Tax Writer Taxwriter Ltd
Share this content

New SEISS conditions may trip up taxpayers

The SEISS claims portal reopens on Monday 30 November, but taxpayers must declare their trade has been impacted by reduced demand before they claim the third grant.

27th Nov 2020
Tax Writer Taxwriter Ltd
Share this content
Tax return
istock_self-employed_LPETTET

When claiming the first two self-employed income support (SEISS) grants taxpayers had to confirm that their trade had been adversely affected by the coronavirus pandemic, which was a difficult concept to pin down. For the SEISS.3 this condition has been replaced with a more precise “impact on demand” test.

Where they qualify for the SEISS.3 grant the taxpayer will receive one lump sum payment to cover the three-month period: 1 November 2020 to 31 January 2021. It will be paid at 80% of the taxpayer’s average trading profits for 2016/17 to 2018/19, as calculated for the SEISS.1 grant.

The maximum SEISS.3 grant payable is £7,500, or £2,500 per month, which is also the same cap as applied for the SEISS.1 grant.

Declarations

The HMRC guidance on checking whether the taxpayer can claim the SEISS.3 grant confirms the individual must be:

  • currently trading and be “impacted by reduced demand”; or
  • has been trading but the business is temporarily closed due to coronavirus.

The trader must also confirm they are:

  • intending to continue to trade; and
  • they reasonably believe that the impact on their business will cause a significant reduction in their trading profits due to reduced business activity, capacity or demand, or inability to trade due to coronavirus during the period 1 November 2020 to 31 January 2021.

Emphasis on sales not costs

The previous “adversely affected” test was met if the business turnover had decreased, or alternatively if business costs had increased, due to the pandemic. There was no minimum threshold for the adverse effect, so even a small increase in costs or drop in sales meant the business would qualify.

The reduced demand test is set out in a new HMRC Direction for SEISS.3 at para 4.2. It requires the trader to suffer a significant reduction in trading profits for the relevant basis period (see below). “Significant” is not defined, so it must take its normal English definition as having a great effect, or something that affected a situation to a noticeable degree.

The HMRC examples make it clear that an increase in costs alone, resulting in a drop in profits, will not allow the trader to qualify for the grant (see HMRC’s electrician example). 

The reduction in sales can be due to a number of factors, but it must also lead to a reduction in profits. If the volume of sales has decreased but the value of each sale has increased so profits are constant, the business does not qualify (HMRC’s café owner example).

However, if the reduced sales activity is solely due to the business owner having to self-isolate because they, or someone they care for, has travelled into the UK, that business doesn’t qualify for the SEISS.3 grant. Self-isolation due to Covid-19 symptoms, testing or on instruction due to medical vulnerability is accepted as a cause of reduced sales.

Relevant basis period

The new HMRC Direction (legislation for SEISS.3) makes it clear that the significant reduction in trading profits must be measured over the current accounting period as a whole, and that is the period that includes November 2020 to January 2021.

Where the accounting period ends on 31 March or 5 April 2021, it will align to the 2020/21 tax year and be reported on the 2020/21 tax return submitted by 31 January 2022. But many sole traders work to different year end, such as 30 April 2021. This “current period” will be taxed in 2021/22, and reported on the SA return submitted by 31 January 2023.

Other conditions

The other conditions for the SEISS.3 grant are the same conditions as applied for the first two SEISS grants, as I explained in SEISS: Get the details right

The taxpayers who were excluded from those grants are still excluded from the SEISS.3, and this will include those who: 

  • started their business after 5 April 2019,
  • submitted their 2018/19 tax return after 23 April 2020
  • had self-employed profits of less than half their average annual income
  • had average annual profits for 2016/17 to 2018/19 in excess of £50,000.

How accountants can help

The SEISS grant must be claimed by the individual taxpayer, online through the HMRC portal, by 29 January 2021. Tax agents should not attempt to make the SEISS claim by using their client’s Government Gateway ID and password, as this will trigger a fraud flag.   

However, before claiming the taxpayer made need help in forecasting their turnover for the full accounting period that includes the period November 2020 to January 2021.

Tax Talks episode

Replies (30)

Please login or register to join the discussion.

Stepurhan
By stepurhan
27th Nov 2020 12:13

So basically they want to make the test so awkward that those with legitimate claims will not claim for fear of getting it wrong whilst scammers will just continue to claim regardless.

It's almost like they want the public show of supporting businesses without having to do much of it.

Thanks (13)
Replying to stepurhan:
avatar
By Paul Crowley
27th Nov 2020 13:13

The profit thing is the bit ICAEW has issue with.

But agreed it will put of the honest needy, but make no difference to the other greedy.

Thanks (1)
avatar
By jonharris999
27th Nov 2020 14:23

"The new HMRC Direction (legislation for SEISS.3) makes it clear that the significant reduction in trading profits must be measured over the current accounting period as a whole, and that is the period that includes November 2020 to January 2021."

