Self Employed Income Support Grants – Answering Some Common Questions (updated 5th November 2020)

Update – 8th October 2020 – in the Winter Economy Plan in late September, it was announced two further grants will be paid:

• 3rd grant – at 20% of average monthly profits for November 2020 to January 2021, up to a total of £1,875 for the three months (so £625/m)
• 4th grant – will be paid in the spring amount not known – in Governments own words “An additional second grant, which may be adjusted to respond to changing circumstances, will be available for self-employed individuals to cover the period from February 2021 to the end of April”

Other than amounts and dates eligibility is as below.

Update 22nd October 2020 – the 3rd grant is now 40% not 20%

Update 5th November 2020 – the 3rd grant is now 80%

 

Self Employed Income Support Grants – Answering Some Common Questions

This post was written for our daughter business, YogaTax.  The principles are universal, remove Yoga from the examples.

Over recent weeks, especially since the second grant was launched, there have been some questions coming up on the Self Employment Income Support Scheme,

Lets address some of these. To note, this is time critical as the first grant must be claimed by 13 July 2020 (I’m writing this on 10 July).

 

History and Context

As Coronavirus escalated the Government introduced various support schemes for businesses. First the grants and Business Rate holidays to those with business premises, then the Furlough scheme (Coronavirus Job Retention Scheme), and then, after worries the Self Employed were being left behind, the Self Employed grants – officially the Self Employment Income Support Scheme (SEISS).

SEISS was launched on 26 March 2020, with more detailed guidance being dripped out.

On 29 May 2020 it was announced there would be a “second and final grant” under SEISS, which was inevitable given the CJRS being extended and lockdown going on longer than thought.

In summary then, we have the first SEISS grant announced 26 March 2020, and the second announced 29 May 2020. They are slightly different in amount and eligibility.

Its useful to contextualise these grants in the wider arena of Government support:

• Small Business Grant scheme – £10k to any business who have business premises with a Rateable Value less than £15k.
• Retail Hospitality and Leisure Grant scheme – £15k to businesses in Retail, Hospitality and Leisure who occupy business premises with Rateable values over £15k
• Coronavirus Job Retention Scheme (“Furlough”) – grant to employers to cover 80% of wages of employees furloughed. Note that its up to employers to negotiate whether the employee is paid 100% or 80%, and if 100% then the employer is picking up the 20% differential.
• Self Employment Income Support Scheme – profits based grant for Self Employed – Sole Traders and Business Partners – not Company Directors / Shareholders.
• Business Rate Holidays – Retail, Hospitality and Leisure sectors and Nurseries.
• Bounce Back Loans (the lighter version of Coronavirus Business Interruption Scheme loans)
• Self Assessment and VAT deferrals.

Note the terms. Grants, not repayable. Loans are repayable. Deferral for taxes means the payment date is shifted back. Rates holiday gives you a break from the regular payment for a period.

 

SEISS Eligibility and Objective and Subjective Requirements

The SEISS (Self Employment Income Support Scheme) grant is available to the Self Employed, viz Sole Traders and Business Partners. Not directors or shareholders of companies – there is a big disparity there, with those working via companies not getting any profit related support, just a possibility of furloughing themselves as directors.

Objective Requirements for SEISS grant

• You must have been Self Employed in 2018-19. If you started after this, not eligible.
• You must continue to be Self Employed in 2020-21 after the Coronavirus disruption ends (planning point – if you are closing a studio or regular classes, continue doing some low level online classes or covers – it will meet this requirement)
• Your business profits must average less than £50k
• Business profits must average more than half your income (strictly equal to, or more)

On these last two requirements they are looking back over 2016-17, 2017-18 and 2018-19 or such shorter period that you have been Self Employed.

Eg:

• Average business profits £20k, average income from job £15k – you can claim
• Average business profits £15k, average income from job £20k – you cannot claim
• Average business profits £20k, average income from job £20k – you can claim as they are equal
• Average business profits £49k, average income from job £100k – you can claim (lucky you!)
• Average business profits £51k, average income from job £100k – you cannot claim

Note – you don’t have to stop working, you can continue to work – cf the Furlough (CJRS) scheme where furloughed employees cannot work.

Subjective Requirements

Government guidelines have a subjective condition “you carry on a trade which has been adversely affected by coronavirus”

For the first grant, the guidance says:

• You’ll have to confirm to HMRC that your business has been adversely affected by coronavirus.
• The claim must be made by 13 July 2020

For the second grant, the guidance says

• If you make a claim for the second grant you will have to confirm your business has been adversely affected on or after 14 July 2020.
• You can claim for the second and final grant even if you did not make a claim for the first grant.
• You’ll be able to claim a second and final grant from 17 August 2020 when the online service will be available.

It appears then, for the first grant your business must have been adversely affected at any time up until claim. For the second grant its more prescriptive, adversely effected on or after 14 July 2020. We’ll look at “adversely affected” in more detail below.

