Hi-tech solution for self-employed hit by Covid-19

Self-employed workers whose profits have been hit by the coronavirus (Covid-19) outbreak have been promised up to £2,500 a month from the government. 

But to qualify, they must somehow prove they have lost income as a result of the pandemic. How? London’s fintech community thinks it has the answer: Covid Credit, an online service that uses Open Banking to gather information on self-employed peoples’ incomes over the last 12 months.

Freddy Kelly, chief executive of credit referencing service Credit Kudos and member of the Covid Credit team, says: “The process features self-certification combined with impartially retrieved banking data to deliver a comprehensive view of someone’s income. 

“In this way, we hope, the government will be able to assess the self-employed in the same way as the full-time employed.”

The Self-employed Income Support Scheme

Britain’s 5 million self-employed workers are among the hardest hit by the financial fallout of the Coronavirus lockdown. Even among those able to work from home, the impact on industries ranging from travel to catering has left many with no work to do.

The government’s Self-employed Income Support Scheme aims to offset some of their losses by providing a taxable grant worth 80% of their average monthly profits over the last three years, up to a maximum of £2,500 a month.

The funds are expected to be available in June and will cover March, April, May, and June (though the government may expand this period) while those who are eligible should be contacted automatically. Sue Whitter, a self-employed accountant based in France, says: “In practice, if you have been self-employed since before April 2019 you do not need to make a claim, HMRC will contact you.”

Important update!

Late on Friday 17 April, the Government announced the scheme will be extended until 30 June and rushed out further guidance ahead of the launch at 8 am on Monday 20 April. We will update this page soon. Meanwhile, here are the links:

• Guide to using the online application portal.
• Clarification of holiday pay.

However, the scheme has numerous conditions:

• Recipients cannot be company directors and must earn the majority of their income from self-employment.
• Their 2018-19 earnings (or the average of their earnings between 2016-17 and 2018-19) must not exceed £50,000.
• Recipients must prove they have been adversely affected by the coronavirus crisis.
• They must have filed a 2018-19 tax return and be planning to continue trading in the 2020-21 tax year.

“Company directors can see if the Coronavirus Job Retention Scheme (CJRS) will work for them, but this is only the case if they have been paying themselves a salary and not dividends,” Whitter adds.

How Covid Credit can help

Currently a “proof of concept”, Covid Credit will allow sole traders – and potentially small business owners – to generate a self-declaration of loss of income due to coronavirus, backed up by banking data. All they have to do is fill in a simple online form including questions such as, “Have you had agreed work canceled due to Covid-19?”

Then give their consent for Covid Credit to securely access twelve months of data from their bank account, using open banking to demonstrate both historic incomes and potential losses.

The proposed tool has been welcomed by the FCA and is currently being considered as part of the HMRC and Treasury’s plans for administering the government’s Self-employed Income Support Scheme.

“The FCA has been hugely supportive, and the conversations we have had with HMRC have been very positive,” Kelly says. “The ball is in their court now.”

How accountants are guiding their sole trader and small business clients

Accountants up and down the country are working hard to meet demand from worried self-employed clients struggling to understand the various government schemes. “Now is the time for accountants to prove their worth to their clients,” says Steven Sandford, a partner at Davis Grant Accountants in Ilford.

His advice is for those affected to take a methodical approach to understanding what is available. “First, identify all the grants the company can claim, including on business rates and by furloughing employees,” he says. “Then look at the options to defer short-term tax payments such as VAT and July self-assessment payments on account. “Finally if cash flow is still an issue, look to the company business interruption loan scheme.”

The unprecedented circumstances have also forced firms to find innovative new ways to communicate with their clients, including webinars, Q&As, and claim templates. “We’ve been receiving a lot of questions about the CJRS,” says Craig Moore at CJM Associates in Cannock. “So we have sent out a template furlough letter for guidance purposes.”

In summary

A number of schemes have been launched to help self-employed workers and small businesses get through these challenging times. However, those affected must jump through a long line of hoops to claim the grants or loans available.

Fintech tools such as Covid Credit could speed up the process, but self-employed clients will continue to need lots of support and guidance from their accountants over the next few months.

Further reading:

• Who wins and who loses in the Self-employed Income Support scheme?
• Can HMRC cope with the pressure of Covid-19?
• Financial assistance for businesses affected by Covid-19

Jessica Bown is an award-winning freelance journalist and editor.