Income Support for the Self-Employed - January 2020 Update

Let’s be honest - the past year has been tough. COVID-19 has changed so many aspects of the business landscape, from social distancing to supply chains and strategy pivots to profitability. 

Self-employed people have been left particularly vulnerable since a national lockdown was implemented on 23 March 2020, and then again on 4 January 2021. While the new strain of COVID-19 is spreading, many small businesses and sole traders are struggling to make ends meet. 

You might be wondering what government support is available to self-employed workers right now. We’re here to help.

Who is self-employed?

You are classed as self-employed if you run and are responsible for your own business. You won’t be paid for your work through a payroll or be taxed according to PAYE (pay as you earn), and you won’t have access to employee’s benefits, such as Statutory Sick Pay (SSP).

It is possible to be both employed and self-employed at the same time. Many people who are employed full time or part time have a ‘side hustle’ that lets them make money in addition to their normal job.

What benefits can the self-employed apply for?

Since COVID-19 hit, the UK Government has put a number of schemes in place to help self-employed people weather the storm in 2020 and 2021:

• The Self-Employment Income Support Scheme

• Business support grant funds (England only), including the Small Business Grant Fund, the Retail, Hospitality and Leisure Grant Fund and the Local Authority Discretionary Grants Fund  

• The Coronavirus Business Interruption Loan Scheme

• The Bounce Back Loan Scheme

If you have other employment and are paid through PAYE, your employer may also be able to access the Coronavirus Job Retention Scheme (widely known as the “Furlough Scheme”).

What is the Self-Employment Income Support Scheme?

The third grant, that small business owners can apply for until January 2021, is worth 80% of your average monthly trading profits, capped at £7,500 in total. It is paid out in a single instalment covering 3 months’ worth of profits. 

The third round of SEISS was introduced on the 30th of November 2020. Self-employed individuals and members of a partnership who have been adversely affected by COVID-19 can make their claim to the third grant on or before 29 January 2021. The Chancellor has announced an extension of the scheme to cover February 2021 to April 2021 as well. 

If you get the grant you are allowed to keep working. You can also start a new trade or take on other employment including duties as a military reservist or voluntary work. And if you’re eligible, the grant doesn’t have to be repaid. However, it will be subject to self-employed National Insurance and Income Tax.

Am I eligible?

You are eligible to claim a grant as part of the Self-Employment Income Support Scheme if you’re self-employed or a member of a partnership and your business has been adversely affected by COVID-19.

If you’ve been impacted by reduced demand or you are temporarily unable to trade due to the ongoing pandemic, you can make a claim for the second grant even if you didn’t claim for the first two grants.

Here’s are the key facts:

1. You must have traded in the tax year 2018 to 2019 and submitted your Self Assessment tax return on or before 23 April 2020 for that year - this is the first criteria HMRC will look at. Your trading profits must be no more than £50,000 and at least equal to your non-trading income.

2. You must have traded in the tax year 2019 to 2020.

3. You must intend to continue to trade in the tax year 2020 to 2021.

If you’re not eligible based on the 2018 to 2019 Self Assessment tax return, the decision will be made based on the tax years 2016 to 2017, 2017 to 2018, and 2018 to 2019.

Other things to bear in mind :

• If you trade through a limited company or a trust you’re not eligible

• You’re still eligible if you claim Maternity Allowance 

• Grants under this scheme are not counted as ‘access to public funds’, which means that you can claim the grant on all categories of work visa

For a quick and easy way to find out if you’re eligible, use our Grant Eligibility Checker.

How much is the self-employed grant?

The grant you receive will be based on your average trading profit over the three tax years:

• 2016 to 2017

• 2017 to 2018

• 2018 to 2019

Total trading profits or losses for these three tax years will be added together and then divided by three to get your average trading profit. 

The third grant is worth 80% of this average trading profit, capped at £7,500, and will be paid straight into your bank account in one go covering 3 months’ worth of profits.

NB: this third grant is worth a different amount than the first and second grants:

• The first grant, for which claims closed on 13 July 2020, offered up to 80% of average monthly trading profits capped at £7,500

• The second grant, for which applications closed on 19 October 2020, offered 70% of average trading profit capped at £6,570

All grants so far have covered three months’ worth of profits.

How do I check my self-employed income relief scheme?

You can make your claim and check the status of the payment on the government website.

Can you be self-employed and claim Universal Credit?

Universal Credit is available to UK citizens of working age who are on a low income - which include self-employed people. If you think that you might fall into this category, use a benefits calculator to find out what you are able to claim.  

If you get a grant through the Self-Employment Income Support Scheme, it may affect your earnings, causing your Universal Credit payments to reduce or stop altogether. 

Your situation will be assessed monthly and you will need to provide the following information:

Income and earnings

• How much you earned from self-employment (even if it’s nothing).

• Any money you paid into a pension.

Your business

• The total amount your business received.

• How much your business spent on different types of expenses, such as stock, equipment and tools, travel costs, clothing and office costs (but not including ‘business assets’ that your company already owns, such as machinery, buildings or cash in your company account).

• How much tax and National Insurance your business paid.

• Your business’s property.

Change of circumstances

• If you are no longer able to work.

• If you close your business.

• If you start a different type of business.

• If you take a permanent job.

COVID-19 changes

Before COVID-19, payments were calculated based on a Minimum Income Floor, which is an assumed level of earnings. This has changed: payments are now based on your actual earnings.

Source: https://www.gov.uk/self-employment-and-universal-credit

What is the minimum income for Universal Credit?

Universal Credit is made up of a standard allowance based on your earnings, plus extra money for other circumstances such as having children, living with a health condition that prevents you from working or needing support to pay your rent.

It’s a complex calculation, so the best way to find out what you are eligible for is to use a benefits calculator.

The monthly standard allowance is:

• £342.72 if you’re single and under 25

• £409.89 if you’re single and over 25

• £488.59 (for you both) if you’re in a couple and you’re both under 25

• £594.04 (for you both) if you’re in a couple and either of you are over 25

What is the maximum income for Universal Credit?

You can top up the standard monthly allowance considerably if you qualify for further benefits under Universal Credit. This may be because:

• you have a child or children

• your child or children are disabled

• you have limited capacity to work

• you care for a severely disabled person

• you need help paying your rent 

• you need help taking out a loan to pay your mortgage

For more information on the specific amounts available, take a look at the government’s website.

Can you get sick pay if you are self-employed?

You cannot claim SSP if you are a sole trader or a partner in a partnership, but you do have access to Employment and Support Allowance (ESA) for self-employed business owners.

New short-term measures have been brought in during COVID-19 to help self-employed workers who contract the virus or have to self-isolate and aren’t able to work. If you are self-employed these allow you to claim Universal Credit at the same rate as Statutory Sick Pay (£94.25 per week). 

They have also relaxed a number of the criteria usually required to claim Universal Credit in the following ways:

• You’ll get payments from day one, rather than waiting the usual seven days

• You won’t have to produce a fitness note

• You won’t need to attend reassessments and will continue to receive your payments while your assessment is rearranged

• You won’t have to attend a face-to-face assessment

Weathering the Storm

We can all agree that 2020 has been a tough time for anyone, but especially if you’re a self-employed worker trying to keep your business afloat. Do take advantage of the government’s various schemes to give yourself a fighting chance of weathering the economic challenges of COVID-19.

For more information and advice for small businesses and the self-employed, take a look at the QuickBooks Small Business Blog.