 

Grant Amount

The grant is based on average profits:

• In the first instance over 2016-17, 2017-18 and 2018-19;
• or such shorter period that you have been Self Employed
• relaxation in averaging to make sure parents who take time off work are not penalised

And how much? Well in Governments words:

• “The first grant will be worth 80% of your average monthly trading profits, paid out in a single instalment covering 3 months’ worth of profits, and capped at £7,500 in total. The online service will tell you how we’ve worked your grant out.”
• And for the second grant “This grant will be a taxable grant worth 70% of your average monthly trading profits, paid out in a single instalment covering a further 3 months’ worth of profits, and capped at £6,570 in total.”

So the mechanism is

• Calculate the average profits
• Reduce to 3 months worth for each grant
• Apply the percentage
• Apply the cap if relevant

Eg 1 – average profits £50,000 a year:

Grant 1:

• • £50,000 a year over three months is £12,500
  • 80% of £12,500 is £10,000
  • Cap at £7,500

Grant 2:

• • £50,000 a year over three months is £12,500
  • 70% of £12,500 is £8,750
  • Cap at £6,570

Eg 2 – average profits £20,000 a year:

Grant 1:

• • £20,000 a year over three months is £5,000
  • 80% of £5,000 is £4,000
  • Cap doesn’t apply – grant is £4,000

Grant 2:

• • £20,000 a year over three months is £5,000
  • 70% of £5,000 is £3,500
  • Cap doesn’t apply – grant is £3,500

 

Claim Procedure and Timescales

Grant 1

• Claims are open now via Government website
• Must claim by 13 July 2020

Grant 2

• Per Government “You’ll be able to claim a second and final grant from 17 August 2020 when the online service will be available.”
• “The online service for the second and final grant is not available yet. Do not contact us as we will update this guidance when this service is available.”

Note the guidance for grant 2 says “This scheme is being extended until 19 October 2020.” – presumably this refers to an end date for claims, but its not clear. It may be based on three months from the 14 July 2020 “adversely effected” date for grant 2. It seems largely irrelevant, and confusing.

 

What does “Adversely Affected” mean

As alluded to above, there is a subjective requirement, “you carry on a trade which has been adversely affected by coronavirus”

Government go on to say:

Your business could be adversely affected by coronavirus if, for example:

• • you’re unable to work because you:
    • are shielding
    • are self-isolating
    • are on sick leave because of coronavirus
    • have caring responsibilities because of coronavirus
  • you’ve had to scale down, temporarily stop trading or incurred additional costs because:
    • your supply chain has been interrupted
    • you have fewer or no customers or clients
    • your staff are unable to come in to work
    • one or more of your contracts have been cancelled
    • you had to buy protective equipment so you could trade following social distancing rules

There is further guidance by Government here

In reality the test is going to boil down to a simple “were profits reduced” test.

• If profits were reduced then claim can be made.
• If income was down, but profits not down as expenses also reduced then its likely “adversely affected” isn’t met, so no claim can be made

An interesting point, how does this tie in with other support? Specifically CJRS, premises grants and rates holidays. There doesn’t seem to be anything definitive on this, but working it from first principles:

• CJRS (furlough grant) would not seem to impact the claim as it simply matches staff costs
• The Business Rates holidays in certain sectors will reduce expenses, and this may mean profits holding up even if income is down. So the Business Rate holiday may mean, in some cases, SEISS can’t be claimed
• The Small Business £10k and Retail, Hospitality and Leisure £15k grants count as taxable income and if these outweigh the otherwise loss of profits, it may mean SEISS can’t be claimed
  • eg 1 – you are eligible for a £10k grant. Your business is disrupted for 6 months, during which your profits are £5k lower before the grant is taken into account – as the grant exceeds the profits loss otherwise, it would seem you can’t claim SEISS
  • eg 2 – you are eligible for a £10k grant. Your business is disrupted for 6 months, during which your profits are £15k lower before the grant is taken into account – as the loss of profits exceeds the grant amount, you can claim SEISS
  • Its probably helpful to look at SEISS as the claim of last resort

Remember:

• For grant 1 your business must have been “adversely affected” at some stage from the start of Coronavirus disruption up to the date you claim grant 1.
• For grant 2 your business must have been “adversely effected”on or after 14 July 2020”.
• It is quite conceivable you claim one grant and not the other, or you may claim both – this will depend on circumstances

EG:

• Yoga Teacher stopped teaching in person in March, started teaching online in July. Online income, less savings in rent and travel, mean that profits are the same from July onwards as they were before. In this case grant 1 would be claimable but not grant 2.
• Yoga Teacher taught at a studio which went online at start of lockdown. Online income, less savings in rent and travel, mean that profits were initially the same. In August the studio closes and the Yoga Teacher stops claiming. In this case they are eligible for the second grant but not the first.
• Yoga Teacher stopped teaching on person in March, started teaching online immediately. Online income, less savings in rent and travel, mean that profits are the same as they were before. In this case neither grant would be payable.
• Yoga Teacher stopped teaching in person in March, started teaching online immediately. Despite savings in rent and travel, profits are still lower as online income doesn’t cover the loss from in person teaching. This goes on until September when the teacher returns to in person teaching. Both grants can be claimed

 

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