Now it is May 2020 – we can expect this month if you are self employed and meet the criterial for the COVID-19: Self-employment income support scheme (SEISS) you can expect to be contacted by HMRC to provide you with further information about the SEISS grant avilible to yourself. Here is a reminder of all of the facts for those self employed so far:
- A taxable grant of 80% of average monthly profits over the three years 2016/17, 2017/18 and 2018/19.*
- Capped at £2,500 per month.
- Initially payable for three months. (That is for the months of March, April and May 2020)
- Applies to self-employed individuals with trading profits up to £50,000 per year whose majority of income comes from being self-employed. (That is 50% or more of your income over the three years if available coming from self employment income – note if you have a Limited Company and are a Director of your own Company – you may not be classed as self employed)
- If you receive the grant you can continue to work or take on other employment including voluntary work. HMRC will however ask you to confirm that your business has been adversely affected by COVID-19.
*To work out the average HMRC will add together the total trading profit for the three tax years, or less, if you have been trading a shorter time and then divide by three or the number of months and use this to calculate a monthly amount.
How do I qualify?
You:
- Have submitted your Income Tax Self Assessment tax return for the tax year 2018-19 or you will submit your return by 23 April 2020.
- Have traded in the tax year 2019-20.
- Are trading when you apply or would be except for COVID-19.
- Intend to continue to trade in the tax year 2020-21.
- You have lost trading/partnership trading profits due to COVID-19. (We envisage some sort of self declaration form you must fill out)
- More than half of your total income comes from self-employment.
One of the following conditions must be met to be eligible for the scheme:
- Your trading profits/partnership trading profits are between £0 – £50,000 for 2018-19 and those trading profits are more than half of your total taxable income for that year, or
- Your average trading profits/partnership trading profits for the three years 2016-17, 2017-18, and 2018-19 are between £0 – £50,000 and your average trading profits for those years are more than half of your total taxable average income for those same years, or
- If you did not trade in 2016-17, your average trading profits/partnership trading profits for the two years 2017-18, and 2018-19 are between £0 – £50,000 and your average trading profits for those years are more than half of your total taxable average income for those same years.
What is total income?
Total income means the total of:
- income from earnings
- trading profits
- property income
- dividends
- savings income
- pension income
- miscellaneous income (including social security income).
If you started trading between the years 2016 to 2019, HMRC will only use those years for which you filed a Self Assessment tax return.
HMRC give the following example (14 April 2020):
| 2016 to 2017 | 2017 to 2018 | 2018 to 2019 | Average for the 3 tax years | |
| Trading profit | £50,000 | £50,000 | £(10,000) | £30,000 |
| Pension income | £15,000 | £15,000 | £15,000 | £15,000 |
| Total income | £65,000 | £65,000 | £5,000 | £45,000 |
| Trading profit are more than half of your total income | Yes | Yes | No | Yes |
So even if you made a loss in the tax year 2018 to 2019, you would still be eligible for the grant because your average trading profit for the three tax years:
- Is £30,000 – which is less than £50,000.
- Is more than half of your total income of £45,000.
How will the grant be calculated?
On 14 April 2020 HMRC provided additional guidance and examples as to how they will work out trading income for the purposes of the scheme.
- They will take taxable trading profits after:
- Allowable expenses including flat rate deductions.
- Capital allowances.
- Business expenses deducted through the trading allowance.
- Qualifying care relief.
- No losses brought forward or personal allowances will be deducted.
HMRC examples:
Example 1
If your total trading income (turnover) in each of the tax years 2016 to 2017, 2017 to 2018 and 2018 to 2019 was £20,000 and you claimed the £1,000 trading allowance each year:
This is worked out as:
- £20,000 deduct the trading allowance of £1,000 = £19,000.
- Multiply £19,000 by 3 = £57,000.
- Divide £57,000 by 3 = £19,000.
Your average trading profit would be £19,000.
Example 2: You have more than one trade in the same tax year
We will add together all profits and losses for all these trades to work out your trading profit.
If you only traded in the tax year 2018 to 2019 and made a £60,000 profit for your first trade, and then a £20,000 loss for your second trade, your trading profit for that year would be:
Trade 1 £60,000 profit deduct trade 2 £20,000 loss = £40,000
Example 3: You have traded for more than one year
To work out your average trading profit we will add together all profits and losses for all tax years you’ve had continuous trade.
If you made:
- £60,000 profit in the tax year 2016 to 2017.
- £60,000 profit in the tax year 2017 to 2018.
- £30,000 loss in the tax year 2018 to 2019.
- Add £60,000 and £60,000 then deduct £30,000 loss = £90,000
- Then divide £90,000 by three.
Your average trading profit for the three tax years would be £30,000.
Example 4
If you did not trade in tax year 2016 to 2017 but made:
- £25,000 of profit in the tax year 2017 to 2018.
- £45,000 of profit in the tax year 2018 to 2019.
- Add £25,000 and £45,000 = £70,000.
- Then divide £70,000 by two.
Your average trading profit for the two tax years would be £35,000.
Farmers Averaging relief
If you are a self-employed farmer claiming Farmers’ Averaging relief HMRC will use the amount of profit before the impact of the averaging claims to work out:
- If you can claim the grant.
- How much grant you will receive.
If you have not submitted your Income Tax Self Assessment tax return for the tax year 2018-19, you must do this by 23 April 2020.
HMRC will use data on 2018/19 returns already submitted to identify those eligible and will risk-assess any late returns filed before the 23 April 2020 deadline in the usual way.
- You must be registered as self-employed and have filed a 2019 tax return.
- For those who missed the 31 January 2020 return deadline, there is now a four week period in which to file one.
- Any amendments made to 2019 tax returns after 26 March 2020 will not be taken into account.
- The scheme is expected to commencing paying out in June 2020. The grant will be paid directly into your bank account, in one instalment.
- HMRC will contact registered taxpayers by mid-May, ask you to fill in a simple online form and the grant will be paid directly into your bank account.
- The scheme may be extended if necessary.
How you can make sure you are ready for the scheme?
HMRC will contact those eligible for the scheme during the month of May 2020 – but we want to make sure that all of our clients are ready well ahead of that if they are looking to apply – so we have produced a quick help video showing you how to can set up a personal tax account ready for when the grant application process opens later in May 2020.