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Has Client Overclaimed SEISS Grants 3 to 5?

Trade Continuation v New Trade-Effect on SEISS Claims-Change in Nature of Trade? Does it Matter?

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Client has claimed for and received all 5 SEISS Grants without my involvement, each Grant in the amount of about £2,500 (£12,500 in total). So that will be three Grants in 2020/21 and two in 2021/22.

He has been a builder for a long time, but the arrival of Covid-19 in March 2020 marked the decline in his building activities, and in November 2020 he raised his final building sales invoice (coincidentally 30 November year end accounts). There is nothing to stop him doing general building work again.

A few months prior to that last building sales invoice he seized the opportunity to turn his hand to making high-end oak furniture. And in November 2020, just before his final building sales invoice, he had sold his first piece of oak furniture. After several months of intermittent furniture sales it has become plainly evident his "new" venture will be a success.

The "new" venture has been so successful he has no time (or inclination) for any of the old building work.

I would reckon his trade results for 2020/21 will be something like this:

2020/21

A) Building trade profit for year ended 30 November 2020 - £2,000 + 20/21 SEISS Grants x 3 £7,500 = £9,500

B) Furniture trade profit in first trade period 1 November 2020 to 31 March 2021

Trade tax profit              £6,000

P&M AIA CAs             (£6,000)

Taxable profit                £0

(He has other investment income in 2020/21 for the first time)

The issue I have is did my client qualify for all five SEISS Grants he applied for and received.

I believe he qualified for SEISS 1 & 2.

SEISS 2 was received in August 2020, and at that point in time I believe he could argue he intended to continue to trade (the "old" trade) in the 2020/21 tax year.

The rules for SEISS 3 were tighter. But one of the criteria for SEISS 3 was to do with business activity during the period 1 November 2020 to 29 January 2021. This is the approximate period when the building work seems to come to an end, 

I cannot determine if there are one or two trades here. My client has jumped from general building work to furniture-making (high-end joinery). But he says he is using his building trade skills to manufacture the furniture.

I cannot determine from my research so far if what has happened makes any difference to my client's SEISS Grant claims.

Is it a case of someone's trade so badly affected by Covid that he is merely adapting his business and existing skills so that the furniture venture is simply the same old trade. Or, is the new venture too remote to be the same trade as builder.

My worry is this. Did the apparent cessation of the building work trade mean that my client claimed SEISS Grants 3, 4 and 5 in error, thereby potentially exposing him to the risk of penalties for overclaimed Grants.

On the other hand, if the furniture venture is the "old" trade morphing out of necessity, but remaining the same old trade, then maybe Grants 3, 4 and 5 were validly claimed. As you will see from the above calculation, the furniture venture necessitated the acquisition of specialist plant and machinery, and there will be stock on hand of materials at the year end for the first time.

If the furniture venture is the same old trade then it seems preferable to merely continue the accounts for the following year ended 30 November 2021. Then the problem will be do I change the SA Tax Return Page SEF 1 box 2 description of business from "Building Services" to "Joinery Work" or just leave it as "Building Services".

If HMRC are to take issue with any of the SEISS claims I would rather they do it sooner rather than later, and we do not wish to deliberately conceal anything from HMRC.

The only related information I have been able to find so far is to do with changes of trades in the 2018/19 and 2019/20 tax years. Official HMRC advice is that it matters not that you were a hairdresser in 2018/19 and car mechanic in 2019/20, even with a gap between trades. But this seems to relate to the need to have been trading in the 2019/20 tax year.

Any helpful comments would be appreciated.

 

 

Replies (41)

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By Tax Dragon
29th Apr 2022 06:06

It sounds as if you have discussed it with the client. It sounds as if he told you he made the claims on the basis that it was the same trade.

If it is as it sounds as if it is, then I think there may be an issue. I say that because, imho, they are different trades.

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By jonharris999
29th Apr 2022 07:40

I'm a bit more optimistic than Drags here.

1) Round 3. You say that Nov 20 - Jan 21 is the "approximate" period of the end of the building jobs but it would be helpful to be more precise about this. If he knew by 31 Oct that he didn't intend to try and get building jobs, then perhaps as Drags says, there's an issue. But it doesn't sound that cut-and-dried from what you say. If he was open to building jobs on 1 Nov, but reasonably believed that there would be a reduction in activity etc in the coming months, then the claim is good, even before we get to worrying about whether it's one trade or two.

