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Self-Employed Income Support Scheme Explained

The self-employed income support scheme (SEISS), which was recently extended, is one of the government support schemes put in place to help us financially as a result of the COVID-19 pandemic. It takes the form of 5 taxable grants, up to £7,500 each. Eligibility depends on employment status, business profits and tax returns submitted.

1. Self-Employed Income Support Scheme (SEISS) Explained

SEISS was set up by the Chancellor to try and compensate self-employed workers who have lost income as a result of isolation and lockdown measures, similar to the furlough scheme introduced for employed workers.

It takes the form of five taxable grants (each covering a 3 month period) of 80% of profits to a maximum of £7,500, paid to individuals registered as self-employed with business profits of less than £50,000.

So far there have already been 3 rounds of grants given to qualifying self-employed workers covering:

  • May 2020 to July 2020
  • Aug 2020 to Oct 2020
  • November 2020 to January 2021

Applications for the fourth have yet to open, but this will cover the period February 2021 to April 2021.

The fifth grant will be available from late July and cover May 2021 to September 2021. The amount of the fifth (and final) grant you’ll be eligible to receive will be determined by how much your turnover has decreased in the year April 2020 to April 2021 but the amount you receive will be calculated slightly differently:

  • 80% of 3 months’ average trading profits, up to a max of £7,500, if your turnover has reduced more than 30% or more;
  • 30% of 3 months’ average trading profits, up to £2,850, if your turnover has reduced less than 30%.

2. How Much Can You Claim?

The fourth grant, much like the previous ones, will be a single payment calculated as 80% of average monthly trading profits for the last 3 tax years, up to a maximum of £7,500.

You do not have to have applied for the first three self employed income support grants earlier this year, but you must have been eligible.

HMRC will contact you in mid-April about the fourth claim if you are eligible. And the grant is estimated to be available from late April 2021 to 31 May 2021.

3. Who is Eligible for the SEISS Scheme

Anyone who is self-employed or in a partnership can apply for SEISS if they:

  • Have trading profits of up to £50,000;
  • Earn more than half of their income through self-employment;
  • Are you still in business, or would be, if it wasn’t for Covid-19;
  • Are intending to continue to trade but have been impacted by coronavirus;
  • Must have traded in both the tax years 2019/2020 (and submitted their tax return by 2 March 2021) and 2020/2021.

4. How Much Will You Receive?

To work out how much you’ll receive HMRC will look at your 2019/2020 tax return. If you are not eligible based on this return, they will look back at the last three tax years:

  • 2016/2017
  • 2017/2018
  • 2018/2019

If you do not have three years, the HMRC will take into account however many tax years you have available. But you must have a return submitted for 2018/2019 so they have some evidence of your earnings to work with.

If you want to estimate how much self-employment income support scheme grant you may receive then add up your trading profits over the last three tax years divide by 36 months and multiply by 3 (reduce these if you have less than 3 tax years available).

If you are employed and self-employed the grant you receive will be based on your self-employment income only, not your combined earnings.

Example 1

Your trading profits for the last three tax years are:

  • 2016/2017 £20,000
  • 2017/2018 £23,000
  • 2018/2019 £19,000

Your total trading profits for the last three tax years are £62,000 so you will be entitled to a grant of £2,841.67.

£62,000 ÷ 36 months x 3 months x 55%

When tax time comes and you fill in your tax return, you’ll need to declare this as part of your income and pay extra tax at your highest rate.

Example 2

You are in a partnership for the last two tax years and show 50% of your partnership profits on your tax return.

  • 2017/2018 £18,000
  • 2018/2019 £16,000

Your total trading profits for the last two tax years are £34,000 so you will be entitled to a total taxable SEISS grant of £2,337.50.

£34,000 ÷ 24 months x 3 months x 55%

Example 3

You are employed and have a side hustle for the tax year 2018/2019. Your salary is £20,000 a year and you have self-employment profits of £5,000.

Your salary makes up more than half your earnings so you are not eligible for the Self-Employed Income Support Scheme.

Example 4

Your trading profits for the last 3 tax years are:

  • 2016/2017 £65,000
  • 2017/2018 £55,000
  • 2018/2019 £35,000

You average trading profits are £51,667 and exceed the £50,000 threshold so you are not eligible for the new scheme.

