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How do you know if you hve overcaimed SEISS grants

Clients who have overclaimed SEISS Grants

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My first tax return of the season resulted in a client making the same money as the previous year but he had claimed £8000 in SEISS grants.

Looking at the figures: sales were down £5000 or 15% but his expenses were also down by £5000 also giving the same profit. My view is that the expenses are not relevant and that his sales were down £5000 so if he was allowed 80% then £4000 would have been adequate compensation for Covid.

He then says that he was out of work for 11 weeks because of covid which suggests to me that the first grant was deserved but the second or third were not.

The guy is a subcontractor who would normally get £3000 back but this year its only £300 since the grants are taxable but no tax deducted at source.

Assuming my client should have only claimed £4000 then he should pay back £4000 and this would reduce his tax bill by 29% of £4000 so he has only really had £2440 he wasnt entitled too.

Does anyone know HMRC thoughts on what is/isnt fair in these cases. I suspect most clients have claimed even if they have done pretty well!

 

 

 

Replies (18)

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By SXGuy
08th Apr 2021 15:52

What you should be doing is determining whether at the time of claim, your client met the criteria of eligibility.

What you shouldn't be doing, is using the year end and hindsight to establish if there was an over claim.

At the time of each claim, did the client meet the criteria? Regardless of their end up position.

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By jonharris999
08th Apr 2021 16:27

With due respect to you, your Lordship, you appear to be making up criteria for eligibility on the hoof, and I am worried that you may penalise your client. I have suggested on other threads that this is a clear and present danger. Please read both sets of Directions carefully. Performance in the previous year is of little relevance to the third round.

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By Paul Crowley
08th Apr 2021 16:51

Agree SX And Jon
It is not up to us to decide the 'fair' amount of SEISS

This truly is between HMRC and and taxpayer

You were not answering the questions, he was.
Each period (not the year in 20/20 hindsight) had its rules
He either lied in the application process or he was at the time entitled

But nothing wrong in asking if he understood the rules of SEISS V3

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By lordburnside
08th Apr 2021 16:51

Thanks for your input. Yes I am looking with hindsight which is incorrect. At the time things may have been different. I will re-read the rules.
I am not advising any client to pay money back. Its up to HMRC I think to make their case.

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Replying to lordburnside:
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By Tax Dragon
12th Apr 2021 10:23

lordburnside wrote:

I am not advising any client to pay money back. Its up to HMRC I think to make their case.

I wouldn't put that on record. Liability to repay is a matter of self assessment (FA2020 Sch16) and that makes it a matter for accountants to consider, case by case. In many cases, it's a no-brainer - of course there's no repayment. In other cases it might not be so clear-cut. In those cases, you would do well to have a bit more on file than - well, you're proposing having nothing at all.

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By accountright
12th Apr 2021 09:41

the SEISS grant was also based on the average of 3 year's profit not one year!

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Replying to accountright:
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By Hugo Fair
12th Apr 2021 11:11

I can't remember the precise eligibility rules for previous rounds of SEISS, but I don't think they were that simple - and they're certainly not now ... see https://www.gov.uk/guidance/how-hmrc-works-out-total-income-and-trading-...

There are four years 'in scope' (not the previous 4 years but specifically 2016-17 to 2019-20) ... and the starting point is to test eligibility based solely on 2019-20.
Only if that fails do you have another go by moving onto averaging across years.

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Replying to Hugo Fair:
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By [email protected]
12th Apr 2021 16:15

Yes, but that's eligibility to be able to claim. That's not the issue here - the issue is whether the client could in good faith make the declaration he had to make when claiming each grant. From memory, for SEISS3, the declaration was that the business is experiencing reduced demand and was expecting a reduction in profit. Of course, HMRC didn't specify how that reduction was to be assessed - a reduction from Nov20 - Jan21 (period of SEISS3) compared to the same period in the previous year? Compared to what you would expect (eg. if your business was growing or you'd decided to downsize). it's a minefield - and HMRC didn't make it easy. For the 4th grant they have been quite specific and given lots of examples to help people to decide if they're eligible

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Replying to [email protected]:
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By jonharris999
12th Apr 2021 16:30

At risk of repetition can I say again that they did specify how the reduction was to be assessed, and it is not compared to the previous year or any other year. It is compared to how the business owner would have expected the business to perform had there been no crisis. I maintain that this is, once you get your head round it - and especially if you had the foresight to gather some evidence at the time - a much lower threshold of difficulty to establish.

The examples for the 4th grant are almost entirely the same ones as for the 3rd round, rehashed.

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By djn
12th Apr 2021 09:50

Let's get real here. We deal with a lot of subcontractors and what has happened is that on site they have been bragging how they claimed all these grants at the time. Saying hmrc will never look at it.
This made other subbies think that they don't want to miss out on this money and so have claimed regardless if they were eligible for it or not.
Sorry to sound negative but I think that is the reality for a lot of the construction workers. I think the first grant was probably ok as sites had closed etc but the ones after a little dubious.