2) I think there's a strong case for one trade. I don't know that these activities are fundamentally different. They both require holding a saw and cutting timber. qv Cannon Industries. I accept there is more leeway for Ltds here in the cases, but I still lean the other way to Drags on this point.

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Replying to jonharris999:
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By Tax Dragon
29th Apr 2022 07:55

My auditing colleagues and I both use spreadsheets. We're in the same industry, but I wouldn't say we are the same profession.

I'm happy to be corrected. If I'm wrong on the two trades point, I see no problem at all with the claims.

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Replying to Tax Dragon:
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By jonharris999
29th Apr 2022 08:10

It's a good point Drags. Penelope's got a well-worn problem, have they not? - i.e. it's not a question of "wrong" - there is a view to be taken, opinion likely to be divided on here, if you phoned HMRC twice you'd get two contradictory answers, etc.

Should I separate the trades of my clients who, say, teach the piano in the morning and conduct the orchestra in the evening?

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Replying to jonharris999:
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By Tax Dragon
29th Apr 2022 09:29

OP says "I cannot determine if there are one or two trades here".

It was wrong of me to imho, imho, given that I am further removed from the facts of the case than the OP. Leaning (your word) is a much better description - though with the same caveat. I lean that way based partly on such suppositions as: where the work is done is different; what is sold is different (goods instead of services); the clientele is different; etc. But whether those are correct, and if so whether they may be conclusive, I don't know.

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Replying to jonharris999:
By penelope pitstop
29th Apr 2022 15:49

Thanks for that information.

The first furniture sale was early November 2020. The "final" building invoice was late November 2020. So the furniture element started before the building side "finished".

I say "final" because in my client's mind it was all the same business. If a good building job had come along in, say, December 2020, January 2021 or perhaps later he would have gone for it. He still regards himself as a builder and in the unlikely event the furniture aspect fails he reverts back to building.

But the success of the new furniture aspect has eclipsed the building work, meaning he now has to devote his time and efforts to that. And that is more to his liking.

He never gave one single thought to defrauding HMRC with the SEISS Grants. The issue of "two trades" never even passed through his head until I mentioned it no.

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Replying to penelope pitstop:
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By gillybean04
29th Apr 2022 19:09

Sounds like you're saying his building trade was affected by his manufacturing/retail trade, rather than covid (at least during the period in question).

Was he actively still looking for building work?

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By rmillaree
29th Apr 2022 08:16

If you cant make up your mind let your client make up their mind - send them the exact guidance - ask them to double check this and decide what they think is right - perhaps have quick chat if you feel subtelties are best explained with phonecall. Ultimately its their declaration not yours. I think if its one that could be equally argued either way as perhaps "seems to be the case" - i would let client make decision. You have the option to hand client your calcs prep his return for him ready to submit (with amendmnet either way) and you could disengage if you dont agree with their decision and dont want to be seen to be submitting something you are not comfortable with - wouldnt blame any accountant for not wanting the hassle of being linked with something that looks "dubious". Main aim here is to leave client with no doubts that they know that they are in slightly "sketchy looking" situation.

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By Winnie Wiggleroom
29th Apr 2022 09:36

One trade or two? I suspect the devil will be in the detail.

Was there a conscious decision to cease doing one thing and do something different, What was the break in time between the two? Is there any connection?

Let's say Mr Joiner is happily cutting up his bits of wood on a building site when one sunny morning it suddenly pops into his head that it would be a wheeze if he was to put bits of wood together instead of sawing them in two, make some furniture and sell them. So he takes his tools, buys a few new ones and it becomes so successful he has no more time to work on site so he waves goodbye to his two mates Chip and Nails for the last time.

That is a very different situation to Mrs Bricks that wakes up one morning with an epiphany and decides that working alongside hairy blokes all day is no longer what she wants to be remembered for, her mother was right all along, so she quits that lark, goes on holiday to Clacton on Sea for a few weeks and then buys a lathe, rents a workshop and starts making decorative garden furniture.

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Replying to Winnie Wiggleroom:
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By jonharris999
29th Apr 2022 09:53

@Winnie - ditch the accountancy, now. You're a scriptwriter. We can introduce you to agents ::))

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Replying to jonharris999:
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By Tax Dragon
29th Apr 2022 11:52

Curiously, Winnie's creative examples make me lean further, to the point I have almost fallen over. Please pull me back up!

