The lockdown restrictions, imposed since 23 March, have meant many self- employed individuals face a reduced income. The Government have introduced the Self-Employment Income Support Scheme (SEISS) to help them. Eligibility for the scheme requires:
If these criteria are met, a grant proportionate to 80% of average profits, divided by 12 for each month’s grant will be paid by HMRC at the end of June. The scheme is intended to last for 3 months but may be extended. Individuals who have already submitted a tax return for 2018-19 will be automatically awarded the grant, there is no need to apply individually. Those who can, may also continue to work and their profits will not affect their entitlement to SEISS, if other criteria are met. The grant will be taxable income.
Those self -employed whose profits have been above £50,000 per year are excluded, as are those who started their business after 5 April 2019 and those whose income from self -employment is less than 50% of their income. MPs and interest groups are lobbying for additional help for these groups and further changes could be made to the scheme as events unfold.
Even those who qualify for the SEISS grant may have short term cashflow issues, especially if they are still incurring business expenses, such as rent and insurance costs, while getting less income, as the grant will not be paid till June.
The Government has advised those with this income gap to apply for Universal Credit (UC) The usual process of face to face interviews has been replaced by an online application. The standard amount payable is based on household income and savings, with 4 standard rates as set out below.
|Applicant||Standard Monthly Rate|
|Single under 25||£342.72|
|Single 25 or over||£409.89|
|Couple both under 25||£488.59|
|Couple either 25 or over||£594.04|
Entitlement to UC will depend on individual circumstances and varies from one person to another as many criteria apply. An application to the DWP is the only way to establish personal entitlement but the following general rules apply: -
What Counts as Savings and Income?
Where household savings are between £6,000 and £16,000 a proportionate deduction is made from UC. Savings which count towards this include bank and building society accounts, ISAs, shares, pension funds if cashed in, 2nd properties, redundancy payments.
Excluded from savings are; pension funds not yet accessed, money set aside for tax liabilities, working capital in the business, tools of trade, children’s savings.
For each £250 of savings between £6,000 and £16,000 £4.35 of weekly income is assumed to be payable and is deducted from the UC payment.
While in receipt of UC, individuals can continue to work, any income resulting from employment results in a deduction of 63p from the Universal Credit for each £1 earned. However, if responsible for a child or if disabled or recovering from an illness, the first £512 per month (£292 if in receipt of housing benefit) of earned income is disregarded.
For the self -employed, profits net of allowable expenses, are assessed as earned income.
Other unearned income and pensions in payment, will result in a deduction of £1 for £1.
For those over age 55 considering accessing pension funds to bridge the income gap, care is needed due to the reduction in UC and the imposition of a restricted pensions savings allowance applied to future savings. We would urge that advice should be taken before doing so.
Income, excluded from the calculation, includes rent from a lodger, child benefit, disability living allowance and personal independence payments.
Payment of UC is made 5 weeks in arrears. If unable to wait, claimants may access a UC loan which is then repaid from future UC payments.
The Covid 19 outbreak has disrupted lives and incomes, with many who may never have envisaged claiming benefits, being forced to do so. For those facing unprecedented financial disruption, our advisers can help navigate the support schemes available and guide on how to access existing savings.
Director of Public Policy
Please remember, no news or research item is a recommendation or advice to buy. LEBC Group Ltd is not responsible for accuracy and may not share the author’s views. The contents of this blog are for information purposes only and do not constitute individual advice. All information is based on our current understanding of taxation legislation and regulations. The Financial Conduct Authority does not regulate estate planning, tax advice, wills or trusts.Back to News & Views
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