£155,000 ÷ 3 years = £51,667

Example 5

You’ve been self-employed for 2 and a half years and submitted returns for 2017/2018 and 2018/2019.

However, during 2017/2018 you were employed for 6 months and self-employed for the final 6 months.

Here are your earnings:

  • 2017/2018 £10,000 self-employment and £12,000 employment
  • 2018/2019 £18,000

You’ve earned more than half your income through self-employment, so would be entitled to a taxable grant of £1,925.

£28,000 ÷ 24 months x 3 months x 55%

5. How to Apply for the SEISS

The first two rounds of grants are now closed, and the third round grant will be available from 30 November 2020, at which point you can apply on the HMRC website.

You’ll need your UTR number and National Insurance Number.

In the meantime, you’ll also may be eligible to claim Universal Credit to help you cover your bills in the short-term.

6. What To Do If You’re Not Eligible

If you need financial assistance but are not eligible for the support offered through the self-employed income support scheme then you may be able to claim:

Which of these you can claim, depends on your circumstances:

7. FAQs

Here are some answers to common questions I see online and on social media:

Should I file my 2019/2020 tax return?

Your 2019/2020 tax return will not count towards the income calculation for the grant you are eligible to. That’s because of the risk of people fraudulently increasing their self-employment income to maximise the grant they are entitled to.

I’m in a Partnership, am I eligible?

Yes the rules apply to partnerships as well as the self-employed.

I started working for myself in the current tax year, can I claim?

No, you can only claim if you submitted a tax return for 2018/2019. However, I recommend you to register as self-employed if you have not done so as the rules around financial compensation seem to be changing regularly. That way you are prepared.

I’m a CIS Worker, can I claim the taxable grant?

Whilst CIS workers have not been specifically mentioned in the new HMRC guidance about the scheme, they have not been excluded.

Registered CIS workers are self-employed (they just handle their taxes slightly differently), so it is most likely that they are eligible to claim if they meet all the criteria.

Why have those earning over £50,000 been excluded?

The scheme, like all other government benefits, is designed to help those most in need. If you are struggling but don’t meet the criteria, then you may still be able to claim for Universal Credit (there is more below on this).

Can I Continue to Work and Claim the Grant?

No, to get the grant your income must have been affected by the Covid-19 situation. It is there to help the people that need it the most.

Are taxes going to go up post Coronavirus Crisis?

The chancellor has alluded to the fact that something needs to be done to equalise the tax system between those that are employed and self-employed.

That is because when you are self-employed you can deduct allowable expenses against your income, so pay less tax. There are also some self-employed individuals who do not declare their full income.

I seriously doubt any decisions have been made given the current economic climate, but next years budget could be interesting.

I am a Director and Shareholder of my Limited Company, taking a small salary and dividends. Can I claim the 80% self-employed income grant?

Although you may consider yourself self-employed, you actually aren’t and are therefore not entitled to the grant.

Your limited company is a separate legal entity from yourself and it’s is the vehicle for all your income and expenses (including payroll salaries). Once a year it pays corporation tax and can then pay a dividend from whatever profits are leftover.

If your Limited Company is set up as a registered employer, pays you a salary and you have stopped trading for the foreseeable future due to Covid-19 then you’ll potentially be able to furlough yourself. You can then claim for 80% of your payroll salary up to £2,500.

For many, this doesn’t equate to very much.

In order to pay the least amount of tax, those with Limited Companies commonly pay themselves a mix of salary and dividend that reduces their tax liability. That’s because dividend tax is less than the income tax and national insurance you would pay putting the same amount through the payroll system.

This is a perfectly legal thing to do and many choose to do it. But your dividend income is not considered self-employment income.

Say you received a dividend from shares you’ve invested in – that’s not self-employment income! Your dividend from your Limited Company treated exactly the same for tax and earnings purposes.

Although paying yourself with a dividend is tax-efficient, on this occasion it would not count for the purposes of claiming the new self-employment grant.

Do I Have to Repay the SEISS Money?

No, as it is a grant you will not have to repay the money you are given. It is designed to help people stay at home and stop the spread of the coronavirus.

It is, however taxable so you’ll need to show it on your tax return for 2020/2021.

I am a Landlord, can I claim the self-employed income grant?

The scheme is for individuals in partnerships and who are self-employed. Landlords are not considered self-employed and report their income in the Property section of their tax return, so are not eligible to claim the 80% grant.