Self-employment support scheme ‘parental’ extension: who does it help?
The government’s Self-Employment Income Support Scheme (SEISS) has been extended. One of the changes allows some additional self-employed individuals to qualify for the scheme if certain pregnancy or parental responsibilities had affected their income in 2018/19.
However, the change does not affect those who could already claim a grant under the existing rules, even if the amount of the grant was reduced because of pregnancy or parental responsibilities. We broadly refer below to this change as applying to ‘parents’ for ease of reading.
What is SEISS?
The government introduced the Self-Employment Income Support Scheme (SEISS) to help self-employed people (and partners in partnerships) running smaller businesses which have been adversely affected due to the coronavirus.
The qualifying conditions for the scheme are explained in more detail in our main SEISS guidance, but broadly SEISS can provide taxable grants to those earning up to £50,000 on average from self-employment and who get the majority of their income from self-employment.
Under the original scheme rules, the amount of the taxable grant is based upon the person’s total trading income, usually averaged over the three tax years: 2016/17, 2017/18 and 2018/19.
Two grants are potentially available:
- The first, which we refer to as ‘SEISS 1’ is based upon 80% of the average profit figure, up to a maximum of £7,500 and applies to those whose trade has been adversely affected by the coronavirus up to 13 July 2020
- The second, which we will call ‘SEISS 2’ is based upon 70% of the average profit figure, up to a maximum of £6,570 and applies to those whose trade is adversely affected by the coronavirus on or after 14 July 2020
Why might new parents not qualify for a grant under SEISS?
If you are self-employed and take time off work when you have children (including adoption), your trading profits are likely to be reduced for that period. For example: you might stop working for a time and then later resume your trade; you might be doing less than you normally would; and/or you might pay extra staff to cover work that you would normally do in the business.
If that happened during one of the tax years 2016/17 to 2018/19 which are used for calculating the SEISS grants, this may affect whether you qualify for the SEISS grant. This is likely to be the case if you did not file a tax return in 2018/19 (because you had temporarily paused trading while on leave) or if your self-employed income was reduced which meant that it did not make up more than 50% of your total income. This might be the case if you have other income such as taxable social security benefits, property income or employment income.
What has changed for self-employed parents?
SEISS has been extended to allow claims by self-employed people who did not qualify for SEISS at all under the original terms of the scheme, if their 2018/19 trading profits or total income were affected due to one of the following:
a) caring for a child within 12 months of the date of birth of the child (where you have parental responsibility),
b) if you are an adopter, caring for a child within 12 months of the date a child was placed for adoption with you (or if adopting from overseas, the date the child arrives in the UK), or
c) pregnancy, or
d) maternity at any time within the period of 26 weeks from the date of giving birth.
The remainder of this article refers to any of the above periods as a period of ‘parental leave’, and the phrase ‘parent’ should be construed accordingly.
Under the extension, those who did not qualify before can now consider whether they are eligible for SEISS grants using either:
- the average of their trading profits over the two tax years 2016/17 and 2017/18, or
- if they did not trade in 2016/17, their trading profits for 2017/18.
You must still meet the ‘profits test’ test for the earlier years in order to qualify.
It is important to be aware that this change in the rules only affects those who were not able to receive a payment before – it will not help people who did qualify for a payment which was lower than expected due to a period of parental leave. We explain this further below.
So, who can claim under the new rules for parents?
⚠️ Please note: although we give some example scenarios below to illustrate how we understand the new rules apply, these are not necessarily the only situations that are covered. You should check the rules carefully and consider them in relation to your own circumstances.
Those who didn’t submit any self-employment or partnership trading income on a 2018/19 tax return
To qualify for SEISS grants under the original rules, you must have submitted a Self Assessment tax return for the 2018/19 tax year by 23 April 2020. This still applies for most claimants.
One group of individuals the new rules aim to help out will be self-employed parents who did not submit a tax return for 2018/19, or who did not submit one showing any trading income from self-employment or partnerships.
