Financial support for the self-employed extended again until September 2021

The excitement of last week’s Budget and the extension of the furlough scheme has been quickly overtaken by the furore surrounding Oprah’s interview with Meghan and Harry, leaving little room for coverage of the latest extension to the self-employed scheme.

Once again, the most recent continuation of furlough has been mirrored by an extension to the Self-Employment Income Support Scheme (SEISS) until September 2021.

Last year, the first SEISS grant during the initial lockdown provided support of up to 80% of average profit for three months (capped at £7,500 in total), and then there wasa further three-month grant at a reduced rate of 70% of profits (capped at £6,570 in total), in line with the scaling-down of the furlough scheme.

Prior to the second lockdown, with restrictions in place under Tiers 1 to 3, a third grant had been announced at a further reduced rate. Once the second national lockdown was announced in November, the Chancellor confirmed that the third grant (covering the period 1 November 2020 to 31 January 2021) would be based on three months’ profit at 80% (with a £7,500 cap), as for the original grant. It was also announced that a fourth grant, covering the period 1 February to 30 April 2021, would also be made available in due course.

Further details of the fourth grant and the new fifth grant have now been published.

What can be claimed under the fourth and fifth grants?

The fourth grant will be calculated at 80% of three months’ average trading profits, and will be capped at a total of £7,500, as for the first and third grants.

It remains the case that grants need to be claimed via the online claims service, and it had been expected that it would be open for claims from March. However, the government has now said that in order to allow time for processing recently submitted tax returns for the 2019/20 tax year, the service will be available from late April until the end of May 2021. HMRC will contact those eligible in mid-April to provide their personal claim date, and there will be further guidance in due course. The fourth grant will be paid out in a lump sum.

A fifth and final grant can be claimed from late July 2021 and will be calculated on a different basis from the previous grants, reflecting the government’s intention that businesses should be operating more normally by the end of June. It will be based on the reduction of turnover in the claimant’s business in the year April 2020 to April 2021, as follows:

• For turnover reduction of 30% or more, the grant will remain at 80% of three months’ average trading profit (capped at £7,500 in total).
• For turnover reduction of less then 30%, the grant will be 30% of three months’ average trading profit (capped at £2,850 in total).

Further details on the fifth grant will be made available in due course. Despite widened eligibility criteria (see below), the sliding scale may mean that fewer people benefit fully from the final grant.

Both the grants will be subject to tax and National Insurance contributions.

Who can claim?

There has been a change in the eligibility criteria compared to the first three grants under the SEISS. Eligibility will now be based on tax returns submitted for the 2019/20 tax year (rather than the 2018/19 tax year).

This means that self-employed people who had previously claimed under the first three grants may not be eligible for the same amount as previously. If someone is not eligible based on their 2019/20 tax return, HMRC will look at the three prior tax years.

Importantly, the change also means that some people may be able to claim who were not previously eligible, for example because they only became self-employed after the end of the 2018/2019 tax year. It has been estimated that an additional 600,000 people may be eligible for a grant under the new criteria.

A claimant must have traded in both the tax years 2020/21 (the current year) and 2019/20, and must have submitted last year’s tax return by 2 March 2021. The other requirements remain the same:

• Average annual trading profits of £50,000 or less
• Currently trading but affected by reduced demand due to coronavirus, or temporarily unable to trade due to coronavirus
• A declaration that the claimant: 

• intends to continue to trade, and
• reasonably believes there will be a significant reduction in trading profits due to reduced business activity, capacity, demand or inability to trade due to coronavirus.

Does final mean final?

While the government has made clear that it intends its roadmap out of lockdown to be “irreversible”, the extension of both the SEISS and furlough scheme to September suggests it is building in some leeway for the road to recovery being bumpier than might be hoped. It may indicate that there is not a huge amount of confidence in the target date of 21 June 2021 for social-distancing restrictions to be lifted entirely. 

Given the near-certainty of significant tax increases in years to come, to fund the support currently being provided, it seems unlikely that the SEISS will be extended further merely in the event that the easing of lockdown needs to be more gradual than currently planned.