After a well-publicised relief scheme targeted at employees, we have just received initial details of a package to help small businesses.
Many businesses will not benefit from the measures announced such as VAT deferral, rates relief and employee furlough payments. A large number of these are one-man self-employed businesses and freelancers. Many in industries such as construction may not even benefit from the deferment of July payment of self-assessment tax, since they may have the majority of tax deducted under the CIS scheme, meaning they have little tax to pay or a rebate in normal circumstances.
The draft legislation “Coronavirus Bill 2019-21” contains measures to extend financial support along the lines of the 80% furlough payment for employees.
The draft legislation (please note this is not yet law, and so is subject to change or even withdrawal) states:
“Statutory self-employment pay
(1) The Secretary of State must, by regulations, introduce a scheme of Statutory Self-
Employment Pay.
(2) The scheme must make provision for payments to be made out of public funds to individuals
who are
(a) self-employed, or
(b) freelancers.
(3) The payments to be made in subsection (2) are to be set so that the net monthly
earnings of an individual specified in subsection (2) do not fall below—
(i) 80 per cent of their monthly net earnings, averaged over the last three years, or
(ii) £2,917
whichever is lower.”
In other words, self-employed and freelancers will be eligible for a grant of 80% of their average monthly earnings over the last 3 years, capped at £2,917 per month.
There are two main areas of uncertainty which arise out of this:
- What is the application to individuals operating through limited companies? The reference to freelancers suggests that “one-man” companies will likely be covered, but the application to directors of companies with a number of employees is not yet known. Currently, the only certainty here is that the PAYE element of director/shareholders income should fall under the furlough scheme if they are not working (this is often a minority of income, with dividends making up the majority). CRM will provide further information as this becomes available.
- What costs will be included in calculating “monthly net income”? Will this be direct costs (e.g. materials), all costs (including overheads) or even after items such as Annual Investment Allowance (in other words, net income for tax purposes). Again, CRM will provide further information and clarification as this becomes available in this very fast-moving situation.
Although we do not yet have complete clarity on these points, nor the payment mechanism/schedule, it is reassuring that support is to be extended to small businesses owners.
Whilst we do not know how this mechanism will work, it seems likely that HMRC will require a prompt submission of your 2019/20 tax return to establish your earnings for the last 12 months to assist with any claim. Please, therefore, ensure you are spending any unexpected downtime you may be experiencing in getting your records up to date so that your accounts and tax returns may be filed in good time.