Tiffany, self-employed, was expecting a baby in May 2018. Due to being unwell in the latter part of the pregnancy, she decided to stop work in February 2018. She did a very small amount of self-employed work in 2018/19, generating gross income of £800. She filed a 2017/18 tax return, but asked HMRC to take her out of Self Assessment for 2018/19 as her self-employment income for that year fell within the £1,000 trading allowance. She resumed self-employment fully in 2019/20. Under the original SEISS rules, Tiffany would not have qualified for a grant as she did not file a Self Assessment tax return for 2018/19.
We think that this scenario is unlikely to apply to very many self-employed people, as it is probable that a small amount of self-employed income (or even a loss) will still have been included on a Self Assessment tax return.
Few parents are likely to have suspended trading altogether such that they filed returns for 2016/17 and 2017/18 (or just 2017/18) and then resumed trading in 2019/20 and intended to continue for 2020/21 – such that they did not file a return showing any income from self-employment for 2018/19. Similarly, many in Tiffany’s situation as above may have filed a Self Assessment tax return anyway, rather than asking HMRC to take them out of the system.
However, if you are in the above situation, the new rules mean you could potentially claim SEISS grants if you meet the other eligibility criteria.
Those whose income was affected by parental responsibilities such that they would have failed the profits test
To qualify for SEISS, you have to meet a ‘profits test’. One part of this test is that your self-employment profits have to be equal to, or more than, your other income combined. Or, to put it another way, your self-employment profits have to be at least 50% of your total income.
So, let’s say you have a job as an employee and a self-employment. In 2018/19, you earned £10,000 from your employment and made trading profits of £15,000. Your trading profits are 60% of your total income of £25,000 so you meet the profits test and can claim under SEISS (subject to meeting all other eligibility criteria).
This test can be calculated using an average over the three tax years 2016/17, 2017/18 and 2018/19 if you fail it using just 2018/19 figures.
So how does this help self-employed parents whose income was affected in 2018/19? Let’s consider an example.
Stefan is both employed and self-employed. He and his partner adopt a child in July 2018 and Stefan takes 9 months off both his employment and business. Stefan’s employer has generous terms for parental leave, so Stefan receives 90% of his normal employment income throughout the 9-month period of leave. He receives no trading income for that period. Stefan’s income for SEISS purposes is:
|Self-employment (year end 5 April)
|Total of all years||33,600||27,450||61,050|
Stefan would not have been entitled to the SEISS grants under the original rules, because he fails the ‘50% test’. This is because:
- First, in 2018/19, his self-employment income is less than half of his total income (£3,250 divided by £14,350 times by 100 = 22.65%)
- Having failed the ‘50% test’ for 2018/19, the original rules look at whether he passes the test taking an average over the three tax years. His average self-employment income over the three years is £27,450 divided by 3 = £9,150. We compare this to his average total income over the three years of £61,050 divided by 3 = £20,350. His average self-employed income £9,150 is only 44.96% of his average total income, so under the original rules he also fails this second part of the test.
However, under the new rules for parents, Stefan will qualify because he can leave 2018/19 out of the calculations and use only his income and trading profits for 2016/17 and 2017/18. For those two tax years, it is clear that his total trading income is more than his total other income. This means he can claim SEISS grants under these new criteria, calculated using only those two earlier tax years’ figures.
Note for those making up accounts using a year end other than 31 March or 5 April
As explained above, the new rules apply to those whose trading profits or total income for the tax year 2018/19 has been affected by a relevant event such as having a baby. This would seem to have some peculiar implications for those who make up their business accounts to a year end other than one which closely matches the tax year end of 5 April.
For instance, if you use an accounting year end of 30 April, it is your trading profits for the year to 30 April 2018 that would be taxed in the 2018/19 tax year. In this situation, it is likely that the relevant event, such as having a new baby, will need to have occurred much earlier than for someone making up accounts to the tax year end of 5 April in order for it to have affected your 2018/19 taxable profits.
