financial pressure:
Look at Job Seekers’ Allowance/Universal Credit
Due to the pandemic, the minimum income floor for accessing benefits such as Universal Credit will be suspended. This change applies to all Universal Credit claimants and will last for the duration of the outbreak. The self-employed will be able to claim Universal Credit at a rate which is equivalent to Statutory Sick Pay, so those that are not eligible for the grant can access welfare payments through Universal Credit which will be paid straight away. New claimants will not need to attend the jobcentre to demonstrate gainful self-employment, but they may need to take part in a telephone interview - And if you are gainfully self-employed, none of your business assets (such as machinery, premises and cash held in your business account) will be taken into account when working out how much Universal Credit you should receive.
Tax payments deferred and extended
If you pay the majority of your tax via self-assessment, you usually make two payments each year to pay off the previous year’s tax bill: one by 31st January, and one by 31st July. However, because of Coronavirus, there will be no payment due by July this tax year and self-assessment payments on account due in July 2020 will be deferred to January 2021. The Time to Pay scheme will also be extended so there is additional time to settle HMRC debts. Whilst this allows people more time to pay their tax bill or enables people to use any cash already saved for more immediate expenses, you will still need to pay eventually - so it’s important to have a plan in place.
Small business loans
Self-employed workers and business owners might also be eligible for cash grants for businesses with low or no business rateable value and the Business Interruption Loan Scheme. In addition, small business loans - worth up to £50k - have also been launched. On 27th April, the government announced a new set of loans aimed at small businesses, worth up to £50,000 or 25% of turnover. These loans are 100% state-backed and can be used for cash flow issues; no fees or interest are charged in the first 12 months, the loans can last up to six years, and both sole traders and limited company directors are among those who can apply.
To be eligible, your company needs to be based in the UK, have been negatively affected by Coronavirus, and not to have been in financial distress on 31 December 2019. For more information on small business loans go to the Gov website.
Put together a plan
If you don’t qualify for government help for the self-employed, it makes sense to put together a plan to help you weather the Coronavirus storm. Cost-saving exercises, such as reviewing all standing orders and direct debits to see if anything can be stopped or suspended are one way to save money, and it’s also worth reviewing contracts such as gas and electricity to see if the business could get a better deal. You can also put practical steps in place to solve cash-flow problems in the short term and a clear plan to protect long-term prospects, whether this is by negotiating with creditors, arranging a time to pay agreement or sourcing emergency funding.
If you are struggling to put a plan in place, then be sure to reach out to the experts. A licensed insolvency practitioner will be able to look at every aspect of your business so they can put together a thorough plan to help you cut costs. They will list who you owe money to, how much you owe each creditor, and whether your debts are priority or non-priority, so you can put a practical plan in place to make sure you come out the other side.
Consider an IVA in anticipation
If your self-employed business is still struggling despite the schemes and grants available, it might be worth considering an Individual Voluntary Arrangement in anticipation. An IVA could be the right solution as it allows you to carry on trading. There is no minimum unsecured debt for someone entering an IVA, but it is usually £15,000 or more - and with an IVA, you only repay what you can afford, for a fixed period of time. Once the IVA period is complete, any remaining debt is written off. Find out more about how McAlister & Co can help with this here.
Don’t suffer in silence
When it comes to dealing with the current situation, the most important thing is to not suffer alone. If you are currently facing financial difficulty as a result of the Coronavirus and aren’t sure about whether you qualify for government help for the self-employed, McAlister & Co can provide free help and advice. Our friendly and approachable team are experts in insolvency and turnaround solutions for business and individuals, so if you need clear, strategic advice about the options available, contact us today. You can also contact HMRC’s dedicated Coronavirus helpline.