On 12 June 2020 HM Revenue & Customs (HMRC) announced an extension to the Self-Employment Income Support Scheme (SEISS). The extension will allow eligible claimants to apply to HMRC for a second liquidity grant to partially compensate for loss of three months’ worth of trading profits due to Coronavirus (COVID-19) business interruption occurring on or after 14 July 2020. This article briefly explains how that extension will work and addresses some unresolved issues highlighted in our previous article (see “UK Self-Employment Income Support Scheme Details Announced: UK Job Retention Scheme Cut-Off Date Moved”), namely, whether the scheme is available to contractors using personal service companies, and also whether non-UK residents are eligible for the scheme.
The SEISS So Far
The SEISS started operating on 13 May 2020 and remains open to eligible UK business owners who wish to apply for their first grant if they haven’t already done so. Eligible business owners have until 13 July 2020 to claim their first grant. The first grant will be paid in a single lump sum to cover three months’ worth of profits, and is based on 80% of average monthly trading profits (capped at £2,500 per month). Accordingly, the maximum available grant for the three-month period of coverage will be £7,500 in total. HMRC aims to have the grants reach affected taxpayers’ bank accounts within six working days of the application date.
Eligible business owners may apply for the first grant if their business is adversely affected by COVID-19 disruption in the period up to 13 July 2020. HMRC’s updated guidance gives the following examples of what counts as “adversely affected” for these purposes:
A business owner is unable to work because she is shielding or self-isolating, is on sick leave because of COVID-19, or has caring responsibilities because of COVID-19.
The business has had to scale down or temporarily stop trading because the supply chain has been interrupted, there are fewer or no customers or clients, or the staff are unable to come in to work.
If a business must incur significant additional costs to enable it to comply with physical distancing requirements, that might also count as being “adversely affected” for the purposes of claiming an SEISS grant.
Claiming Second Grants Under the SEISS
Should business owners wish to apply for a second grant, they will be able to claim a taxable grant worth 70% of their average monthly trading profits, which will be paid out in another single instalment covering three months’ worth of profits and capped at £6,570 in total. Business owners need not have claimed a first grant in order to claim a second grant, although they will need to show that their business operations have been adversely affected by COVID-19 on or after 14 July 2020 for any of the above-mentioned reasons. Applications for the second grant are expected to open in August this year.
The eligibility requirements for making a claim under the second grant are the same as those for the first grant. Details of the eligibility requirements can be found in our earlier article. Both grants will be subject to income tax and self-employed (Class 2 and 4) National Insurance Contributions (NICs).
Directors of Personal Service Companies
Many self-employed business owners trade through a personal services company (PSC) from which they pay themselves a modest salary and take the rest of their income in dividends. A 10 June 2020 House of Commons Briefing Paper confirmed that the SEISS will not cover the dividend portion of business owners’ income, although the salary element may be recovered under the Coronavirus Job Retention Scheme (CJRS). The Government’s stated rationale for not covering dividend income is that tax return data does not distinguish between dividends paid under these circumstances and dividends paid from other sources, meaning that it would be too time-consuming and resource-intensive for HMRC to try to separate the two. HMRC also would have to request additional information as to the source of the dividends, which would be difficult for HMRC to verify and thus potentially increase the risk of fraud and/or error.
It would appear that PSC directors who operate “inside IR35” with respect to private sector engagements are excluded from both the SEISS and the CJRS with respect to any deemed employment payment, although this has not been expressly stated in any HMRC guidance. However, if a director contracts with a non-Government-funded public sector body via his PSC, and the arrangement is subject to the IR35 off-payroll rules for public sector workers, the CJRS will allow the fee-payer (typically, the agency that pays the PSC) to apply for a grant equal to 80% of the monthly contract value (up to a maximum of £2,500) plus the employer NICs thereon. If a PSC director decides to self-furlough and claim under the CJRS for any remuneration subject to PAYE, the amount of grant paid to her via the fee-payer and PSC will be excluded from any reference pay calculation to avoid any double counting of CJRS grants.
Non-UK-resident self-employed individuals with UK trading profits may also claim under the SEISS. To confirm eligibility, such individuals will need to provide certain information to HMRC with respect to their UK trading profits. The information to be provided will depend on whether they have been trading in the United Kingdom since the tax year 2016/17, 2017/18 or 2018/19:
Those trading in the United Kingdom since 2016/17 will need to show average UK trading profits of no more than £50,000 for the tax years 2016/17, 2017/18 and 2018/19, and that the sum of those trading profits is at least equal to the sum of other worldwide income for those tax years.
Those trading in the United Kingdom since 2017/18 will need to show average UK trading profits of no more than £50,000 for the tax years 2017/18 and 2018/19, and that the sum of those trading profits is at least equal to the sum of other worldwide income for those tax years.
Those trading in the United Kingdom since 2018/19 will need to show UK trading profits for that tax year of no more than £50,000, such trading profits being at least equal to other worldwide income for that tax year.
The above requirements also apply to UK-resident, non-UK-domiciled individuals who have opted for the remittance basis.