Yes, but the measurement of the reduction is only one thing. There is also the fact that the reduction must have come about "as a result of THAT reduced activity etc"

I capitalise THAT because it's pivotal - it makes it clear that what's being referred to is a reduction in the (annual) profits *caused by* a reduction in demand in the SEISS 3 period.

If there was an increase in basis period profit for another reason, it doesn't matter - notwithstanding the fact that, of course, if a business had not been "adversely affected" earlier on then it was not eligible to claim Rounds 1&2.

Thanks (1)
avatar
By JSJ54
30th Nov 2020 08:59

Yet more bureaucratic guff while the country burns! I'm amused that accountants aren't allowed to submit the claims but I'm quite sure we are expected to advise clients on their eligibility.

Thanks (3)
By Duggimon
30th Nov 2020 09:57

Is there amended legislation for this round of grants or have the requirements in fact remained the same and only HMRC's guidance has changed?

Thanks (0)
Replying to Duggimon:
avatar
By jonharris999
30th Nov 2020 10:11

The first link in Rebecca's third section in the main article takes you to the new legislation.

Thanks (0)
Helen Froggett Thomson
By Helen Froggett-Thomson
30th Nov 2020 10:12

Thank you for this Rebecca. Really helpful. This last section takes a bit of unravelling doesn't it? 'However, if the reduced sales activity is solely due to the business owner having to self-isolate because they, or someone they care for, has travelled into the UK, that business doesn’t qualify for the SEISS.3 grant. Self-isolation due to Covid-19 symptoms, testing or on instruction due to medical vulnerability is accepted as a cause of reduced sales.' So it means you have to have the symptoms or be told to self isolate to qualify?

Thanks (1)
avatar
By beckieblue
30th Nov 2020 10:24

Thanks Rebecca, was awaiting your article.
Can anyone answer whether a sole trader who has stopped trading in order to shield his elderly vulnerable father who he lives with, will qualify under the criteria "inability to trade" or "reduced activity" due to coronavirus?
Thanks in advance.

Thanks (0)
Replying to beckieblue:
avatar
By johnjenkins
30th Nov 2020 10:30

The criteria is simple. Has covid affected your business. If the answer is yes then you claim.

Thanks (4)
avatar
By johnjenkins
30th Nov 2020 10:29

I shall continue to advise my clients that if your business has been adversely affected by covid then you claim. Reason being is cos that is what parliament says and wants the money to go to those who have lost profits because of covid. I see no difference in adversely affected or reduced demand. The bottom line is the same.
There is another take on this. How does anyone know if there would have been a down or up turn in the particular business anyway.

Thanks (4)
Replying to johnjenkins:
avatar
By Adam12345
30th Nov 2020 13:19

CIS Subbies need to be very careful. HMRC will have a breakdown of their income nicely broken down in to months, submitted by their contactors.

Thanks (0)
Replying to Adam12345:
avatar
By johnjenkins
30th Nov 2020 14:31

I have a fair few subbies on my books and I have pointed out this very fact to them. However there may well be an overlap whereby one contract finishes yet new ones won't start. The criteria is very simple, has covid affected your business adversely, if so claim. At the end of the year your turnover might well be the same as previous, however you could have lost contracts due to covid which would have increased your profit. So I don't think that it might be cut and dried. No doubt HMRC will need convincing.

Thanks (1)
Replying to johnjenkins:
avatar
By Adam12345
30th Nov 2020 17:11

The criteria is far from simple. And SEISS 3 is much more that meeting the adversely affected criteria as per SEISS 1&2.

Good luck to you and your clients!

Thanks (1)
Replying to Adam12345:
avatar
By johnjenkins
01st Dec 2020 09:47

I'm not saying that HMRC won't challenge. In order to get more dosh they will be turning every mountain, rock, stone and pebble. Once they start losing a few cases they might well back off a bit.
What I am saying is that to the business person it will be obvious if their business has been adversely affected by covid. That is not rocket science. So it doesn't matter how you word the claim the bottom line stays the same.
Those that have claimed erroneously will be caught out and that is how it should be.

Thanks (1)
avatar
By gimme5
30th Nov 2020 11:34

A problem with the whole SEISS claim system is that the claimants should have to pro-actively sign declarations relating to the eligibility criteria.

However these criteria and just included in what is effectively a terms and conditions page towards the end of the process and most claimants just click ok (who reads the Ts and Cs anyway?) resulting, I would guess, in many incorrect claims.

Thanks (1)
avatar
By AndrewV12
30th Nov 2020 11:48

its been mentioned above, but just to underline it, the latest SEIss grant is from the 01/11/2020 to 29/01/2021, its a bit hard for some to estimate how covid will effect their business from today 30/11/2020 to 29/01/2021.