Mr Joiner used to be paid to saw things up. Following his daylight revelation, when he got home (that day/later) he started making stuff. He wasn't being paid to use his tools, but he found the stuff he made was very saleable. (Or sellable; spellchecker lets me use either and I'm too lazy to look the meanings up.) So he pursues the resultant retail business to the exclusion of his... what was he before? A contractor?

I acknowledge that OP's client is unlikely to be Mr Joiner, as described. But if in this fictional situation the answer seems so clear (to me), I'm left wondering whether the actual situation could be less clear.

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Replying to Tax Dragon:
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By Hugo Fair
29th Apr 2022 12:19

I'm surprised you've not managed to drag in some legislative references to assist with the definition of trade (and potential change thereof) as a SE trader ... or are there none?

Immediately before the lifting of lockdown in 2020, I contacted Bobbie (name changed to protect the innocent) who is my local Joiner usually dealing in hand-crafted, high-end furniture ... and offered him a job way outside his normal skill set.
This was partly because I knew he needed work and because he likes a challenge, but also because I needed help!

So, between us, we creating a stone bench/sculpture in my back garden (using c. 1 ton of broken stonework from a nearby demolition job). Needless to say this involved just about every material & skillset other than woodwork or joinery.
He's not my client, but I doubt it will occur to him to treat this as a new trade.

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Replying to Hugo Fair:
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By Tax Dragon
29th Apr 2022 12:29

Afaik, the only statutory tax definition is that 'trade' includes any venture in the nature of trade. Everything else is tax cases, with the facts of each case (one trade or two) decided at Tribunal.

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Replying to Hugo Fair:
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By Tax Dragon
29th Apr 2022 12:41

And, fwiw, re Bobbie, that profit-making opportunity came out of his existing trade. Whereas Mr Joiner started making and independently selling goods. He used skills he had honed on the building site, no doubt, but...

I like this quote:

"I cannot conceive two businesses that could be more easily separated than those two. They both have something to do with ships; that is all that can be said about them. One does not depend upon the other; … they do not dovetail into each other, except that the people who are in them know about ships; but the actual conduct of the business shows no dovetailing of the one into the other at all."

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Replying to Hugo Fair:
By penelope pitstop
29th Apr 2022 14:48

So, in this case, if his tax return box 2 "Description of business" describes himself as "Joiner", I would happily carry on this description, rather than "stone-mason", much in the same way that if he came across a pile of scrap lead or copper during his work which he sold to a scrap merchant, I would still describe him as "Joiner" rather than "scrap dealer" because the different type of income is merely incidental to his type of trade.
Funnily enough, I have mentioned to some contacts who try to eke out a living from whatever they can do to describe their trades as "Odd-jobs and handyman" in order to cover any of the sources of income they come across in their trade travels.
I came across one chappie who does PAT testing, cleaning and s/e janitoring and we decided "Odd-jobs" was probably the most suitable because he will accept any self-employed work which comes his way.

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Replying to Hugo Fair:
By penelope pitstop
29th Apr 2022 14:51

.

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Replying to Tax Dragon:
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By Winnie Wiggleroom
29th Apr 2022 13:11

Tax Dragon wrote:

Curiously, Winnie's creative examples make me lean further, to the point I have almost fallen over. Please pull me back up!

Mr Joiner used to be paid to saw things up. Following his daylight revelation, when he got home (that day/later) he started making stuff. He wasn't being paid to use his tools, but he found the stuff he made was very saleable. (Or sellable; spellchecker lets me use either and I'm too lazy to look the meanings up.) So he pursues the resultant retail business to the exclusion of his... what was he before? A contractor?

I acknowledge that OP's client is unlikely to be Mr Joiner, as described. But if in this fictional situation the answer seems so clear (to me), I'm left wondering whether the actual situation could be less clear.

The point I was trying to make (I think) was that Mr Joiner made no conscious decision to stop one trade one day, and start another the day after, the two were similar in nature, used similar skills and tools and overlapped in more ways than one. Mrs Bricks on the other hand did make that decision to stop trading, and then start again as something else later on.

