The self employed income support scheme grant should be operational by June 2020. The scheme will run from the GOV.UK website.You will be contacted by HMRC and invited to apply online. Please don’t contact them as it will slow down the time frame for commencement of the grant scheme.
How much is the grant
The grant is based on three months of average trading profits on completed tax returns for 2016/17, 2017/18 and 2018/2019.
The grant is payable at 80% of average monthly trading profits, up to a maximum of £2,500 per month.
If you started trading between 2016 and 2019, HMRC will only use those years for which you filed a Self-Assessment tax return.
How is the grant calculated
Helen started her childminding business in 2014 and recently temporarily closed her business on the advice of the United Kingdom Government and her childminding organisation SCMA / PACEY.
In this time she has generated the following trading profits from her business and she also has a part-time employment job.
2016/2017 – £15,000 (part – time employment £6,000)
2017/2018 – £20,000 (part-time employment £6,100)
2018/2019 – £22,000 (part-time employment £6,200)
The combined trading profit over the three years is £57,000 and we divide this by 36 to work out a monthly average of £1,583. The grant is payable at 80% over three months so Helen would receive £1,266 x 3 months = £3,798 from the grant scheme.
(£15,000 + £20,000 + £22,000 = £57,000 / 36 = £1,583 x 80% = £1,266 per month x 3 months = £3,798)
Although Helen also has a part-time job the majority of her income is generated from self-employment > 50% so she is still eligible for the scheme.
Rebecca started her childminding business in 2012 and during this time generated the following trading profits:-
2016/2017 – £50,000
2017/2018 – £52,000
2018/2019 – £49,000
The combined trading profit over the three years is £151,000 and we divide this by 36 to work out a monthly average of £4,194.
(£50,000 + £52,000 + £49,000 = £151,000 / 36 = £4,194 x 80% = £3,355 per month ) – The maximum that can be claimed is £2,500 per month or £7,500 for the three month period.
Although Rebecca has breached the average three year annual profit cap at £50,333 she can still claim the grant because she still meets one of the eligibility rules that her trading profits were below £50,000 in tax year 2018/2019.
Commencement of business in 2016/2017
Anyone who started a business during tax year 2016/2017 and the tax period was less than twelve months are currently confused if the profit / loss represents a full year when working out the three year average. Although this may seem an unfair reflection of a childminding business with a full taxable year, it’s probably how the averages will be calculated in the formula.
We are currently second guessing on how a loss would be treated in the calculation but if we follow normal tax procedures then it’s likely that the loss is recognised at zero. The trading profits would then be calculated in the example as follows:-
Julie started her childminding business in October 2016 and during this time generated the following trading profits:-
2016/2017 – £(5,000) loss
2017/2018 – £10,000
2018/2019 – £20,000
(£0 + £10,000 + £20,000 = £30,000 /36 = £833 x 80% = £666 per month x 3 months = £1,998)
How are the grants payable
The grants are payable into a UK bank account, via BACS as a one off payment to you. The grants are not repayable to HMRC but must be shown as income on your profit and loss accounts.
Who can apply
Any self-employed business including childminding partnerships are eligible to apply if they:-
- traded in the tax year 2019-20
- are trading when you apply, or would be except for COVID-19
- intend to continue to trade in the tax year 2020-21
- have lost trading/partnership trading profits due to COVID-19
Your self-employed trading profits must also be less than £50,000 and more than half of your income come from self-employment. This is determined by at least one of the following conditions being true:
- having trading profits/partnership trading profits in 2018-19 of less than £50,000 and these profits constitute more than half of your total taxable income.
- having average trading profits in 2016-17, 2017-18, and 2018-19 of less than £50,000 and these profits constitute more than half of your average taxable income in the same period.
Exclusions from grant
- Any new business that started in tax year 2019/2020, the tax year starts on the 6 April 2019.
- Any business that has not completed and submitted their 2018/2019 tax return by 23 April 2020.
- Any business that has other income greater than 50% of their self-employed business.
Top tips for easy completion of online application
- Dig out all your previous tax returns now.
- Talk to your Accountant about uploading any missing tax returns to the client portal.
- Find out what information is required to complete the online form / template.
- Build a simple table spread sheet with all the relevant information including trading profit for three years, bank account name, account number and sort code.
- Complete your 2018/2019 tax return by the 23 April 2020.
