Self Employed Income Support Scheme – your questions answered

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We have been asked a lot of questions recently about how the Self Employed Income Support Scheme will impact our clients.  Here are some of the questions and answers:-

  • Are ‘trading profits’ pre or post farmers’ averaging relief?

We understand that HMRC will use the profit before farmers’ averaging relief to work out whether a person is eligible to claim the grant and how much grant they will receive.

  • Do property letting businesses qualify for the grant?

Property lettings businesses are not regarded as a trade so landlords will not qualify for the grant.

  • What is the position regarding Furnished Holiday Letting businesses, do they qualify?

For certain taxes Furnished Holiday Letting (FHL) businesses are considered a 'trade'.  However for the purposes of SEISS, we understand that FHL's will not qualify.

  • How will HMRC determine if trading profits have been lost as a result of the COVID-19 crisis?

You will need to sign a declaration to confirm that your business has been adversly affected by the coronavirus outbreak.  We undertand that HMRC will use a 'risk based' approach to check compliance with the scheme.  This is likely to involve checking turnover and/or the profits reported on previous tax returns and comparing them with those reported in 2020/21.

  • How are losses dealt with under the scheme?

In-year losses will be taken into account as well as profits when calculating your eligibility for the grant and the amount of the grant that you will receive.

2016-17 2017-18 2018-19 Total 3 year average
Trade profit          50,000          50,000 (10,000)            90,000                  30,000
Other Income -e.g. employment, pension, rental income etc          15,000          15,000          15,000            45,000                  15,000
Total Income          65,000          65,000            5,000          135,000                  45,000
Trade profit more than 50% of total income? Yes Yes No Yes

Even if you made a loss in 2018/19, you would still qualify for the grant as your average trading profits for the 3 years are:-

  • £30,000 - which is less than £50,000
  • More than 50% of your TOTAL income, which is £45,000

Brought forward losses from an earlier year are not included in the calculation of profits for the puropses of the grant.

  • What about Capital Allowances?

Capital expenditure, on which capital allowances have been claimed in the year will reduce your taxable profits for the purposes of calculating the amount that you will receive under the grant.

  • Can I amend my return to disclaim Capital Allowances and claim the grant?

No, if an amended return is submitted after 26th March 2020, any changes will be ignored when looking at eligability and working out the amount of the grant.

  • What if I had more than one business in 2018/19?

If you had two separate businesses that traded in 2018/19, one made a profit of £80,000 and the other made a loss of £40,000, the two will be added together to give a profit of £40,000 for the year and you will qualify for the grant.

  • Can I continue to work and claim the grant?

Yes you can continue to work or take on other employment or voluntary work and still claim the grant.  HMRC will ask you to confirm that you traded in 2019/20 are trading when you apply, or would be except for coronavirus and intending to continue to trade in 2020/21.

  • Can I claim Universal Credit and still get the grant?

Yes you can make a claim for Universal Credit while you wait for the grant.  Any grant that you receive will be treated as part of your self-emplyed income and may affect the amount of Universal Credit that you get in the month in which it is paid.  Any Universal Credit for earlier months will not be affected.

If you have more questions regarding the SEISS then please do get in touch.

Self Employed Income Support Scheme – Fourth Grant

The fourth self employed grant

What period is the fourth grant for?

The fourth grant is for the three months from 1 February 2021 to 30 April 2021. The grant will be paid in one lump sum instalment.

How much is the grant?

The level of the grant will be reviewed and set in due course.

Who qualifies for the fourth grant?

To be eligible for the fourth grant, self-employed individuals, including members of partnerships, must:

  • have been previously eligible for the SEISS.
  • declare that they intend to continue to trade and either:
  • are currently actively trading but are impacted by reduced demand due to coronavirus
  • were previously trading but are temporarily unable to do so due to coronavirus.

Can I claim the fourth grant if I didn’t claim the first, second or third ones?

Yes, you don’t need to have claimed the first, second or third payments to claim the fourth grant.  You do however need to meet the same eligability criteria for the first grant, so if you did not qualify for the first you will not qualify for the fourth.

When can I make my claim?

HMRC will provide full details about claiming and applications in guidance on GOV.UK in due course.

How do I make my claim?

HMRC will provide full details about claiming and applications in guidance on GOV.UK in due course.

Self Employed Income Support Scheme – Third Grant

The third self employed grant

 

What period is the grant for?

The third grant is for the three months from 1 November 2020 to 31 January 2021. The grant will be paid in one lump sum instalment.

