COVID-19 – The Government has Announced a Welcome Second Grant under the Self-Employment Income Support Scheme but Key Groups to the Revival of the Economy are Still Left with Nothing

The application process for the initial grant under the Self-Employment Income Support Scheme opened on 13th May 2020 and, at the end of 24th May, 2.3 million claims had been made for a total of £6.8 billion

 

The eligibility criteria for self-employed individuals, including members of partnerships, are that they:

  • submitted their Self-Assessment tax return for the 2018-19 tax year;
  • continued to trade in 2019-20 and intend to keep trading in 2020-21;
  • carry on a trade which has been adversely affected by COVID-19; and
  • have average self-employed trading profits of no more than £50,000 and at least equal to their non-trading income.

 

Unlike the Job Retention Scheme, the self-employed individual can continue to work over the period covered by the grant.

 

For those eligible, the initial taxable grant equated to 80% of the average monthly trading profits and this has or will be paid out in a single instalment covering the profit for three months capped at £7,500 in total.

 

Applications for the initial grant will close on 13th July 2020.

 

The Chancellor, Rishi Sunak, has confirmed that there will be a second and final grant under this scheme equating to 70% of the average monthly trading profits.  Again, this will be paid out as in a single instalment covering the profit for three months capped at £6,570 in total.

 

The eligibility criteria will remain the same and the individual will need to confirm that their business has been adversely affected by COVID-19 when applying for the second grant.

 

However, it is not a prerequisite to have claimed the initial grant for the individual to be eligible for the second grant.

 

Applications for the second grant will open in August 2020 and further information on the process will be published by HMRC on 12th June 2020.

 

Whilst this second grant will provide a vital lifeline to millions, it is frustrating that those groups that have fallen through the cracks remain on the outside. 

 

The individual who started their self-employment after the 2018-19 tax year, the freelancer working through their limited company and many small business owners are left neglected other than, potentially, access to Universal Credit.

 

Given that is over two months until the application process for the second grant to open, it is mystifying as to why the Self-Assessment tax return for the 2019-20 tax year cannot be used as the eligibility base where filed.

 

As well as those who started trading in the 2019-20 tax year, this would also extend the level of support two other groups.  Those whose self-employment income has declined to below the £50,000 average threshold in the year and those who started their self-employment part way through the 2018-19 tax year.

 

For the freelancer working through their limited company, the position is particularly galling. 

 

On the one hand, in response to the House of Lords Economic Affairs Committee damning report into the upcoming IR35 reforms, Jesse Norman, the Financial Secretary to the Treasury, has opined the government view has not changed.  In essence, where a freelancer is working like an employee they should be taxed broadly as an employee.

 

On the other hand, at a time where agility and flexibility will be cornerstones to rebuild the economy, the freelancer is not getting the access to the same support as an employee.

 

For the small business owner whose remuneration is driven primarily through dividends, there is a perception that this is a tax avoidance strategy.  Whilst there was an element of truth to this under the old tax credit regime, this changed from 6th April 2016.

 

Since then, once the Corporation Tax that the company must pay to generate a dividend is taken into account, the difference to the overall tax basket between a salary or a dividend is marginal.

 

The primary reason for a dividend-driven remuneration strategy is to reduce the monthly cash flow burden on a business, instead opting for a payment out of the company profit once this has crystallised.

 

The Treasury has reiterated their position that it would be impossible to design a scheme that distinguished the small business owner from those who earn dividend income through shares. 

 

Rishi Sunak has written on Twitter “I don’t think it would be right to be giving huge grants to those with investment portfolios.”

 

However, the reality of the landscape for many small business owners is that they are being driven into debt rather than getting the same support as their employees on furlough.

 

At a time where the country is on an employment precipice, it would seem a better approach to support small business owners rather than focus on the collateral impact of a relatively small cohort of investors.