Look out for scam correspondence
This scheme is likely to be targeted by scammers claiming to be from HMRC. At the moment it is not clear how or when HMRC will contact you about this. But if you’re self employed you should have already received an email from HMRC explaining the scheme and telling you there is no reason to contact HMRC about this.
If you are contacted by email, phone or text by someone claiming to be from HMRC at this time offering you the income support grant, tax refund or any other financial help, this is a scam.
Other support options available for childminders
Time to pay scheme – (see blog below)
Any business with outstanding self assessment income tax may approach HMRC and ask for time to pay. They may implement a payment plan with the individual.
Deferring Self-Assessment payments on account
If you’re due to pay a self-assessment payment on account by 31 July 2020 but the impact of the coronavirus causes you difficulty in making payment by that date, then you may defer payment until January 2021.
You are eligible if you are due to pay your second self-assessment payment on account on 31 July.
The deferment is optional. If you are still able to pay your second payment on account on 31 July you should do so.
How to access the scheme
This is an automatic offer with no applications required. No penalties or interest for late payment will be charged if you defer payment until 31 January 2021.
During the deferral period you can set up a budget payment plan to help you pay the deferred payment on account when it comes due.
If you’re in temporary financial distress because of COVID-19 more help is available from HMRC’s Time to Pay scheme
If you are excluded from the self-employed income support grant scheme then you may be eligible for Universal Credit from the Department of Works and Pensions. There are certain rules for application and the credits are usually based on the minimum income floor but they are temporarily abolished from 6 April 2020.
When claiming for Universal Credits check that your combined savings with your spouse or partner are less than £16,000 to avoid exclusion, this would also include money set aside to pay for a large tax bill.
You must apply for an advance rather than waiting weeks for the first payment, you can get some cash within five days. Advance payments were originally paid back over 12 months but have now been extended to 24, in an effort to help struggling families.
If you want to claim Universal Credit while waiting for the self employed grant to be paid, you need to remember the grant will need to be declared as income. It is unlikely that the universal credit weekly payment will change during this period when the self-employed income grant is paid in June 2020.
There are no rules to stop you claiming universal credits and the self-employed income support scheme, if you require immediate financial support then claim both (Universal Credit telephone number 0800 328 5644).
You might be able to claim Budgeting Advance to help with emergency household costs of up to £348 if your single, £464 if you’re part of a couple or £812 if you have children. These are only in cases if your cooker or washing machine break down or for help getting a job.
One of the largest bills that a household suffers is council tax and water rates bills. You might be able to get a discount on your council tax bills.
Please have a look on your local council website to see if anything is available or give them a call if your in financial distress.
Job Retention Scheme
If you have assistants working for you then furlough them and claim the Job Retention Scheme payable for three months initially from the 1st March 2020. An employer can claim 80% of the usual monthly wage costs, up to £2,500 a month.
Mortgage holiday and loans
Ask your lender for a mortgage payment holiday for three months to free up cash flow. There are also childminder clients who operate as a landlord and they too are eligible for a payment holiday from their lender.
You can login to The British Business Bank to access the Business Interruption Scheme. A minimum of 40 lenders are involved in the scheme and interest free loans of £25,000 may be acquired with no interest payable for the first twelve months. Please be careful if you decide to try and obtain a loan as some banks are reported to be charging 30% interest .
You may not have a business bank account but if you do then contact your existing lender to see what funding may be available or use the online application process from the bank’s website. It might also be worth contacting your personal bank to see if they can offer any assistance during this time.
This might not be the best or the cheapest support for childminders to use but the option may still be available for larger childcare settings with employees who require larger support options.
Our financial support
As part of your support packages it’s incredibly important that you keep on top of your financial affairs by completing your annual accounts and online tax returns in a timely manner.
A good example why you should do this is the deferral of the payments on account due on the 31st July 2020. If you haven’t submitted your self assessment tax return for 2019/20 then how will you know if you even owe the second payment at the end of July 2020. It’s surely reassuring to know how much is still due and make a payment plan budget to repay this by 31st January 2021 without penalties and interest accruing.
- Any new client will receive a discount in their first year with us.
- A fee payment holiday may be available.
- We will consider client by client any request to pay fees by instalment.
We have produced this guidance to try and help the childcare sector at this difficult time. We will also provide a simple table template for any clients or new clients that require our help completing the self-employment income support scheme grant application.
Please contact us at firstname.lastname@example.org or use our contact form on our website : www.accountancykids.co.uk