SEISS v2: how will the self-employed cope?

As the next phase of SEISS kicks in, how well-placed are the self-employed cope with the downturn?

When the Self Employed Income Support Scheme (SEISS) was announced back in May, it was welcomed with open arms by self-employed workers across the country. At the time, the country was still under extensive lockdown, and many self-employed people were completely without work.

Now, as the second stage of SEISS gets underway, self-employed workers are in a different position. They are more able to bring in an income and less desperate for the relief. At the same time, SEISS offers an opportunity for them to bank some cash and make preparations for any possible tough times ahead. To be eligible, an individual has to:

• Have more than half of their income come from self-employment.
• Have a trading profit of less than £50,000 in 2018-19.
• Or an average trading profit of less than £50,000 from 2016-17, 2017-18 and 2018-19.

So how are the self-employed coping at this point in time? Accountants explain how they’re doing.

The self-employed are better placed than owner-managers

Steph Rickaby of Sunflower Accounts

“Many of our self-employed clients have seen a drop in income and have been desperate to make a claim. They have been extremely grateful that they could continue to work and market their business unlike if they were on furlough as a limited company director.

“We have been working hard with our clients to arm them with the tools to survive. We have been putting on webinars regarding business continuity, helping them look at short term business planning, budgets and cashflow. Self-employed clients have been better placed than freelancers operating through a limited company because they have been able to continue to work and market their business and plant seeds for the future. This has really helped them push forward and diversify their offering.

“We feel that HMRC did an incredible job in getting this scheme up and running in such a short space of time. The main challenge was that clients had to make the claim themselves, we as their accountant couldn’t make the claim on their behalf and a number of our clients did not have their own access to their HMRC government gateway, therefore we had to help them gain access to this system which sadly isn’t the most intuitive for clients to understand.”

Next step: Help clients gain access to more funds to help them get through the next few months.

Verdict: The self-employed are coping well, thanks to the conditions of SEISS.

The self-employed aren’t thinking enough about their tax liabilities

Mike Parkes, Technical Director at GoSimpleTax

“The scheme is vital for many workers. However, it’s important for self-employed people to understand the implications of emergency support packages on future tax returns. According to a recent survey of our database, 64% admitted that they’re still unclear of the eventual costs of accepting Government grants.

“It’s essential for self-employed workers to check HMRC small print – particularly those individuals who didn’t originally qualify for the first grant because of pregnancy or becoming responsible for a new child, or because they were military reservist, as they’re now able to claim for both the first and second grants. There are also further exceptions to the normal rules of the scheme, including those who are subject to the loan charge, people who are non-resident in the UK, and workers who claim the remittance basis.

“Understanding the tax liabilities that come with accepting these measures can be daunting and confusing during an already complex time. Like the small business grant, it doesn’t need to be repaid, but it is still subject to Income Tax and Self-Employed National Insurance, albeit on the 20/21 tax return.”

“Clients need to complete their 2019/20 tax return and submit them to HMRC as soon as possible. This will clarify the payments they need to make on the 31 January 2021 and 31 July 2021. We should also start to draft your 2020/21 tax return. This will give you a good understanding of future tax liabilities allowing the maximum amount of time to prepare for payments.”

Next steps: We would advise people to use this time to get their tax affairs in order which, in the long term, will provide them with a much clearer picture of their finances.

Verdict: The self-employed need to think about the long term as well as the short.

The second stage of SEISS offers opportunities for investment

Della Hudson, director, Minerva accountants

“Most self-employed people are doing a lot better now that they’re able to get out more. With the first grant, it was certainly the case that they needed it. With the second, we’re looking at it and assessing if they’re still affected and for the most part, they are, but it’s more of a case that their earnings are down a bit, rather than previously when earnings had stopped.

“I haven’t had any self-employed clients go back [into employment], but I’ve heard of other [practices] that have. The self-employed life is often marginal anyway, so it doesn’t take much to suddenly push it over the edge. You might have all of the flexibility as a self-employed person, but you also have all of the risk. If all of a sudden, those risks outweigh the benefits, you might as well just go back to having a regular income.

“As my self-employed clients are earning, we can help them be a bit more strategic in how they use it. We’re looking at how they could invest it in their business – a bit of tech or something for the workshop. I encourage people to use it to buy equipment from other small business owners. It’s a way of improving your business while also helping others and keeping cash flowing around the economy.”

Next step: Work closely with clients on how they can invest the money they have to put them in a better position going forward.

Verdict: The position for self-employed people is better. They can use this grant for good.

Mark Rowland is a journalist and former editor of Accounting Technician and 20 magazine.