One of the scariest things about the financial impact of coronavirus is that it is still so unquantifiable. When will businesses reopen? Will people still be able to spend as much with these businesses if they are worried about their own jobs or health? A recession looks inevitable, what is that going to mean for our savings or our debts?
Uncertainty is particularly bad news for the self-employed. I’m not a fan of the tendency to lump all 4.7 million self employed people in the UK into the same category of “insecure” workers (my job as a freelance writer is very different from, say, a freelance footballer, or a barrister, Deliveroo driver, dentist, or zero-hours contractor) but those who work for themselves face a particular challenge in trying to plan and budget for a totally unknown future.
Here I’ve waded through the jargon to round up what’s out there to help.
Cash for sole traders
The self employment income support scheme (SEISS) gives sole traders and partnerships who have been affected by the coronavirus an injection of cash straight into their bank account. The sum will be equivalent to 80 per cent of monthly earnings, up to a maximum of £2,500, for three months (and the government has said it might be extended). The cash will arrive in June, backdated to March 1. For the highest earners it amounts to a pretty generous £7,500.
It applies to anyone who has completed a tax return for the year 2018-19 (if you haven’t got round to it you’ve got until April 23) and earned no more than £50,000 of trading profit, either last tax year, or over an average of three years of tax returns from 2016-17, 2017-18, and 2018-19.
The money is a taxable grant, so you don’t have to pay it back, but you will owe tax on it when you complete your self assessment for the year 2020-2021, and you will receive it even if you are still able to work.
Unfortunately, there are quite a few sole traders who are ineligible. They include those who earn more than £50,000, or those who are newly self employed and did not have to complete a 2018-2019 tax return. It is also only for those who earned the majority of their income through self employment, no help for side hustlers.
You don’t need to do anything yet, HMRC will contact all those eligible by – it hopes – mid May, and invite you to claim using the gov.uk online service, only. Be wary that scammers will definitely take advantage of this, so ignore any texts, calls or emails claiming to be from HMRC inviting you to click on a link to claim.
What about limited company owners?
Many of those who would consider themselves self-employed have actually set up as a director of a limited company, taking an income and dividends. The bad news is Limited company owners are not eligible for the SEISS scheme.
Matthew Brown, a technical officer for the Chartered Institute of Taxation, explains that if you are a director of your own limited company you are not self employed in the legal sense. “As a director you are deemed to be an employee of that company for tax purposes.” That means, in theory, you can take advantage of the government’s job retention scheme available for employers instead and furlough yourself. Furloughed employees stay on the payroll, earning 80 per cent of their salary, up to a maximum of £2,500 a month, no matter their income.
Directors can also be furloughed. The problem is that unlike the self-employment scheme, furloughed workers are not allowed to continue to do their normal job.
Mr Brown says furloughed directors can carry out minimal directors duties such as filing accounts, but you can’t do any income producing work, which he points out is a problem for sole directors of limited companies who want to keep in touch with clients and suppliers, and line up work for future.
He suggests you could furlough for the minimum of three weeks, then return to work for a few days to complete tasks, then furlough yourself again, but this is not clear cut.
HMRC confirmed to me that you could, however, do a completely different paid job while furloughed. Martin Lewis has suggested a work around. While you can’t work for your limited company if you furlough yourself, you could still offer your services, and get paid, as a freelancer. This would obviously only work for certain professions, such as writing, but could help you keep a relationship with clients.
Another issue is that many people pay themselves only a small salary, but large dividends. Unfortunately you cannot claim for any lost dividends, because dividends are not earnings. HMRC argues it cannot differentiate between dividends used in lieu of wages, and those from investments.
This week Paul Scully, the Small Business Minister, agreed to look into whether this technical problem could be tackled in order to help the 2 million businesses that pay themselves in dividends, calling on accountants for ideas, so watch this space.
Grants and loans available
If you need finance, the coronavirus business interruption loan scheme (CBILS) could help with a loan of up to six years, with the first 12 months interest free. They are offered by banks but backed by the government, find more information here. If you were eligible for small business rates relief as of 11th March , then you can apply for Small Business Grant Fund (SBGF) of £10,000.
Some industries and organisations, such as the Arts Council and the Authors’ Society, are offering struggling freelancers financial support and grants. Journalist and freelancer-rights campaigner Anna Codrea-Rado has put together a brilliantly helpful list of emergency funds for freelancers.
More time to pay tax
Those who complete self assessment returns usually have to submit a payment on account by July 31 2020. This deadline has been pushed back until January 31 2021, which might help with cash flow. This is automatic. If you are registered for VAT and have a bill payable between March 20 and June 30 2020 you still need to file your return, but won’t be required to pay until March 2021.
Cut your costs, and try not to panic
Nick Maynard, is founder of Practice, an accountant for creative businesses. He says that cash flow is crucial, at any time, but especially now. “Go through invoices and make sure you call in overdue payments, you want to be first in line if there’s any chance your clients get into trouble themselves. Think about asking for payment in advance for future work, lots of people are understanding that this is a tough time for freelancers and small businesses. Look at how you’ve been paying yourself. If you are a director of a limited company it’s likely that you’ve been paying yourself tax efficiently through salary plus dividend, so do you have any surplus cash in the business that you could draw on? Think about how long you can last on this and set yourself a budget and cash flow forecast. This will mean cutting costs in some areas, like unnecessary subscriptions, or even applying for a mortgage holiday for your home.”
Apply for universal credit
If you are one of those who has slipped through the cracks you should apply for universal credit. Those over 25 can claim up to £409.89 a month to cover income, and more for housing costs. The local housing allowance rates have risen to cover up to 30 per cent of market rent in your area.
It is usually the case that if you have £6,000 or more of savings it will reduce how much universal credit you will receive, and if you have any more than £16,000 of savings and you’re not eligible at all. But the government has agreed that if you can demonstrate that your savings are to pay your business tax bill then the rule will be waived.
Time to Pay tax bill
If you are still worried about being able to afford your tax bill, you might be able to negotiate some breathing space with a Time to Pay Arrangement. The government has set up a helpline, on 0800 024 1222 to discuss options, including paying in instalments.
All information correct at time of publishing 16/04/20. We will try our hardest to update if any new legislation comes to light.