• UK Tax
  • Mar 27, 2020
  • News and Updates

Covid 19 – Update on employee and self-employed support

Last night Chancellor Rishi Sunak made an announcement regarding support for the self-employed, who have seen little from the government measures to date. They have also released more detail on the Coronavirus Job Retention Scheme (CJRS) previously announced to support the employed. We summarise the two announcements below.

Self-employed support

The main announcement last night was the Self-employed Income Support Scheme (SEISS). This covers individuals who are self-employed, either as sole traders or as members of partnerships. It does not cover small companies as the directors of those are considered employees for tax purposes.

To qualify for the scheme, you must meet the following criteria

  • Be a sole trader or partner in a partnership (including LLPs)
  • Had self-employment income in the 2018/19 tax year and submitted the return for that year. Those who have not yet submitted their return will still qualify if they file within the next 4 weeks.
  • Continued trading to now and expected to continue trading in the 2020/21 tax year had there been no disruption.
  • Have lost income due to the COVID-19 pandemic
  • Have trading profits of less than £50,000.
  • Derive more than half their income from self-employment

The last two tests will be met if either the 2018/19 figures or the average of the figures from 2016/17 to 2018/19 meet the criteria. Where a self-employed business started in this period, only the years where a return including self-employment was submitted will be used for this calculation.

Unlike the CJRS, there does not currently appear to be a requirement that self-employed individuals have to cease work entirely to be eligible.

The amount an individual will be entitled to is their average monthly profit for the tax years 2016/17 to 2018/19 (excluding years with no self-employed income) up to a maximum of £2,500. As this is replacing business profits this amount will be considered taxable income.

Unfortunately, the current delivery date for this scheme is not until June 2020, though claims will cover the period from 1 March 2020. The government is encouraging affected individuals to make Universal Credit claims or apply for a Business Interruption Loan if they have no funds in the interim.

CJRS Update

This scheme allows businesses to furlough employees who would otherwise have been laid off due to a fall in activity. The scheme is set to run for at least three months and is backdated for businesses affected from 1 March 2020. It is open to all employers that had a PAYE scheme in place at 28 February 2020. The current expected delivery date for the portal to claim this is late April 2020.

All employees of a business at 28 February 2020 can potentially be furloughed. The minimum period employees can be furloughed for is 3 weeks. Employees can do no work for their employer while furloughed. They are permitted to undertake voluntary work provided this is not for their employer’s benefit. They can also engage in training during this period provided this is on a voluntary basis.

There has been some doubt whether company directors would be excluded but Jim Harra, Chief Executive of HMRC, has issued a statement that they may be eligible. The likely issue for directors is that furloughed employees must not do any work for their employer. Where a company has only one director, they are likely to need to do some work to maintain the company. Where a company has more than one director then one director can continue to operate the company whilst the others are furloughed. Where trading activity has completely ceased, we will look at whether claiming for all directors can be justified.

The amount claimable will be 80% of wages up to a maximum of £2,500 per employee. We now have detail on how this is calculated.

  • Employed over 1 year – The higher of the amount for the same month last year or average monthly earnings for the last year.
  • Employed under 1 year – Average monthly earnings for the period worked. Where an employee started in February 2020, this will be the pro-rated earnings for that month.
  • Only basic salary will be included. Bonuses, commissions and fees are excluded from the calculations.
  • Per the latest guidance, the associated Employer National Insurance Contributions and minimum Auto Enrolment pension contributions can be claimed on top of the 80% wages.

As furloughing is unlikely to be covered in employment contracts, it is advisable to take legal advice prior to furloughing employees.

The current government guidance on this scheme can be found here. Once the online portal is active, we will contact our payroll clients about making claims.

We will continue to monitor developments and send out updates as we receive more information.