Budget 2021: How will the self-employed grant work?

More help for the self-employed is due to be announced in the Budget, including the first grants for an estimated 600,000 people.

The government has faced calls to provide financial support to those who have missed out on special funding schemes during the pandemic.

Chancellor Rishi Sunak will outline details of the latest payment to the self-employed. This covers the three-month period from the start of February until the end of April.

As with previous grants, it will be worth 80% of three months' average trading profits, up to £7,500 in total. Claims can be made from next month.

This fourth grant will be followed by a fifth - the details of which will be announced in the Budget.

A series of payments - the Coronavirus Self Employed Income Support Scheme (SEISS) - aimed to protect the self-employed during the pandemic. But nearly a fifth of self-employed people missed out.

For the first time, some of the relatively newly self-employed - who completed tax returns for the 2019-2020 financial year - will qualify. They previously lost out if they had not been trading in 2018-2019.

The chancellor's first package of measures were unveiled in March last year.

If they suffered a loss in income, people who were self-employed or in partnerships were paid a taxable grant worth 80% of their profits, up to £2,500 per month.

It was available to those who had been trading in the financial year 2018-2019, and were planning to continue doing so, but whose business had been hit by coronavirus.

Help was initially given as one lump-sum payment to cover three months.

Over the summer a "second and final" payment was announced covering 70% of profits, up to a cap of £2,190 per month for another three months - £6,570 in total. It proved not to be the final payment, but the second of four.

The third payment covered 80% of profits for November, December and January, up to a total limit of £7,500 - paid in a single instalment. Applications for this grant have now closed.

The government's original plan was for this third grant to only cover 40% of average monthly trading profits, with a limit of £3,750 in total. But it was extended after stricter restrictions for businesses were introduced.

Businesses have also been able to apply to banks for government-backed support loans.

Although many people were covered, there has been a significant campaign, and concerns raised by MPs, over a large number of people who miss out on the support.

Research body the Institute for Fiscal Studies (IFS) said there was "clear unfairness" in some of the exclusions.

Self-employed people who pay themselves a salary and dividends through their own company are not covered by the scheme. (Although they will have some of their salary covered by job retention schemes if they operate through PAYE).

As a result, an estimated 18% of those for whom self-employment makes up most of their income had been ineligible, according to the Institute for Fiscal Studies.

More than half of a claimant's income needs to come from self-employment.

The schemes have been open to those with 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.

Now newer tax records are available, the Treasury has said those who were self-employed in 2019-2020 will qualify. It is not yet clear whether this is just for the newest grants.

The government's help comes on top of extended delays for tax payments through the self-assessment system. Payment plans can be set up, giving people more time to pay their full tax bill up to January 2022.

Those with the lowest income are in line to receive more generous benefits payments compared with before the crisis.

This is how it has worked:

There are more than five million self-employed people in the UK, earning an average of £781 a month. The number has risen fast since the 2008 financial crash.

Of those eligible for the grants, 77% have taken up the offer - a total of 2.6 million people, averaging around £10,800 in payments each.

Roughly a fifth of the self-employed are in the construction sector, according to the Office for National Statistics (ONS), with hundreds of thousands of others working in the motor trade, professional services, and education

The chancellor has suggested that in future, tax breaks for the self-employed - such as lower national insurance - may end. These were in place because the self-employed do not get sick pay or holiday pay. They were also meant to encourage entrepreneurship.

This signals a massive change in UK tax policy, potentially equalising the tax treatment of employees and the self-employed.