Coronavirus update 15 – 20 November 2020
Extension of SEISS
I covered the main support for employers in Newsletter 14, and I had intended to cover all of the other areas of support announced by the Chancellor over the last few weeks in this article. But there is quite a lot to say about the extension of SEISS, so I will wrap up the other areas of support in a separate newsletter next week.
When reading the following points, do also refer back to my comments about HMRC’s compliance activities in Newsletter 14 – see https://www.busbys.co.uk/Coronavirus_Update_14/ “But First a Warning”. HMRC have also made clear that they reserve the right to examine claims made under SEISS as well as under the Coronavirus Job Retention Scheme (CJRS), and if you have made, or intend to make any claims, make sure that you are able to justify the adverse effect of Coronavirus on your business.
And specifically, HMRC have written (by email) to approximately 24,000 SEISS claimants to ask if they are still trading – apparently HMRC have information to suggest that these claimants have ceased activities, in which case they cannot make any further SEISS claims. And HMRC are also contacting 4,000 restaurants to seek verification of claims under the Eat Out to Help Out scheme. So, the message is clear – HMRC are now increasing their compliance effort.
EXTENSION OF THE SELF-EMPLOYED INCOME SUPPORT SCHEME (SEISS)
The Chancellor has now extended the SEISS for 6 months. Interestingly it is now clear that grants are being made for specific three-month periods, as that was not as apparent when SEISS was first introduced. The first claim was made in May and the second in August, but we rather felt that these claims covered April to September (or possibly March to August), but the new extension definitely covers November to April 2021. So at least one month has not been covered, and that may explain why SEISS seems to be lasting one month longer than CJRS.
The good news is that the SEISS extension works in the same way as the original scheme, so claimants should be familiar with the process. So, a few key points:
- If you were entitled to make a claim for the first and second SEISS grants, you can claim for the third and fourth grants. It does not matter if you did not claim previously – it is your eligibility that matters. That said, I cannot imagine that there will be many traders who will now want to claim, when they didn’t before.
- The third SEISS payment will be equal to 80% of three months’ worth of your average profits for the three years to 5 April 2019 – the same as was paid for the first claim in May. See Newsletter 4 for more details on how this is calculated: https://www.busbys.co.uk/Coronavirus_Update_4/. As in May, the maximum grant will be £7,500.
- We do not know how much the fourth grant will be, and that will greatly depend on the success of the current lockdown measures, and (hopefully) the roll out of the vaccination programme.
- Claims can be made from 30 November. It is not clear whether applications will be staggered over a 6-day period in the same way that the first claims were, but if so, the new claims may not be physically paid until a specified date in early December.
- As before, the grants are taxable trading income – so they are subject to tax and National Insurance.
- See our 8th newsletter for further details on how to actually make the claim: https://www.busbys.co.uk/Coronavirus_Update_8/. As before, you will need to use your Government Gateway account.
- As with previous SEISS claims, we cannot make the claims for you!
But the bad news is that if you were not eligible for SEISS before, you are not eligible now. So, anyone who started trading after 6 April 2019 (or did not make a profit until after that date) will still not benefit from the SEISS grants. Nor will anyone with an average profit exceeding £50,000. Given that the CJRS extension does allow claims for new employers and employees, it does seem unfair that the same latitude has not been extended to the self-employed.
BUT SHOULD YOU CLAIM?
As mentioned above, and in Newsletter 14, HMRC are now flexing their muscles and actively discouraging people from making claims if they are no longer affected by Covid-19, or do not meet the criteria for making claims. So self-employed individuals can only claim if they: intend to continue to trade and either:
- are currently actively trading but are impacted by reduced demand due to coronavirus
- were previously trading but are temporarily unable to do so due to coronavirus.
You will almost certainly be required to make the declaration in italics when you come to make your claim. This wording is undoubtedly a step up from the previous conditions that applied to the first and second grants – when applying for them, you only had to confirm that you “were adversely affected” by Covid-19.
BEWARE – AN UNPLEASANT TAX TRAP
There is a nasty trap for businesses with year ends that do not coincide with the tax year, particularly those with year ends that are early in the tax year. This is easiest to explain using an example:
You are a sole trader running a café, and your accounts are made up to 30 April each year. This means that the profits for the year ended 30 April 2020 are taxed in 2020/21. Let’s say that you make a profit of about £4,000 per month on average.
Covid-19 closed your business from 21 March until early July, and again this month. You have (quite rightly) made claims for the SEISS grant, and qualified for the maximum grants which were paid to you in May and August. You can now expect a payment next month and (presumably) in March 2021. You have also claimed under CJRS for furlough payments for all your staff. And you also (quite legitimately) received the local grant of £10,000 in April.
Your accounts for the year ended 30 April 2020 will therefore include 10½ months of “normal” profits. Naturally, there was no income from 21 March, but your staff costs were covered, and you received the grant in April. So, your resulting profits were higher than normal, due to the grant receipt, perhaps £52,000 rather than the normal £48,000. So, this means you are now a higher rate taxpayer.
Your profits for the current year are going to be awful; indeed it will be touch and go if you actually break-even – but you would expect the SEISS grants (which might total about £28,000 if the March 2021 grant is similar to the August 2020 grant) to offset this, and hence you would expect to pay tax on the grants only next year (2021/22). But at least the personal allowance of £12,500 will mean that you only pay tax and NI on £15,500. Or will you….?
Regrettably no – this is not how it works. The SEISS grants are taxable in 2020/21, regardless of your year end. So that means, in the above example, that you will pay higher rate tax on the SEISS grants in 2020/21, on top of the (slightly higher) tax bill on your normal profits.
But in 2021/22, you will pay tax on your profits for the year ended 30 April 2021 – which are next to nothing. So, no tax bill at all, but your personal allowance will be wasted.
We will be alert to these situations and will advise as necessary – a change of year end may be a solution.