SELF-EMPLOYMENT INCOME SUPPORT SCHEME
What you need to know
Who can claim: Self-employed individuals or a member of a partnership (as long as certain eligibility criteria are met, see below). Limited companies and trusts are not entitled to claim.
How much can be claimed: The third grant is calculated as 80% of the average of three months of trading profits, up to a maximum of £7,500. The first grant was 80% up to a maximum of £7,500, the second grant was 70% up to a maximum of £6,570. The level of the fourth SEISS grant is being kept under review and will be set in due course.
Average trading profits is based on 2016/17, 2017/18 and 2018/19 with some exceptions for particular circumstances. This is not changing for the third grant.
Subject to eligibility, the second, third and the fourth grants can be claimed even if previous grants were not claimed.
When can claims be made: The online claims portal for the third grant is opening in phases in the week beginning 30 November 2020 and will close on 29 January 2021.
When will grants be paid: Grants are paid within six working days of the claim being submitted.
Who makes the application: Claims have to made by the taxpayer themselves and cannot be made by agents.
Who does the calculations: HMRC does all the calculations needed for the claims, using the information in the submitted tax returns. The taxpayer does not have to provide any figures.
Is the grant taxable: Yes, the grants are subject to income tax and self-employment national insurance contributions in the 2020/21 tax year. HMRC will provide specific boxes in the 2020/21 self assessment tax return for the reporting of SEISS grants. It is possible that the fourth grant will be taxable in 2021/22, that has yet to be decided.
Fraudsters are targeting those who might be claiming SEISS grants. To guard against fraud, any emails and SMS messages from HMRC do not include active links. If a taxpayer receives an email or SMS purporting to come from HMRC which includes an active link, that email or SMS is a scam.
First and second grants
Self-employed individuals and members of a partnership are eligible where the taxpayer:
- submitted their self assessment tax return for the tax year 2018/19 by 23 April 2020;
- traded in the tax year 2019/20;
- intends to continue to trade in the tax year 2020/21;
- carries on a trade which has been adversely affected by coronavirus.
HMRC has provided some guidance on the meaning of ‘adversely affected’. This includes being unable to work because the taxpayer is shielding, self-isolating or is on sick leave or has care responsibilities because of coronavirus. It also includes scaling down, temporarily stopping trading or incurring additional costs because:
- the supply chain has been interrupted;
- the business has fewer or no customers;
- staff are unable to work
- one or more of contracts have been cancelled; or
- protective equipment was purchased to comply with social distancing rules.
The lack of any mention of specific, measurable reductions in income is intentional. The taxpayer should keep evidence of the impact on their trade, but there is no link between the amount of the grant and the financial loss. The list is not exhaustive; for example, a business might be adversely affected if it has to write off a bad debt because a customer has ceased trading due to coronavirus.
The scheme specifically allows a claim where the trade has continued, so long as the trade is ‘adversely affected’. During the application process, the taxpayer is asked to confirm that they meet the eligibility criteria, but the importance of the questions may be missed by some and others may worry about them unnecessarily.
HMRC’s guidance was not specific about when a business needs to be adversely affected to qualify for a grant. This changed and to qualify for the first grant the business must have been adversely affected on or before 13 July 2020. To qualify for the second grant the business must be adversely affected after 13 July 2020.
The taxpayer's trading profits must also be no more than £50,000 and more than half of their total income for either:
- the tax year 2018/19; or
- the average of the tax years 2016/17, 2017/18, and 2018/19.
The amount of the grant is based on the average trading profits for the relevant years. Examples are available in HMRC’s guidance. Note that the grant is calculated using the trading profits shown on the tax returns; no adjustment is made if the taxpayer traded for only part of a tax year. Amendments to returns made after 26 March 2020 are disregarded.
HMRC has published guidance for those with particular circumstances.
Additional, tighter, eligibility criteria have been introduced for the third grant.
To be eligible for the third grant, taxpayers must meet the eligibility criteria for the first and second grants and also:
- experience reduced activity, capacity or demand or be temporarily unable to trade in the period from 1 November 2020 to 29 January 2021, compared with what could reasonably have been expected but for the adverse effect on the business of coronavirus, and
- the claimant reasonably believes the impact will cause a significant reduction in trading profits for the relevant accounting period, compared with what would otherwise have reasonably been expected as a result of that reduced activity, capacity or demand.
