Are you searching for tax advice for the self-employed? Has the pandemic had a negative impact on your business? Are you struggling to pay your taxes and free up cash to invest in your business? While the Government introduced tax relief for some sectors and financial assistance to self-employed, the system is complicated and can be hard to navigate. But, there is always a way to free up cash to invest in your business by benefiting from tax relief or financial assistance. We can help you work well with the tax system and find solutions to infuse cash into the business.
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Coronavirus tax relief for self employed
The coronavirus continues to have far-reaching financial impacts on many businesses across the UK. The self-employed in particular face financial struggles with reduced business opportunities that may well continue during the foreseeable future. There are about 5 million self-employed people in the UK, and the pandemic has left many struggling. In response to the status quo, the Government has made some changes to the tax credit system and stepped up to offer help to small businesses, self-employed, and freelancers.
What is tax relief?
Tax relief or tax breaks, allow you to pay a reduced sum on your tax, leaving you with more to spend on your business. The reduction is calculated according to your expenses and investments in the business. This is the Government’s way of stimulating the economy, especially during the ongoing global pandemic. While there are a number of tax relief schemes in place, your eligibility depends on a number of factors including the industry and structure of your business. We can help you determine if you are eligible to benefit from tax relief or receive a financial grant.
Can you obtain tax relief due to coronavirus?
If you run a business in the retail, hospitality, or leisure sector in England, you don’t have to pay business rates for the tax year 2020-2021. Qualifying businesses in the above category benefit from 100% relief from business rates. And, the Government extended relief measures from 1 April 2021 to 30 June 2021. Thereafter, qualifying businesses are eligible for a 66% rate reduction from the 1st of July 2021 through the 31st of March 2022.
However, if your business does not fall under the tax relief category, and you are struggling to pay your tax bill, there are numerous ways in which you can find help.
What is the small business rate relief?
If your business owns a premise, you have to pay a ‘business rate’ to the local council. But, there are a number of ways to ease the tax burden. You can benefit from Small Business Rate Relief (SBRR) if you qualify for the following if:
- your business property is a single unit with a rateable value of less than £15,000
- you have one main property and additional properties with rateable values of less than £2,900, and the entire rateable value of all the properties comes to under £20,000.
- your property’s rateable value is above this threshold yet below £51,000 you can still benefit from rate relief.
The amount of tax relief you can benefit from depends on the rateable value of your business, however, you are not entitled to tax relief under SBRR, if you already receive some other types of tax relief such as the Mandatory Charitable Relief.
Tax advice for the self-employed
There are a number of other tax relief schemes you can consider.
- Enterprise zone relief
- Hardship relief
- Retail discount
- Rural Rate Relief
HMRC introduced the ‘time to pay scheme’ for self-employed people who are in financial distress or owe money to HMRC. The scheme provides support such as longer repayment periods.
If you are interested in determining whether your business can claim any of the above tax breaks, contact us for guidance.
What are the expenses employers can reimburse tax-free for work from home employees?
In addition to financial distress, the coronavirus forced a lot of employees to work from home. And, you most probably have to cover the additional costs involved such as telephone and internet charges, additional heating and lighting. The ‘employer reimbursement of costs’ option allows you to recompense employees for additional charges without paying taxes on the amount.
You can pay a flat rate of £6/week for weekly paid employees or £26/month for monthly paid employees. The advantage of paying a flat rate is that you don’t need to justify the expenditure. If this does not work for you, you can pay a larger tax-free amount by providing evidence of additional costs.
To be eligible for the above tax break, your employees must be fulfilling some or all of their duties regularly at home.
Coronavirus – Financial assistance for the self-employed
If you are self-employed and submitted a tax return for 2019-2020, you can claim a taxable grant through the ‘self-employment income support scheme.’ To be eligible for this scheme your self-employed profits should not be over £50,000 per year and should make up half of your total income in the least. You should also be able to prove that your business has been negatively impacted by the pandemic. For example, if you have fewer customers than usual or if you had to close down temporarily due to the coronavirus or to care for someone, you can qualify for a grant. But, you must present evidence to prove that the coronavirus affected your income.
In addition, you have to show proof that you’ve been engaged in self-employed work during the tax years 2019-20 and 2020-21. And, continue self-employed work in the tax year 2021-22.
The Government will continue to extend support to the self-employed until 30 September 2021.
While the last grant paid 80% of the average monthly profits for three months (maximum £7,500.) for the period between February to April 2021, the next grant will cover the period between May to September 2021. The amount you can receive will depend on how much your turnover fell. If your turnover went down by 30%, you will get 80% of your monthly profits for three months. The maximum total is still capped at £7,500. However, if your turnover fell by less than 30%, you can receive 30% of your monthly profits for up to three months. This amount is capped at £2,850.
You are allowed to continue working while you receive money through the scheme. You are also allowed to find a job as an employee elsewhere. However, you should continue your business (to trade) in the next tax year. If you stop trading, you have to pay the money back.
But, the money you receive from this scheme is still taxable. You might end up paying more in tax. Hence, you need to carefully assess your financial situation before you apply for the grant. And, if you need guidance to do this, feel free to contact us.
What are the other self-employed income support schemes?
The Government’s coronavirus financial support for small businesses includes the following:
Bounce back loans for small businesses – If your business has been affected by the pandemic, you can claim a loan up to 25% of your annual turnover (capped at £50,000). The loan will be interest-free for a year, and you don’t have to start paying until a year (12 months) later.
Grants of £10,000 for small businesses – Small businesses who benefit from the Small Business Rate Relief or Rural Rate Relief can claim this grant.
Grants for retail, hospitality, and leisure business – If your business has a property with an assessable value between £15,000 and £51,000, you can apply for grants from £10,000 or £25,000.
Job retention scheme – You can claim a reimbursement for part of the salary of your staff, if you would otherwise have to terminate their employment during the coronavirus.
Statutory Sick Pay relief for SMEs – You are eligible for this scheme, if your business employed fewer than 250 employees as at 28 February 2020. You can reclaim Statutory Sick Pay (SSP) for employee absence due to COVID-19.
Coronavirus Business Interruption Loan Scheme – If your business is in the SME category, this scheme allows you to obtain loans up to £5 million through the British Business Bank.
With the emergence of the Delta variant, the economic impact of the pandemic is likely to continue. Your financial stability during and post-pandemic depends on your foresight and preparedness in navigating the tax system, getting tax breaks as well as the right financial assistance. This is by no means easy, especially if you are to invest a large amount of your time to sustain and grow your business and take care of your family. That is why it makes financial sense to involve a third party with the right expertise and resources. If you are interested in getting help with your tax credit and financing, you can reach out to us.