How much is the grant?

The grant has been increased from the previously announced level of 40% of trading profits to 80% for November 2020. This increases the total grant from 40% to 55% of trading profits for the period 1 November 2020 to 31 January 2020.

The grant is capped at £5,160 in total.

The Government are providing broadly the same level of support for the self-employed as is being provided for employees through the Coronavirus Job Retention Scheme in November due to its extension. And then the reduced Job Support scheme in December and January.

Who qualifies for the third grant?

To be eligible for the third grant, self-employed individuals, including members of partnerships, must:

  • have been previously eligible for the SEISS.
  • declare that they intend to continue to trade and either:
  • are currently actively trading but are impacted by reduced demand due to coronavirus
  • were previously trading but are temporarily unable to do so due to coronavirus.

Can I claim the third grant if I didn’t claim the first or second ones?

Yes, you don’t need to have claimed the first or second payments to claim the third grant.  You do however need to meet the same eligability criteria for the first grant, so if you did not qualify for the first you will not qualify for the third.

When can I make my claim?

The online service for the third grant has been brought forward from 14 December to the 30 November.

How do I make my claim?

HMRC will provide full details about claiming and applications in guidance on GOV.UK in due course.

Self Employed Income Support Scheme – Second Grant

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The Self-Employed Income Scheme (SEISS) was launched on 26 March 2020 by the Chancellor to help self-employed individuals with the financial effects of the Coronavirus lockdown.  More details about the scheme can be found here.

The scheme, as launched, consisted of one grant payable in May, covering the three months March, April and May.  A second grant was announced on 29 May 2020 and will be payable in August.

HMRC calculates the amount of the grant from your tax return data that it holds and invites you to make a claim.

The first grant is based on 80% of your average monthly profits over the last three years, capped at £2,500 per month. The second grant has been reduced to 70% of your average monthly profits over the last three years, to reflect a similar reduction in the employed ‘Furloughed Workers Scheme’.

  • The first grant covers the period from 1 March 2020 to 31 May 2020 and is worth up to £7,500
  • The second grant covers the period from 1 June 2020 to 31 August 2020 and is worth up to £6,570
  • You can apply for the first grant until 13 July. The first grant is worth 80% of your average monthly trading profits, paid in a single instalment covering three months’ worth of profits, up to a maximum of £7,500.
  • Applications for the second grant will open in August. The second grant is worth 70% of your average monthly trading profits, paid in a single instalment covering three months’ worth of profits, up to a maximum of £6,570.
  • Eligibility for both grants are the same, details about eligibility can be found here.  You will also need to confirm that your business has been adversely affected by coronavirus.
  • To be eligbile fro the second grant your business will need to have been adversly affected by the Covid19 restrictions from 14th July.
  • Some examples of how your business could have been adversley affected can be found in the HMRC guidance here.
  • You do not need to have claimed the first grant to claim the second grant.  For example, if your business has only been adversely affected by COVID-19 in this later phase, but not earlier in the pandemic.

You can check if you are eligible for the grant by using the HMRC online checker here.  If you disagree with HMRC’s decision, you can challenge it from within the tool.

Applications for the 2nd grant will open on 1 August.

The Chancellor has confirmed that there will be no other changes and no further extensions to the scheme.

If you claim the grant you can continue to work or take on other employment, including voluntary work.

Both grants are taxable and will need to be included on your tax return.

I am self-employed and work from my home are there any expenses that I can claim?

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If you are self-employed and run your business from home, you can claim a proportion of your household expenses such as council tax, water rates, lighting and heating, rent or mortgage interest and certain repairs.  If for example your house has six rooms, excluding the kitchen and bathroom, and you use one room partly for business, you may be able to claim up to one sixth of your household expenses against your business income.

There are various ways in which home running costs can be apportioned, depending on how you run your business.  HMRC have several examples in their business income manual to illustrate how you could calculate this.

Is there an easier way to calculate the business element of my household expenses?

In a word yes.  You can use the HMRC simplified expenses which allow you to claim a flat rate based on the number of hours that you work at home, instead of doing the calculations above.

You can only use the simplified expenses if you work at least 25 hours per month from home, so it may not be the right option for everyone.  If you want to use the HMRC simplified expenses flat rates the amount that you can claim are as follows:

 

Hours business use per month Flat rate
25 to 50 £10
51 to 100 £18
101 or more £26

 

The flat rate allowances are relatively modest and may result in a smaller claim than if you apportioned your actual household expenses.  However, the flat rates above are easier to calculate and do not require you to keep detailed receipts of your household expenses.

