Coronavirus self-employed scheme: Get the details right
HMRC guidance on the self-employed income support scheme (SEISS) was updated on 4 May, setting out how applications for the SEISS grant will be made. This article has been revised to reflect announcement of the second SEISS grant.
HMRC will pay a taxable grant to self-employed individuals and partners equivalent to 80% of their average trading profits for three months, capped at £2,500 per month. A second SEISS grant will be payable in August at a rate equivalent to 70% of the taxpayer's average trading profits for three months, capped at £2,190 per month
The SEISS Direction (law underpinning the scheme), currently provides for a maximum grant of £7,500 per person, but this is likely to be revised to reduce the maximum for the second SEISS grant to £6,570.
The SIESS grant will be payable to taxpayers who meet these conditions:
- registered with HMRC as self-employed
- submitted tax returns for 2016/17 to 2018/19 (or years within that period when trading) which include self-employed trading income
- was trading in 2018/19 and 2019/20 (see Direction para 4.2(c)),
- is still trading in 2020/21 (or would be if it were not for the coronavirus shutdown)
- has lost trading profits due to coronavirus (new condition per 14 April)
- self-employed profits make at least half of their annual average income (condition clarified by Direction para 5.3(c))
- average self-employed profits for 2018/19 do not exceed £50,000 and were more than nil or
- average annual self-employed profits for 2016/17 to 2018/19 do not exceed £50,000 and were more than nil (Direction paras 5.2 and 5.3)
Checking who is eligible
HMRC has released an eligibility tool to help taxpayers check whether they are eligible to claim the SEISS grant. Tax Agents can use the eligibility tool to check for their clients and ask HMRC to request a review of eligibility.
If the taxpayer submitted their 2018/19 tax return late after 31 January 2020, they can still qualify if the tax return was received by HMRC by midnight on 23 April 2020. The eligibility tool may say such taxpayers are not eligible but you can ask for a review.
There are slightly different rules for self-employed taxpayers who have received loans covered by the loan charge, and who had not agreed a settlement with HMRC by 20 December 2019. These individuals have until 30 September 2020 to submit their 2018/19 tax return, and the grant will be based on their average profits for 2016/17 and 2017/18.
Members of partnerships and LLPs can claim the SEISS grant on an individual basis. HMRC will look at the partner’s share of the partnership profits to determine if the partner qualifies for the grant and how much they will get.
Individuals on all categories of work visa can claim the grant, as it is not counted as “access to public funds”.
Taxpayer will not be required to submit any figures of past or current profits or turnover for their business in order to claim the SEISS grant. The grant is entirely based on the taxpayer’s average trading profits as reported in their last three tax returns submitted for: 2016/17 to 2018/19.
If the taxpayer started trading within this three year period the monthly average of profits will be calculated based on the tax years in which the individual was trading.
HMRC has provided details of how it will calculate the taxpayer’s average annual profits used to arrive at the SEISS grant. It will start with gross turnover and deduct:
- allowable expenses as claimed on the tax return
- capital allowances as claimed for the trade
- trading losses incurred in the three-year period 2016/17 to 2018/19
The average annual profit calculation does not take into account:
- Averaging of profits made by farmers or artists
- Deduction of losses brought forward from years before 2016/17
- Deduction of the taxpayer’s personal allowance
HMRC will arrive at the taxpayer’s average earnings from the reported profit for the three tax years, or shorter period as applicable (see Example 2). However, any amendments made to those tax returns after 6pm on 26 March will be ignored, so attempts to increase profits by reducing capital allowance claims will be ineffective.
Adam has reported the following profits and losses on his tax returns:
- 2016/17: loss £20,000
- 2017/18: profit £60,000
- 2018/19: profit £70,000
He also receives pension income of £15,000 per year.
Adam’s total trading profits less losses are £110,000, giving an average of £36,666 per year. This is less than £50,000, and more than 50% of his total average annual income of £51,666, so Adam qualifies for the SEISS grant.
Adam’s SEISS grant should calculated as:
£36,666/ 12 = £3,055 per month
80% x £3,055 = £2,444
For three months: 3 x £2,444 = £7,332
Adam should receive £7,332 as a single payment in June.
Sarah started trading in October 2017 as a hair-stylist, but made a loss. She changed her trade to dog grooming from April 2018 and made a profit. Her reported results for two years are:
- 2017/18 £8,000 loss
- 2018/19 £20,000 profit
Although Sarah started a different business in 2018/19, that is irrelevant as HMRC has confirmed that it will sum the profits and losses of all trades to arrive at the average annual income.
Sarah’s average annual profit over two years is £6,000. HMRC treat 2017/18 as a full year although she only traded for six months. Her SEISS grant for three months will be £1500.
Making the grant application
Tax agents will not be able to make SEISS grant applications on behalf of their clients.
HMRC has now started to contact those taxpayers who are eligible for the SEISS grant to invite them to apply online through their government gateway account on a specific day between 13 and 18 May. The application day will be allocated by HMRC and will not be on a first come first served basis.
The taxpayer will need all of the following to apply for the grant:
- National Insurance number
- Self-assessment UTR number
- Government gateway ID and password (this can be applied for at stage 1 of the grant application)
- Bank account number and sort code for the account which the grant will be paid into
HMRC warns taxpayers not to be taken in by scammers who email, text, or call, offering money from HMRC then ask for the business bank details to be confirmed. Warn clients not to click on a link in an email, or reply to a text, purporting to be from HMRC.
The taxpayer will have to confirm to HMRC that their business has been adversely affected by the coronavirus, and this could include any of the following reasons:
- Proprietor is unable to work due to COVID-19 sickness, is self isolating, shielding or caring for someone else due to coronavirus
- Staff are unable to come to work
- Fewer or no customers
- Supply chain has been interrupted
When will the money arrive?
The SEISS grant for three months will be payable in one lump sum into the taxpayer’s bank account. The money should start to arrive from 25 May, and will be payable within six working days of HMRC approving the application.
The grant will be treated as taxable income, and will have to be reported on tax returns for 2020/21. Taxpayers in receipt of working tax credits or universal credit will have to treat the SEISS grant as part of their self-employed income for 2020/21.
Who is excluded?
Those who started trading on or after 6 April 2019 are not eligible for the SEISS grant. This seems harsh, but HMRC has to draw the line somewhere. These individuals can apply for universal credit.
If the taxpayer has taken the decision to cease trading completely, no SEISS grant is payable.
Trustees who are carrying on a trade are not eligible to claim the SEISS grant.
Property letting businesses are not regarded as a trade, so landlords will not qualify for the SEISS grant even if more than half of their taxable income is from rental income. This also applies for owners of furnished holiday accommodation. On 28 April 2020 Jesse Norman MP, Financial Secretary to the Treasury, confirmed in Parliament that the letting of furnished holiday accommodation is not within the scope of the SEISS grant.
It is difficult for HMRC to determine how much self-employed individuals earn in real time, in order to replace their lost income with government support. If MTD for income tax had already been in place, reporting self-employed income on a quarterly basis, the calculation of the support needed for each person may have been much easier.