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COVID-19: CIS contractor / self-employed guidance

Paul Malley

Paul Malley | Managing Director

Thursday 4th Jun, 2020

Help for the self-employed

At the end of May the Chancellor announced an extension to the Self-employment Income Support Scheme which may be of help to some of our CIS contractors, depending upon their circumstances.

The original scheme described how the Government would make a grant to self-employed workers based on their previous earnings over the last 3 years, worth up to 80% of earnings and capped at £2,500 per month.

To be eligible you needed to have annual profits (business income less business expenditure) of less than £50,000 per year. Workers’ Self-Assessment Tax Returns were the key evidence on which the calculation would be based.

HMRC take an average of your last 3 years Returns but if you’ve only been self-employed for 1 or 2 years then they’ll rely on those Returns only. 

If you became self-employed only recently and had not filed a Tax Return then you are not covered by the scheme and may have to rely upon claiming Universal Credit which has been increased to help during the ongoing COVID-19 emergency.

For those whose profits have been in excess of £50,000 a year again it is unlikely that you will qualify.

The latest announcement by the Chancellor was that eligible businesses will be able to claim a second and final grant in August.

The grant will be worth 70% of your average monthly trading profits, paid out in a single instalment covering three months’ worth of profits, and capped at £6,570 in total.

Individuals can continue to apply for the first SEISS grant until 13 July. Applications for the second grant will open in August.

The eligibility criteria are the same for both grants, and individuals will need to confirm that their business has been adversely affected by coronavirus.

An individual does not need to have claimed the first grant to receive the second grant, for example in circumstances where they may only have been adversely affected by Covid-19 in this later phase. We are expecting further guidance on the second grant on 12 June.

 

When and how will the grants be paid?

As of 13th May self-employed individuals or members of partnerships whose business has been adversely affected by coronavirus were able to apply for a Self-Employment Income Support Scheme (SEISS) grant worth 80% of their average monthly trading profits. Those eligible, which included CIS contractors, received government grant worth up to £7,500.

 

The devil is in the detail

A couple of other points we picked out were that the grant would only be available to those people who make the majority of their earnings from their self- employment. For those receiving the grant don't forget that it is regarded as taxable income and needs to be included on future Tax Returns!

The detailed HMRC guidance linked below explains how your income is calculated under these rules.

Other measures announced earlier by the Chancellor and which may be of help to certain of our CIS contractors, depending upon their circumstances include:

This new tool was launched on the 20th April and has been developed to help businesses and self-employed people across the UK identify quickly and easily what financial support is available to them during this time. According to Government, it takes minutes to complete the online questionnaire which will then provide you with a list of financial support you may be eligible for. You can access the tool here.

The deferral will apply for VAT payable between 20 March and June 2020. Although VAT returns will still need to be filed, businesses will be given until 5 April 2021 to pay what has been deferred for this period. This will be managed automatically by HMRC who will still continue to process VAT refunds for the period. If you are affected and normally pay your VAT by Direct Debit don’t forget to cancel your mandate for the period.

On 27 April the Chancellor announced the introduction of a new fast track loan scheme for small businesses. The scheme, which promises vital cash injections to keep small businesses operating, offers loans of between £2,000 and £50,000 with a 100% guarantee for lenders by the Government. The maximum amount a business can borrow is up to 25% of the business turnover or £50,000, whichever is highest.


The key features of the loan are:

  • No repayments are required for the first year
  • Interest free for the first 12 months
  • Affordable 2.5% rate of interest per annum applies to the remainder of the loan term
  • No fees charged on arrangement
  • Loan term available of up to 6 years (early repayments are allowed)

Loan applications opened on 4th May 2020, you apply online via a short, standardised application. Unlike the existing Coronavirus Business Interruption Loan which has been slow in being taken up, only 80% guaranteed and geared towards larger businesses, there will be no forward-looking test of business viability and no complex eligibility criteria.

These loans are aimed at small to medium sized businesses who need a quick cash injection to help deal with the negative impact of COVID-19. The loan can be used to pay any ongoing businesses running costs, however the loan cannot normally be used to pay dividends to the shareholders.

How to apply

The loan can be applied for online directly to any of the participating lenders which are listed here. You can then approach a suitable lender via their own website.

Contractors who have a tax liability in excess of £1000 for a tax year are required to make a payment on account of the same amount for the following tax year. So, if you had a liability of £5000 for the 2018/19 tax year you would be required to make a payment on account for the 2019/20 tax year of £2500 on 31 January 2020 (which you would have paid by now), and a further payment on account of £2500 on 31 July 2020. It is this second payment on account which is being deferred until 31 January 2021.

No interest or penalties for late payment will be incurred for the deferred period and again no application to HMRC needs to be made.

For those CIS / self-employed individuals who have employees, the government’s Coronavirus Job Retention Scheme (CJRS) enables you as their employer to continue to pay your employees a certain percentage of their wage if they are unable to work due to COVID-19. However this only applies to employees not yourself or any sub-contractors that you may work with.

Please refer to the government guidance regarding the Coronavirus Job Retention Scheme.

See the above section regarding COVID-19 Self-employment income support scheme, for more information on the financial help available to you.

All businesses and self-employed people in financial distress and with outstanding tax liabilities due to the COVID-19 virus may be eligible to receive support through HMRC’s ‘Time to Pay’ service. So if you are in that position you are encouraged to call their dedicated helpline – 0800 024 1222.

Keeping our contractors informed

It is worth pointing out that this scheme is not applicable to limited company (PSC) contractors. Further help and advice regarding limited company (PSC) can be found in our guidance page. Or if you’re an existing PayStream client, please contact your dedicated accounts team via email.

We are still navigating the new legislation regarding the financial help available to our umbrella company contractors, as it’s not clear in the guidance issued so far. As soon as we have more clarity we will update accordingly.

We appreciate that this is a difficult and challenging time for everyone so we will endeavour to keep you updated on all the latest developments as events unfold. Our preferred method of communication during this time is email so if you’re an existing CIS contractor please email our Customer Care Team on customer.care@paystream.co.uk

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