Coronavirus top up local business grant

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Coronavirus top up to business grant funds scheme

The Business Secretary has announced an extension to the previously announced Small Business Grant and Retail, Hospitality & Leisure Grants.

The additional funds are aimed at small businesses with on-going property related costs, that do not qualify for the other grants.

Local authorities are being asked to prioritise those businesses in shared spaces, regular market traders and small charity properties that do not meet the criteria for Small Business Rates Relief.  However, Local councils will have the discretion to make payments to other businesses based on local economic need.

To qualify, businesses must be small, under 50 employees, and be able to demonstrate that they have seen a significant drop in income due to the Coronavirus restriction measures.

There will be three levels of grant payments.  The maximum available will be £25,000.  There will also be grants of £10,000.  Local authorities have been given discretion to make payments of any amount under £10,000 to businesses in economic need and councils will be able adapt their approach to local circumstances.

Further guidance will be issued to local councils shortly.

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What business expenses can I claim against my tax?

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Not all business expenses that you incur running your business can be deducted against your income for tax purposes.  ‘Allowable’ expenses are those which you can deduct against your trading income to calculate the profits on which you will pay tax.

Which business expenses are allowable?

For a business expense to be allowable, it must have been incurred ‘wholly and exclusively’ for the purposes of your business.  If you pay for something that is partly for business and partly for a private purpose, then the expense should be apportioned between the two.  For example, if you pay for a telephone bill where you have made both business and personal calls on one bill, then you need to apportion the total cost between the business element and the private element.  The business part will be an allowable expense and can be claimed against your trading income.

What is a disallowable business expense?

Not all business expenses are allowable for tax purposes.  Any expense that is incurred wholly for a private purpose is a disallowable expense and cannot be deducted against your trading income when calculating your taxable profits.

Some business expenses that you incur may be allowable, but are a capital rather than revenue for tax purposes.  Capital expenses cannot be deducted against your trading income, but may qualify for Capital Allowances instead.

What is the difference between a capital and revenue expense for tax purposes?

A capital expense is usually, but not always, a larger item of expenditure on something that you would expect to last for a reasonable amount of time, perhaps a year or more.

A revenue expense is something that lasts for a shorter period of time and is usually used up in your day to day business activities.  For example, paper or ink for your printer.  Most of your regular business expenses are likely to the revenue expenses and allowable for tax purposes.

This sounds complicated how will I know which expenses are allowable?

HMRC have produced a helpful guide (Help sheet HS222) called How to calculate your taxable profits.  This help sheet contains a useful table of some of the more common allowable and disallowable expenses.

If you’re not sure and need help completing your tax return, we would be happy to help.

Tax doesn’t have to be taxing and our simple fixed fee packages take the stress out of Self-Assessment.

How do I work out my self employed profits for Universal Credit?

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Universal Credit is a new state benefit that is gradually replacing other means tested working age benefits.  For most people it is no longer possible to make a new claim for Tax Credits and existing Tax credits claiments are being moved over to Universal Credit in a phased migration.

Univeral Credit is calculated on either a weekly or monthly assessment period.  If you are self employed you will need to report your profits to the DWP on a monthly basis.  Reporting is done on the cash basis - money in and money out for your assessment period.

You must report your monthly earnings to the DWP between the period of seven days before to 14 days after the end of your assessment period.

For an easy step by step guide on what you need to report follow this link to the Chartered Institute of Tax's website.

Construction Industry Tax Refunds

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The Construction Industry Scheme (CIS) is where a contractor in the construction industry deducts, at source, a certain percentage of the money paid to their subcontractors.  This amount is passed straight to HMRC and counts towards the subcontractor’s self-assessment tax and national insurance bill for the tax year.

The amount deducted will depend on whether or not a subcontractor is registered under the CIS scheme. Unregistered subcontractors usually get a 30% deduction, while registered subcontractors get a deduction at the standard basic rate of tax of 20%.

The deduction rate is a flat rate and does not take into account the tax-free personal allowance that every UK based taxpayer is entitled to.  The personal allowance for the tax year 2019-2020 was £12,500. Because the flat rate deduction does not take account of this, or other business expenses that you can claim, many ‘subbies’ are due a tax refund at the end of the tax year.  The average refund is around £2,000, but will depend on your other income and the amount of expenses that you can claim.