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Replying to djn:
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By mike01
12th Apr 2021 10:05

My sentiments entirely.
I retired last year but I have spoken to many people on this very issue over the last year and the position is exactly as you describe.HMRC should have a field day(but they won't as they are currently so useless and I say that as an ex-HMIT)!

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Replying to mike01:
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By djn
12th Apr 2021 11:47

One of the problems was that hmrc weren't clear enough with the rules. They left it open to interpretation which was crazy.
They should have said if your profits are say 20% or more down for example.
Instead, you had subbies taking a few weeks off as holidays as they would have more in grants than they would earn.
I hope hmrc look into these.
The amounts they could get back could be huge. Rather than disallowing a few thousand in expenses, they would get several thousand back in overclaimed SEIS grants.

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Replying to djn:
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By mike01
12th Apr 2021 12:03

I agree.
The scheme was set up in haste for the right reasons but in doing so was poorly drafted and wide open to abuse - never mind the large numbers left out of its scope entirely!
It would take very little to set up dedicated teams to challenge these claims particularly as HMRC have all the data staring them in the face when it comes to subbies(via the monthly CIS return analysis).

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Replying to djn:
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By Gary Copland
12th Apr 2021 15:19

I advised several sub contractors that if they were back on site working as normal then it would be unwise to claim as it was quite likely they would have to repay some of the claims made. Some agreed, some didn't and at the time the media were pumping out stories of how the chancellor was handing out money to keep the economy going. I suspect that a lot of small businesses will end up having to repay some large amounts they no longer have. I expect we will see a raft of small businesses and sub contractors declaring bankruptcy or entering IVA's. You can see it coming a mile off.

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By North East Accountant
12th Apr 2021 12:35

Let's assume for a minute that the subbie has claimed 3 SEISS but should only have claimed 1.

Overclaimed SEISS entered on Tax Return.

Speaking generally, and no disrespect intended, the problem is subbie has no money and no assets as the SEISS money is long gone.

I suspect a lot of bankrupt subbies to wipe the slate clean and start again..........

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Replying to North East Accountant:
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By djn
12th Apr 2021 12:45

I think you are right that they won't have saved the money.
A lot that I know bought new ebikes, home improvements, new car etc.
Still, hmrc must chase them for it.

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Replying to North East Accountant:
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By Gary Copland
12th Apr 2021 15:20

Exactly, it was blindingly obvious

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By fawltybasil2575
12th Apr 2021 16:58

@ manda . . . (your 16.15 post today).

You say that, for SEISS 3, “HMRC didn't specify how that reduction was to be assessed . . “ but that, in contrast, for SEISS 4, HMRC “have been quite specific”.

I must respectfully disagree. The rules for determining this particular ASPECT are contained in the respective Treasury Directions for SEISS 3 and SEISS 4. As I have stated in the thread which I put on AWEB a few days ago, there has been NO CHANGE, between SEISS 3 and SEISS4, re this particular aspect. This is a link to that thread:-

https://www.accountingweb.co.uk/any-answers/heads-up-re-seiss-4-treasury...

If you would kindly refer to Para 4.2 on the SEISS 3 Treasury Direction, and the corresponding Para 7.3 on the SEISS 4 Treasury Direction, you will find that, as my thread stated, the rules are effectively INENTICAL (apart from a couple of “cosmetic” changes).

This is Para 4.2 of the SEISS 3 Treasury Direction:-

“4.2 Subject to paragraph 4.3, a claim may only be made for a SEISS 3 payment in respect of the period beginning on 1 November 2020 and ending on 29 January 2021 (“the qualifying period”) in relation to a trade— (a) the business of which has suffered reduced activity, capacity or demand in that period from that which could reasonably have been expected but for the adverse effect on the business of coronavirus or coronavirus disease, and (b) which the claimant reasonably believes will suffer a significant reduction in trading profits for a relevant basis period from that which would otherwise have reasonably been expected as a result of that reduced activity, capacity or demand”.

This is Para 7.3 0f the SEISS 4 Treasury Direction:-

“7.3 Subject to paragraph 7.4, a claim may only be made for a SEISS 4 payment in respect of the period beginning with 1 February 2021 and ending with 31 April 2021 (“the qualifying period”) in relation to a trade- (a) the business of which has suffered reduced activity, capacity or demand in the qualifying period from that which could reasonably have been expected but for the adverse effect on the business of coronavirus or coronavirus disease, and (b) which the claimant reasonably believes will suffer a significant reduction in trading profits for a relevant basis period from that which would otherwise have reasonably been expected as a result of that reduced activity, capacity or demand”.

Basil.
EDIT. Since posting, I note that the knowledgeable jonharris999 has effectively made the same point, in his 16.30 post above.

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