And I think that is the point in the context of SEISS, Mr Joiner could in good faith claim a grant believing that his trade had simply continued as he had never in fact stopped working as a self employed individual. Mrs Bricks however had made a decision to stop and do something else.

Mr Joiner may well do the odd bit of site work in the future, after all he misses the lads and they miss him. Whereas Mrs Bricks has vowed to never set foot on a building site ever again and has thrown away her trowel and hobnail boots.

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Replying to Winnie Wiggleroom:
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By Tax Dragon
29th Apr 2022 13:25

Ah yes, the OP was about SEISS. Almost forgot that in all the 'philosophy'.

But let's say Mr Joiner is wrong (maybe we find out in Series 2 when a Tribunal finds the trades are not one and the same). His SEISS claims (plural) may have been made in good faith. But as his 'new' trade is fulltime, the pandemic cannot be said to have impacted on his 'old' trade (whether or not that later resurfaces in any way). Does one, maybe more than one, of his SEISS claims give rise to a tax charge at 100%?

Having been brought back to, and having restated, the question, I realise I don't know the answer.

I better drop off the thread. I have been a distraction. Sorry.

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By Roland195
29th Apr 2022 12:03

Judging from the lofty philosophical debate in the style of the ship of Theseus, I doubt HMRC will ever be either able or motivated to definitively answer this.

Even if there has been a change in trade, I think it's too early to tell if this will prove permanent - the enthusiasm for many lock down businesses has already waned so he might well find he returns to his more usual work.

For what it's worth, I would not be separating out the trades of a general builder/joiner and furniture making unless additional factors - leasing a retail shop maybe.

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Replying to Roland195:
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By Tax Dragon
29th Apr 2022 12:14

Only a Tribunal can provide a definitive answer, as it's a question of fact.

Let's suppose that, absent a Tribunal judgment, there is doubt as to the answer. I have no problem with an accountant exercising judgment as to the answer. Indeed, I think that is a must (and I would in practice refer the matter to them to do so - it's not a question for tax bods really and my involvement in this thread should be understood to be from a viewpoint of improving my personal understanding). Would you inform HMRC* accordingly? Do you think you should?

* Or, if you work with tax bods, would you inform them accordingly so they could consider what to disclose to HMRC?

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Replying to Tax Dragon:
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By paulwakefield1
29th Apr 2022 13:14

If it needs a Tribunal to tell one what the facts are, we must be in the grey zone. If the grey area is from the middle towards the whiter end, I'd go with whatever a properly briefed client decides. If it's towards the black end, I'd be sounding loud warning gongs and potentially reviewing my position.

From the OP's post, I'm inclined to the whiter side of the grey mid-point.

Good thing I don't do tax, isn't it?

Anyway try refunding a grant and enjoy the experience of HMRC processing it. The wife of a client refunded SEISS grants 1 & 2 voluntarily and, despite HMRC's acknowledgement, they are still pursuing her for tax on one of the grants. This has been going on for months.

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Replying to paulwakefield1:
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By Tax Dragon
29th Apr 2022 14:32

paulwakefield1 wrote:

If it needs a Tribunal to tell one what the facts are...

Context, Paul. Your comment is in the context of:

Tax Dragon wrote:

Only a Tribunal can provide a definitive answer, as it's a question of fact.

But that comment was itself in the context of:

Roland195 wrote:

I doubt HMRC will ever be either able or motivated to definitively answer this.

I meant merely to indicate that Roland195 was attributing to HMRC powers that they do not have.

Note: this is not me returning to the main thread. Honest.

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Replying to Tax Dragon:
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By paulwakefield1
29th Apr 2022 14:50

Sorry, I did realise that. I was being somewhat tongue in cheek.

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By Tax Dragon
29th Apr 2022 16:14

For a laugh, I have looked up the SEISS conditions.

It's all "a trade" not "the trade". (Most specifically, "(d) intend to continue to carry on a trade in the tax year 2021-22".)

So... quite possibly all of the philosophising in this thread (whilst great fun - and educational for me, thanks all) has been utterly irrelevant to the OP.

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Replying to Tax Dragon:
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By jonharris999
29th Apr 2022 18:23

That's true of some of the matters we have touched on here, but not the question of Round 3 if one argues that these are two trades: because "a trade the business of which has been adversely affected etc" can only here apply to the building trade not the furniture trade (if there are two).

