There is good news and bad for self-employed workers whose businesses are still being damaged by the Covid-19 pandemic. On the positive front, Chancellor Rishi Sunak’s Budget announced another round of the self-employment income support scheme (SEISS); it will also now potentially cover hundreds of thousands of people previously excluded. Less happily, many self-employed people will continue to miss out.
Roughly 200,000 newly self-employed will, for the first time, be able to claim help from the SEISS from April. These are people who became self-employed in the 2019-2020 tax year and therefore had not filed a tax return that could be used as a basis for making a claim. This group should all have filed returns for 2019-2020 by 31 January, so the chancellor is admitting them to the scheme.
Are you missing out?
However, this will still leave substantial numbers excluded. Around 1.2 million people who earn less than 50% of their income from self-employment are still not eligible to claim, even though Covid-19 may have severely dented this part of their earnings. A further 700,000 company directors continue to miss out, with self-employed workers set up in this way excluded from the SEISS.
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The next round of the SEISS will open for applications in April and offer support for the months of February, March and April combined. Eligible self-employed workers will be able to claim up to £7,500; you will receive a maximum of 80% of your average trading profits over three months, with the calculation usually made according to your past four tax returns.
Importantly, you can only claim for support if your business continues to suffer from pandemic-related problems such as reduced demand from customers, reduced capacity owing to supply-chain or labour-force problems, or a simple inability to trade. If you had these problems a few months ago but they have been resolved since then, you cannot claim in the latest round.
The chancellor has also announced that there will be a fifth round of the SEISS, though it looks set to be less generous. You will still get three months’ average profits, but the money is to cover five months of trading, from May to September. It will also be based on a turnover test, comparing your sales in 2020-2021 to 2019-2020, rather than focusing on profitability. More details will be published in the coming months. Another thing to bear in mind about payouts from the SEISS is that they are taxable. You will need to declare the money you have received on your annual tax return, so some of it will effectively be clawed back.
HM Revenue & Customs (HMRC) also reserves the right to demand repayment of SEISS cash if it decides you were not eligible for the scheme. To make a claim, you are supposed to have a “reasonable belief” that you have suffered a “significant reduction in profits” during the pandemic. These terms are not set in stone, but HMRC does publish some examples of what it has in mind on its websites; these are worth checking if you’re in doubt in order to avoid a confrontation later on.
Small companies avoid big tax hike
While the chancellor’s Budget promise to raise corporation tax to 25% in 2023 made all the headlines, many small businesses will be unaffected by this hike.
Chancellor Rishi Sunak promised that any business making a profit of less than £50,000 in the 2023-2024 tax year will continue to pay corporation tax at the current rate of 19%. The Treasury subsequently claimed this would mean 70% of actively-trading businesses would pay no more tax.
The Budget also introduced measures to avoid a cliff edge for businesses exceeding the £50,000 threshold. Their corporation tax rate will rise in steps, rather than in one go, only reaching the full 25% on profits above £250,000.
There is other good news for small businesses on corporation tax. Any firm making a trading loss in the 2020-2021 or 2021-2022 tax year will be able to carry this forward to set against taxable profits in any of the following three tax years. This could prove valuable as businesses start to recover from the Covid-19 pandemic.
In addition, small businesses benefit from the new “super deduction” for investment. For two years from 1 April 2021, this initiative gives a 130% tax relief when businesses make qualifying investments.
At the 19% rate of corporation tax, this effectively means that your tax bill shrinks by £247 for every £1,000 invested. There is no limit on the amount you may invest, while certain assets, such as green heating, get even more generous relief.
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