Millions Of Self-Employed People Excluded From The SEISS Scheme - Here's Why
The SEISS has been widely welcomed, however some 3 million self-employed people and businesses are in fact ineligible. Here we look at who, and why.
Falling through the gaps
With the country going back into coronavirus lockdown, earlier this month Chancellor Rishi Sunak announced an extension to the self-employed income support scheme (SEISS). The amount claimable has also increased from 55% to 80% of average profits, capped at £7,500 to cover the 3 months November 2020 to January 2021.
However, around 38% (just under 3 million) people with any self-employment income are still not eligible for the scheme. Here we look more closely at how certain groups are falling through the cracks, and why.
Anyone newly self-employed
The SEISS grants are based on turnover submitted on the 2016-17, 2017-18 and 2018-19 tax returns, as an average. Therefore anyone who became self-employed after the 6th April 2019 will not have a completed a tax return from any of these years, and will therefore not be eligible.
Those who are part-time PAYE, who derive less than 50% of their income from self-employment
Many people start their journey of self-employment by continuing with their PAYE ‘day job’ and building their business up in their spare time. However, anyone who derived less than 50% of their income from self-employment during the years stated above cannot claim SEISS.
Directors of limited companies that derive most of their income via dividends
As you’ll be aware, it’s common practice for limited company directors is to take a small PAYE salary and the rest as dividends. Company directors are able to furlough themselves using the Coronavirus Job Retention Scheme, although they then won’t be able to take on any work whilst furloughed. So company directors need to decide whether to claim for the small amount they can and not work, or to struggle on through the pandemic in an attempt to save their business. But, SEISS grants will not apply here.
Those with trading profits of over £50,000
Any business with trading profits of £50,001 or over are not eligible for any SEISS support.
Companies that hadn’t turned a profit for 2016-17, 2017-18 and 2018-19
This is more about the amount that will be received by newer businesses, rather than eligibility. However, it’s still a point that’s worth mentioning.
The majority of new businesses will not turn a profit in the first year they exist. Many in fact won’t start to make any significant progress until years 2 and 3 at least (assuming they survive that long of course). Therefore, if a business happened to make very little or no profit during the tax years 2016-17, 2017-18 and 2018-19, they may only be able to claim a very tiny amount of SEISS support (that bears no resemblance to their profits of today). They may even be unable to claim anything at all.
Those with other incomes
Anyone in receipt of pension payments whilst also being self-employed cannot receive SEISS grants. This would include individuals who receive a widow’s or army pension, or who have taken some of their pension early. It also includes anyone who receives rental income.
Freelancers remunerated on a PAYE basis
An example would be TV production teams or theatre sound and lighting specialists on short term contracts. Although they are on PAYE contracts, they can’t be furloughed as they’re technically self-employed. However, they’re also not eligible for SEISS grants as they’re paid via PAYE. It’s a bit of an unfortunate chicken and egg scenario drawing substantial media attention.
There are other scenarios when SEISS can’t be claimed
This list contains the key ones but as with everything related to the pandemic it’s a situation that’s constantly being reviewed and modified. For this reason, it’s essential to keep an eye on the government’s webpage Financial support for businesses during coronavirus (COVID-19) as well as media releases so you can offer clients the most up to date advice.
Regardless of government COVID-19 supports, your clients could well benefit from R&D Tax Credits
Companies by their very nature innovate and grow, requiring frequent research and development activities. Perhaps one or more of your clients has recently undertaken work to expand their product range or launch something that’s completely fresh and new. From smaller projects to substantial overhauls, the chances are that somewhere along the line your client’s company will have invested in scientific and/technological research. And if it’s happened over the last couple of years, R&D Tax Credits can reimburse a large percentage of the costs.
The benefit is provided either as reduction in a company’s Corporation Tax liability or as cash payments for organisations that have made a loss. The resulting cash can be spent on anything a company likes. From paying debts and suppliers to boosting cash flow or even undertaking further R&D, claims can easily run into tens of thousands of pounds. It’s money your clients can ill-afford to lose right now.
Just something to note at this point; companies that claim financial coronavirus support from the government may need to automatically claim using the slightly less generous RDEC scheme, even if they would usually claim under the SME scheme. This is something the Myriad team will be pleased to advise you on - contact us.
How does the R&D Tax Credits scheme work - and how much can be claimed?
Small and medium sized enterprises can claim an impressive 33 pence for every £1 of R&D expenditure. Eligible costs include staff wages and contractor payments, certain materials and overheads and much more. Large companies (and SMEs that have benefitted from previous state aid) will need to use the RDEC branch of the scheme, claiming back up to 13% of their R&D costs. It’s a lower award but pay outs tend to be much higher.
It all sounds good - and it is - but claiming is notoriously complex. Applicants need to demonstrate their eligibility in a very specific manner and mistakes are easy to make that can easily lead to an HMRC investigation. This is why we strongly recommend accountancy firms work with an experienced R&D funding consultancy like us at Myriad Associates.
See our recent article: 5 Excellent Reasons To Work With An R&D Tax Relief Consultancy.
Speak to us today
If you would like to find out more about how your clients can benefit from R&D Tax Credits, or about partnering with our team, simply call 0207 118 6045. Alternatively, please do drop us a message.