HMRC has published new guidance and examples to help claimants check whether they are eligible.
The significant reduction in trading profits test is applied to the accounting period as a whole. For many taxpayers, for example those that use a 31 March or 5 April accounting date, the significant reduction of trading profits will be expected to appear in the results they report on their 2020/21 tax return. However, some taxpayers, for example those that use a 30 April accounting date, will not report the trading results for the relevant period until their 2021/22 tax return.
This means that claimants will have to forecast their results to establish eligibility and it will be difficult for HMRC to enforce effectively. HMRC’s guidance indicates that it expects claimants to make ‘an honest assessment’ about whether they reasonably believe that their business will have a significant reduction in profits.
HMRC has specifically said that a reduction in profits due to increased costs (such as having to buy masks) does not count for this purpose.
No claim can be made where the reduced activity, capacity or demand is caused solely because the person is required to self-isolate, or care for a person required to self-isolate, as a result of travelling to the UK.
The eligibility criteria may be revised further for the fourth grant.
What time period is covered?
The first grant was available to businesses adversely affected up to 13 July 2020, and the second grant was available to businesses affected on or after 14 July 2020.
The view that the first grant relates to March to May 2020, as mentioned in the original announcement by the Chancellor, has persisted although this aspect of the policy had been dropped by the time the direction was published on 30 April.
HMRC has confirmed to the Tax Faculty, that in relation to the periods covered by SEISS:
- The SEISS grants do not relate to any particular periods or seek to replace lost income over a particular period.
- SEISS is not intended to provide a month-by-month replacement of income.
- SEISS provides a lump sum payment to support eligible self-employed individuals whose businesses have been adversely affected by coronavirus. The sum is calculated by reference to three months’ average trading profits.
- Individuals can receive the full grant under the SEISS while continuing to work as long as their businesses have been adversely affected at the date of claim.
The extension announced on 24 September 2020 and updated on 22 October, 2 and 5 November 2020 provides two further grants.
The qualifying period for the third grant runs from 1 November to 29 January 2021 and the qualifying period for the fourth grant is expected to run from 1 February 2021 to 30 April 2021.
Although HMRC refers to the third grant as covering November to January and the fourth grant February to April it is more meaningful to regard these as periods during which the eligibility criteria need to be met.
Given the new ‘significant reduction in trading profits’ test in some cases it may be advisable to delay claiming the third grant until January 2021 when it may be easier to assess whether this test has been met.
How to apply
HMRC did provide an eligibility checker but that has now been withdrawn.
The claims portal for the third grant is opening in phases in the week beginning 30 November 2020 and will close on 29 January 2021.
Applications for the second grant closed on 19 October 2020. Applications for the first grant closed on 13 July 2020. Taxpayers log in to their government gateway account (or select the option to create an account) to complete the application process.
They are presented with a calculation of the amount of the grant and are asked to:
- read and accept the eligibility criteria;
- complete a declaration, including to confirm that they intend to continue to trade, the business has been adversely affected by coronavirus and has experienced reduced activity, capacity or demand which they reasonably believe will cause a significant reduction in trading profits; and
- supply the bank account details into which they would like the grant to be paid.
The taxpayer does not need to provide any information about their income – the calculations are all done by HMRC based on the tax returns submitted.
Taxpayers should keep a copy of the calculation and a record of the claim reference number. It is also important to keep evidence that the business has experienced reduced activity, capacity or demand or has been temporarily unable to trade, such as:
- business accounts showing a reduction in turnover or activity;
- records of cancelled contracts or appointments;
- records of dates where the business had reduced capacity or demand or had to close due to lockdown restrictions; or
- records of Test and Trace instructions to self-isolate, NHS letters advising shielding, coronavirus test results or communications from schools confirming parental caring responsibilities.
Making claims using an agent or adviser
HMRC is warning taxpayers that they must make the claim themselves. If an agent or adviser attempts to make a claim on behalf of a client this will trigger a fraud alert and the taxpayer will have to contact HMRC. This will cause a significant delay to payment.
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