31st March 2020
The 26 March 2020 announcement laid out comparative support to that provided to employees under the Coronavirus Job Retention Scheme (CJRS). More specifically, the package comprises:
The scheme will be open to those who:
Persons that were not self-employed and do not meet these criteria will not qualify. Neither will persons who derived less than 50% of their total income from self-employment in these periods. If now employed, they may qualify for income support under the CJRS scheme.
Director and shareholders of companies who pay themselves a salary and dividends through their own company are not covered by the scheme either, but their salaries are covered by the CJRS if they are operating PAYE schemes. Directors that elected not to take a salary and pay PAYE, but draw payments on account of past or future dividends, will not qualify.
Things to consider
Ensure your tax affairs are up to date. If a tax return has not been filed in January and due tax not paid, the position on payment is unclear, but the July 2020 payment is already deferred to January 2021.
If tax was due and unpaid, you should seek a ‘time to pay’ arrangement with HMRC. It is essential to file any missing tax returns for the periods up to 2018-19 - you have until 23 April 2020 to do it (different criteria may apply when assessing late returns - re fraud etc).
You cannot apply for these grants yet – HMRC will assess eligibility from information they now have and they warn that contacting them could add delay.
Eligible people will be contacted and invited to apply online and, once they have done so, the sums payable will be calculated by HMRC.
More details will follow the announceament in the next few days and weeks.
Unlike the CJRS, higher earners will not receive any payments (even if capped). But how any hardship criteria due to coronavirus is to be assessed is not clear, nor is it clear that trade must have been stopped. There is no clear equivalence of ‘furloughing’ or cessation of trade.
The position of persons who only became self-employed after 2016-17 – 2018/19 is also unclear at this point.
According to Government statistics, in 2016-17 there were circa 5.5m persons with self-employment income of less than £50,000 (around the same number in 2017-18). Of those, 2.7m people derived more than 50% of their income from self-employment (2.9m in 2017-18). This would seem to indicate the scale of support this may offer to the self-employed.
Many self-employed persons who may have earned over £50,000 in those periods will secure no support through this scheme. Some of these businesses may have traded without the benefit of limited liability. These can be substantial businesses (e.g. trading partnerships), which are now facing greater risks from any substantial liabilities.
As part of these announcement, the Chancellor also suggested some tax breaks previously provided to the self-employed, such as lower national insurance, may end in the future.
Small Owner Managed Enterprises (SMEs) - companies
The position of many SME companies is that many will have adopted a policy of paying low salaries to shareholders employed in the company (often around £8,600 per annum), who then receive distributions of profits as dividends.
These businesses may derive little support through the CJRS and no support from this scheme as they fail to qualify in any substantial way as an employee or as self-employed.
Had their business been established as an LLP or partnership, they would more likely have qualified for this self-employed scheme.
Any businesses that include self-employed people (that may have been holding out for support), and find themselves in difficulty, should seek advice from specialist accountants and solicitors. They can help manage businesses through crisis and work to avert formal insolvency proceedings, or help the business seek relief from liabilities.
Contact a member of the Restructuring and Insolvency team to understand your options.
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