In addition to the UK personal allowance, you can also claim a deduction for business expenses incurred in running your business such travel to sites, insurance, telephone, tools, safety clothing and lots more.

This can be a complex process so to make sure that you are getting the maximum tax rebate let Simply Accounting Solutions help you, our fees are tax deductible too!

Fixed fee CIS tax repayment claims are only £199!

Contact us to find out how much HMRC owes you

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What is the furloughed workers scheme?

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Financial support for “furloughed workers” will be provided to employers through the ‘Coronavirus Job Retention Scheme’.

This scheme is available to all employers who have a PAYE payroll scheme in place as at 28 February 2020. Workers that can be furloughed include:

  • Full and part-time employees on the payroll as at 28 February 2020
  • those who do casual work or are on flexible contracts
  • those who have zero-hours contracts

Employees need to be on the payroll as at 28 February 2020 to be eligible for furlough, you cannot use the scheme to furlough new joiners. Employees hired after 28 February 2020 cannot be furloughed or claimed for under this scheme.

Eligibility 

To be eligible for the scheme, you will need to:

  • select and tell (‘designate’) your employees that they will be furloughed
  • keep your employees on the payroll
  • make sure any furloughs last at least 3 weeks, the minimum period under the scheme.

What if someone was made redundant on or after 28 February 2020

You can decide to rehire them and put them on the furloughed workers scheme instead.

What if my employee has more than one job

Each job is treated separately. This means your employee may be able to either:

  • continue to work for you and be placed on furlough for the other job, or vice versa
  • be furloughed for both jobs

If they are furloughed for both jobs, they will be eligible for financial support for each job.

Selecting and telling your employees

You must select your employees for furlough in a fair way to avoid any discrimination.  Workers who cannot work from home and who currently have no work to do will be the obvious candidates for furloughing.  You may need to consider a process of calling for volunteers, pooling and selection – as with a redundancy process.  You need to make sure the process is fair and does not discriminate.

You will need to get agreement from your employees to do this, unless there is a clause in the employment contract that allows you to lay staff off temporarily. You will need to clearly explain how much your employee will get paid in total whilst on furlough.

If you need a template letter please get in touch and we can send you one.

The government will pay you 80% of your employees’ wages whilst they are furloughed. You can decide to top up the wages to 100%, but you do not have to. If you decide not to top up the wages, you should tell the employee that this is the case and explain why not.

Employees cannot do any work for you whilst they are on furlough. They can do volunteer work, or training providing this does not provide services or generate revenue.

A furloughed employee can return to work and be placed on furlough again later, if needed.

If an employee disagrees with your decision, they'll need to talk to you and try to come to an agreement.

Changing an employment contract

If you cannot reach an agreement, you may need to change the written terms in an employee’s contract and you should seek appropriate legal advice before doing so.

If more than 20 employees are to be furloughed then you will need to consult staff or other union representatives before placing employees on furlough.

Furlough agreements

Any furlough agreements should be in writing. It's a good idea to include:

  • the date furlough starts
  • how much the person will be paid
  • when it will be reviewed
  • how to keep in contact during the furlough period.

How much can I claim?

HM Revenue & Customs (HMRC) will reimburse 80% of furloughed workers’ usual wage costs, up to a cap of £2,500 (gross) per worker per month, plus the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on that wage.

Fees, commission and bonuses are excluded and cannot be claimed.

For salaried employees, you must use the actual salary before tax, as of 28 February.

For employees whose pay varies (for example because they work shifts or irregular hours) you can claim for the higher of:

  • the same month’s earning from the previous year
  • average monthly earnings from the 2019-20 year

If an employee with variable pay has been employed for less than a year, you can claim for an average of their monthly earnings since they started working for you. If the worker only started in February 2020, you should use a pro-rata of their earning so far.

What if the subsidy is less than the minimum wage? Do we have to top it up?

No, you only need to ensure that workers receive the National Minimum Wage/National Living Wage for the hours that they actually work for you.  You do not need to ensure that the received NMW/NLW when on furlough.

However, if workers are required to for example, complete online training courses whilst they are furloughed, then they must be paid at least the NLW/NMW for the time spent training, even if this is more than the 80% of their wage that will be subsidised.

Tax Treatment of the Coronavirus Job Retention Grant

Payments received by a business under the scheme are made to offset tax deductible wages costs. They must therefore be included as income in your taxable profits for Income Tax and Corporation Tax purposes, in accordance with normal principles.