If there are two trades, and if the building trade was not adversely affected by CV (because, for example, the client had decided to ditch it anyway before 1 Nov), then the R3 claim is dodgy albeit that "a" trade has been carried on. (Because we have been told in terms that the furniture stuff was not adversely affected.)

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Replying to jonharris999:
By penelope pitstop
30th Apr 2022 02:30

That was my worry about the "two trades" issue.

Client reckons the building side was affected by Covid, hence SEISS 1 & 2 claims.

In client's mind he was merely a builder all the way along. He never gave a second thought to the furniture venture being a 2nd trade, so he never considered he had "ditched" the old building trade. If it turned out that the furniture venture was a flop then, in his mind, since he was still a builder he would have reverted back to building work as a matter of economic necessity.

He certainly was still doing some building work after the furniture venture started, but that new venture would quickly crowd out any potential building work.

Since furniture venture sales started to accelerate after several months, it may be impossible to say it was affected by Covid because there was no prior reference period prior to the first sale early November 2020. But client was never to know what was going to happen during the period 1 November 2020 to 29 January 2021, because those were too early days to see what the likely outcome of his new endeavour was going to be. I think the later success caught him by surprise.

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Replying to penelope pitstop:
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By Tax Dragon
30th Apr 2022 07:39

So (and sorry if I'm being thick here/have the timings out), are you saying that

- if the trades were (/are) one and the same, then claim 3 was correct but claims 4 & 5 were incorrect, but

- if it's separate trades then it's a matter of client's intentions, but that it wouldn't be unreasonable to say that claim 3 was OK but by claims 4 and 5 it's more questionable?

In the former case, you're saying that because the one trade was doing better than ever (and wasn't adversely affected) by claims 4 & 5. In the latter case, you agree with Jon.

[Apologies if I've misunderstood.]

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Replying to Tax Dragon:
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By jonharris999
30th Apr 2022 08:14

Sorry to [***] in but just to add:

By Penelope's added commentary of the state of matters in Nov 2020, I now say that R3 is OK regardless of the 2-trades issue. There is no decision to stop doing building work. There is uncertainty, and openness to continuing it if offers come, which they do not. End of story.

I now say that Rs 4 and 5 are dodgy if it is 2 trades, because "a trade the business of which has been adversely affected" is no longer continuing, and the 2nd trade has not been adversely affected.

But if it is 1 trade, then Rs 4 and 5 claims may also be good - it depends on things we don't know such as turnover test etc.

Great discussion re 1/2 trades, thanks everyone, and I still vote 1 trade.

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Replying to jonharris999:
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By Tax Dragon
30th Apr 2022 14:37

Looking at my comment at 7.39 and yours at 8.14... we're pretty much saying the same thing, are we not? I don't understand how the trade is being adversely affected at rounds 4 & 5 if you call it "building services" but not if you call it "furniture sales" or whatever. In my little head, if it's one trade, you get one shot at saying it's adversely affected (and you say we've been told it wasn't); if it's two trades, you get two shots.

Apart from that, I'm not seeing much gap between our comments.

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Replying to Tax Dragon:
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By jonharris999
30th Apr 2022 15:41

>>> "[quote=Tax Dragon]

I don't understand how the trade is being adversely affected at rounds 4 & 5 if you call it "building services" but not if you call it "furniture sales"

"

Because that's what @Penelope has told us, if I have got it right. We are told that building jobs fell away but furniture jobs boomed.

If it's 2 trades, both trades have a problem with R4&5 - building because the trade is not being "carried on" per SEISS 4, para 4.2(a) [although I accept there is an argument here, because 4.2(a) is deficient in that it does not explicitly specify *when* the adversely-affected trade has to be "carried on"], and furniture because it hasn't been adversely affected.

Whereas if it's 1 trade, it depends on something we haven't (I don't think?) been told - the overall (adversely affected, or not? Turnover test for R5?) position.

Anyway, Drags, it's sunny Saturday, so get yer little head to the pub etc.

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Replying to Tax Dragon:
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By More unearned luck
06th May 2022 19:01

Section 6(c) IA 1978. But you'll tell me that the IA doesn't apply to directions (but see ss 22 and 23).

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Replying to More unearned luck:
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By Tax Dragon
06th May 2022 19:31

Presumably you are addressing the technical question about whether one trade or two makes any difference.

Edit... sorry, I see your second comment.