Let’s say for example that Billie had a baby in the summer of 2017. Taking time off her self-employed work around that time would have affected her profits for the year to 30 April 2018, so this would seem to bring her within the scope of the new rules (assuming she could not claim a grant under the original rules).
However, compare that to Belinda who also had a baby in the summer of 2017 but makes up accounts to 5 April. The impact of Belinda’s time off for maternity would have mainly affected her profits for the year to 5 April 2018 – that is, the 2017/18 tax year. This does not therefore bring Belinda within the scope of the new rules, as it is 2018/19 profits that must have been affected by the relevant event.
So even though Billie and Belinda each had a baby around the same time, Billie might be helped by the new rules whereas Belinda will not be. However, it is important to note that Belinda may already have been entitled to a grant under the existing rules and the purpose of the extension is, we understand, to provide some financial assistance to those not previously entitled to claim.
What if I have received a lower grant due to a period of parental leave?
Some people who took periods of parental leave may always have been eligible for a grant under the existing rules, but the amount of the grant will be lower that it would have been had they not taken leave. This is because the period during which you took time off or reduced your work is not disregarded included in the calculation. These new rules do not help people in this situation.
The following example shows how a period of parental leave can lead to a lower grant:
Let’s say that Bryony – a self-employed mobile hairdresser – had a baby on 10 April 2018. She didn’t work for seven months but resumed in November 2018. Trade was very slow to pick up for the remainder of the 2018/19 tax year (her accounting year end is 5 April), as she had lost some of her customers to rival businesses. She also incurred extra costs in advertising locally. Her trading profits for the three tax years relevant to SEISS were:
- 2016/17: £18,000
- 2017/18: £19,250
- 2018/19: £1,500
- Total for the three years: £38,750
Bryony had to stop hairdressing from 23 March 2020 for the duration of the coronavirus lockdown. She is able to start some work again from 4 July 2020, but on a much-reduced basis. Bryony’s trade has therefore been adversely affected by the coronavirus both up to 13 July and beyond, and she claims both SEISS grants.
The grants will be calculated by finding her average profit over the 3 years, which is £38,750 divided by 3 = £12,916. This is then divided by 12 to find an average monthly profit figure of £1,076.
For SEISS 1, this figure is multiplied by 80% and then multiplied by 3 to give her a taxable grant of £2,583. For SEISS 2, the figure is multiplied by 70% then multiplied by 3 to give her a taxable grant of £2,260.
By way of comparison, let’s say Bryony didn’t take any time off for maternity in 2018/19. In that situation, her profits would have been:
- 2016/17: £18,000
- 2017/18: £19,250
- 2018/19: £19,500
- Total for the three years: £56,750
Working through the calculations again, Bryony’s grants would have been £3,783 for SEISS 1 and £3,310 for SEISS 2. That is £1,200 and £1,050 more, respectively, than when taking into account the reduced profits in 2018/19 for maternity.
So, because of the period of maternity, Bryony could be said to have ‘lost out’ on £2,250 in SEISS grants. Somewhat strangely, this means Stefan (from the example above) is treated more favourably than Bryony, as his profits will only be averaged over two years – the 2018/19 year in which he took time off will be left out of the calculations altogether.
How and when can I claim under these new rules?
If you think you qualify for SEISS under these new rules for parents, HMRC are extending the deadline for the first grant (which otherwise closes on 13 July 2020) to 19 October 2020.
However, parents who can qualify under the original scheme terms MUST claim what they can by the original deadline of 13 July – you will not get any more under the extended scheme and will miss out altogether if you do not claim by that date.
HMRC have not yet opened the claims process for those who qualify under the new rules. We understand that an online claim will be possible from August – HMRC’s GOV.UK guidance gives a link to sign up for email alerts so that you find out when the claims process opens.
We will also aim to keep our own guidance up-to-date as further announcements are made: register for our news alerts.