So, it’s good news, bad news for the self-employed, but at least there is some news at last.
We’re already well aware of the help the Chancellor has offered to businesses and people in PAYE employment, but until now, the plight of freelancers i.e. the self-employed, – and that means almost every professional musician – has gone unaddressed.
No longer. After much public debate and pressure from various political and business quarters, the Chancellor has finally announced a scheme to help sole traders and those of us who do work for ourselves.
That’s the good news.
The scheme will offer a taxable grant worth 80% of net income up to a maximum of £2,500 per month for 3 months. There is also an acknowledgement that, given the uncertainty as to how the current situation will pan out, this may be extended as and when.
So far so good, but this contains within itself much of the explanation why it has taken so long for Rishi Sunak to lay out the government’s measures for such an important sector of the country’s workforce.
The clue is in how to work out how much grant you can expect. 80% of ‘trading profits’ (that means net income to you and me), seems a clear enough sum, but the question is how will this be calculated?
But first things first. The initial question must be: who can apply? How is self-employment defined?
Does this apply to you?
The announcement specifies five criteria that you must meet to count as self-employed:
- you have submitted an Income Tax Self Assessment tax return for the tax year 2018/19
- you have earned money as a self-employed person in the tax year 2019/20
- you are actively working (self-employed) at the point of making the application, (or would be but for COVID-19)
- you intend to continue doing so in the tax year 2020/21; and
- you have lost income due to COVID-19
The net income derived from your self-employment must make up more than half of your income and must total less than £50,000.
This is where the calculation becomes more complicated, but bear with me and read slowly.
The government will not limit itself to calculating the amount you may be able to claim based on your 18/19 tax return figures, but will average these over your after-tax income for the previous two tax years as well i.e. 2017/18 and 2016/2017. (Don’t forget , this must also make up more than half of your total taxable income in each of those tax years).
All of which makes reasonable sense with one proviso:, what if we have only been working in a self-employed capacity for one or two years, I hear some of us cry? Does this mean we will fall through an especial unpleasant crack? Mercifully not, if you started your self-employment between 2016-19, the Inland Revenue will only use the figures for those years for which you have filed a Self-Assessment tax return subject to the criteria set out above.
(Please note: if you have not already submitted your self-assessment tax return for 2018-19 (!!!), you must do this by 23 April 2020.
I repeat, once again, piu forte for added emphasis: IF YOU HAVE NOT ALREADY SUBMITTED YOUR SELF-ASSESSMENT TAX RETURN FOR 2018-19 DO IT NOW, AND AT THE VERY LEAST BY NO LATER THAN 23 APRIL 2020.
But what if you have only become self-employed in the current tax year (2019/20)and therefore filed no return? Unfortunately, in that case, you will not qualify for this scheme and you will have to rely on Universal Credit (see further information at the end of this article).
How much can you expect to claim?
This is the nub of it. We have seen that the Treasury/Revenue will look at your net income averaged over the last three tax year and allow 80% of that figure (i.e. 3 years’ net income divided by 3 x 80%).
But (and there almost most always is a but), this will be capped at a maximum of £2,500 per month payable for 3 months as things currently stand.
But that’s still good news and there’s more: the grant will be paid directly into your bank account in one lump sum.
Please note, the grant does not have to be repaid – it’s a grant, not a loan (more good news!) – but it will count as income for tax purposes when you are filling out your 20/21 return. (May we all live so long.) If you claim tax credits, you must include any grant you receive in your claim as income.
So, what’s the bad news. (Apart from the whole lousy situation?)
The bad news
You can’t apply yet. In fact, you can’t actually apply at all, and you can’t expect any money before June.
So how will you know if you are eligible? Don’t worry, HMRC will contact you if you are, and invite you to apply online.
Do not call them, do not hassle them now; our trusty tax folk are working their socks off to get all those self-assessment tax returns that were submitted for Jan 30 this year processed so they can make the necessary calculations and identify who will qualify. Let them get on with it.
I’m sure you will all have heard it before: “don’t call us, we’ll call you.”
On a brighter note, although the grant may not be paid until June, it will be backdated to March.
A word of warning
With this in mind, be on your guard for scammers who are always looking to make a fast buck out of someone else’s crisis. If someone texts, calls or emails claiming to be from HMRC, saying that you can claim financial help or are owed a tax refund, and asks you to click on a link or to give information such as your name, credit card or bank details, it is a scam. Hang up the call, delete the text or the email and carry on with your day.
But what about now?
Having read all this you may be feeling what might at best be described as modified rapture. There is help at hand, but that hand is not going to show itself for a good two months. Many of us are hurting now.
So what other more immediate help is available?
Other help you can get
Until this grant scheme kicks in, here is a list of additional help for the self-employed the government is also providing:
- deferral of Self Assessment income tax payments due in July 2020 and VAT payments due from 20 March 2020 until 30 June 2020
- grants for businesses that pay little or no business rates
- increased amounts of Universal Credit
- Business Interruption Loan Scheme
You can find details of this and the information set out in this article on the government website here: https://www.gov.uk/guidance/claim-a-grant-through-the-coronavirus-covid-19-self-employment-income-support-scheme
Help Musicians has also launched a £5million financial hardship fund. You can find more details here: https://www.helpmusicians.org.uk/news/latest-news/advice-relating-to-coronavirus-covid-19
We’ll keep you posted if and when we get more information to help all you music freelancers out there, but, in the meantime:
STAY SAFE; STAY POSITIVE; STAY HOME and WASH YOUR HANDS!
27 March 2020
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