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By Tomazaan
04th May 2022 10:30

Ok so this is not on the subject of one or two trades but querying how a builder (who clearly is a skilled joiner) could have been adversely affected by Covid. Round here (East Anglia) such people were in very high demand for carrying out DIY jobs. Our local message boards were (and still are) full of requests seeking help from those with such skills.

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BirdnCo
By BirdnCo
04th May 2022 10:42

A few years ago we had a client whom installed cold rooms etc on farms and had a hobby repairing written off cars. He lost a few contracts for installing cold rooms, so turned his hobby into a business, that would tie him over for a period of time. We prepared accounts, but unfortunately showed two types of income, cold rooms and car repairs etc., albeit the SATR stated his trade as one of "cold rooms installer", HMRC insisted we prepare two separate accounts for each trade even at the time of their request, he had obtained further cold room contracts. HMRC took the view that these were different trades, but was different to yours penelope pitstop, but shows HMRC principle. If HMRC had not looked at the accounts, then they would never have known...

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By john hextall
04th May 2022 11:22

Building houses, building furniture seems pretty much the same to me.

Working on a building site to operating retail premises would be more difficult to justify.

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By YENTL
04th May 2022 12:52

HJP Accountant
Under CIS rules Joinery and builders are all considered as the same for subcontracting
regulations. I would therefore consider that their has been no change in trade under these circumstances

HJP

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Replying to YENTL:
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By Tax Dragon
06th May 2022 05:52

It's interesting you say that. My presumption, from what we were told, was that the building services had been provided under CIS while the furniture sales were not under CIS.

If it's the same trade, wouldn't CIS apply to both 'bits', as you say? (I think that was John's point, in the post immediately above yours.)

(btw I still think it might be a better outcome if it was two trades, though I haven't gone back to check the rules on that point.)

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Replying to Tax Dragon:
By penelope pitstop
06th May 2022 14:42

Thanks but, just to clarify, my client has not been involved with building work CIS for years.

He merely contracts with his private building customers and invoices them directly.

He has never been a subcontractor in the handful of years I have dealt with him.

Furniture sales have more or less been accomplished through marketing on a certain Internet craft site, which was the obvious initial choice for selling client's first furniture as he "tested the water" to see if his new endeavour would work out, which it has.

But it could easily have turned out to be a complete waste of time and money.

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Replying to penelope pitstop:
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By More unearned luck
06th May 2022 19:23

My tuppence worth is that you do have two trades but that it doesn't matter as far as SEISS is concerned.

I read a judgment recently where the judge opined that providing a payroll service is not part of the profession of an accountant (a matter that might be relevant regarding HMRC's recent claims that certain firm's were MSC providers and not accountants).

And if Farmer Giles ploughs and harrows his neighbours fields as well as his own in order to get maximum use out of his Very Expensive Tractor then he is conducting two trades: farming and agricultural contracting. This requires two P&Ls if he wants to average his farming profits.

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Replying to More unearned luck:
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By Tax Dragon
07th May 2022 04:38

MUL are you able to explain why/how IA makes the one trade/two trades question irrelevant here? I ask because the simplistic "trades the businesses of which..." seems to introduce a much tougher test than does "trade the business of which...".

Farmer Giles.... good analogy.

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Replying to Tax Dragon:
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By More unearned luck
09th May 2022 22:45

Well, if the IA applies then the fact that the direction is worded in the singular doesn't matter; it might as well have been worded in the plural.

If we take someone with two trades and:
They both have been adversely effected (or whatever the test was for the later grants) then requiring the taxpayer to repay the grant is perverse*.
If one trade is AA etc and the other isn't with the combined result of AA etc then again why should a grant be repaid?
If one AA etc and the other not with the combined result then the grant should be repaid. All this seems fair and common sense - which isn't much of an argument, except that it fits the spirit of clause 3.4 ."No claim may be made if it is abusive or is otherwise contrary to the exceptional purpose of SEISS."

There are other combinations of two trades other than the facts of the OP's post, eg the client had two trades before and throughout the lockdowns. Say both trades were carried on in partnership. It would be an odd result if his partners in both AA etc trades could get to keep their SEISS grants but he couldn't because he had been AA etc twice and they only the once.

*The more so as if he doesn't but should then it is automatically classified as a deliberate and concealed 'error' for penalty purposes.

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