Thanks (3)
avatar
By Michael C Feltham
30th Nov 2020 12:05

Portal opens today, huh?
Except when I ploughed through the various screen pages and finally reached the end....

It told me to come back in early December!!!

Thanks (0)
avatar
By North East Accountant
30th Nov 2020 12:58

Thank the lord (or Rishi) we can't do these claims.

At first we were upset to be excluded from making SEISS claims but imagine trying to get the evidence from a client to back up the "Honest Assessment" HMRC expects them to make about whether they reasonably believe their business will have a significant reduction in profits.

At the same time as doing all the furlough claims by 14th December, Tax Returns and a million other things.

Thanks (6)
Replying to North East Accountant:
Giraffe
By Luke
30th Nov 2020 16:36

North East Accountant wrote:

Thank the lord (or Rishi) we can't do these claims.

At first we were upset to be excluded from making SEISS claims but imagine trying to get the evidence from a client to back up the "Honest Assessment" HMRC expects them to make about whether they reasonably believe their business will have a significant reduction in profits.

At the same time as doing all the furlough claims by 14th December, Tax Returns and a million other things.

I couldn't agree more! It's quite a relief to just point clients in the right direction and tell them to look at examples etc to see if they are eligible.

I'm normally pro-active in helping and hand holding but this time, they can make their own "honest assessment about whether they reasonably believe their trading profits will be significantly reduced due to coronavirus".

Thanks (0)
avatar
By joe5481
30th Nov 2020 13:02

Fyi, the information from HMRC is that all SEISS grants need to be declared on 2020/21 Tax Return, irrespective of accounting period, as below:

"As previously, the third grant will also be subject to Income Tax and self-employed National Insurance and must be reported on 2020 to 2021 Self Assessment tax returns, due by 31 January 2022.

Thanks (1)
Replying to joe5481:
avatar
By BelGrant
30th Nov 2020 16:18

joe5481 wrote:

Fyi, the information from HMRC is that all SEISS grants need to be declared on 2020/21 Tax Return, irrespective of accounting period, as below:

"As previously, the third grant will also be subject to Income Tax and self-employed National Insurance and must be reported on 2020 to 2021 Self Assessment tax returns, due by 31 January 2022.


Well that would be typically when it would be due anyway when the claims would be made in the 20/21 tax year. It is always done by end of Jan (online only) 2022.

The awkward one is the first SEISS grant, considering part of it was claimed to cover the previous tax year (due online at the end of Jan 21) from March 1st to 5th April. Yet it covers March/April/May. Just need to slice it up and report it accordingly on the appropriate tax form. The fourth, if there is to be one, will also need the same treatment. Anything claimed to cover 6th April onways for what is a Feb-Apr claim will need submitting on the 2023 SATR for the 21-22 tax return.

Thanks (1)
Replying to BelGrant:
avatar
By Mags135
30th Nov 2020 18:02

No, that's incorrect. ALL of the first three grants need to be reported on the 2020/21 SA tax returns in full. NO part of any of the grants should be reported on the 2019/20 tax return (even though the SEISS was announced in March 2020 and some of the effect of COVID on the business may have occurred in the 2019/20 tax year). The legislation determining this tax treatment is in Para 3(3) Schedule 16 Finance Act 2020 and there will be specific boxes on the SE and partnership pages of the 2020/21 SA return to report the grants.

Thanks (1)
Replying to Mags135:
avatar
By sally1964
01st Dec 2020 14:56

So reporting on 20/21 tax return - assume then that it is not declared as part of the sole traders trading income and part of their account? So 30/04/2020 year end would be reported on tax return 2020/21 plus any SEISS grants? So accounts to 30/04/2021 would go on 21/22 tax returns with no grant income. I thought grant income would fall into the accounting period and be assessed on the same rules.

Thanks (0)
Replying to sally1964:
avatar
By Mags135
01st Dec 2020 17:36

The grant income must be reported on the 2020/21 SA tax return irrespective of its treatment for accounting purposes - see para 3 (3) Sch 16 Finance Act 2020.
Your examples using a 30 April year end are correct.

Thanks (0)
avatar
By lb.laurencebenson.com
30th Nov 2020 14:31

Does this mean that if you have been impacted by reduced demand between 1st November 2020 and 31st January 2021, this impact in this 3-month period will need to have had a significant reduction in your trading profits for the whole of your accounting year of 12 months to be eligible to claim the third grant? If so, you probably won't know this until after 31st January 2021 when it will be too late to claim.
Laurie Benson [email protected]

Thanks (0)
avatar
By Richard Wild
30th Nov 2020 15:57

I can't promise that it will answer everyone's questions (and we have some outstanding with HMRC), but you might find the recent free CIOT and ATT webinar helpful. (https://www.tax.org.uk/policy-technical/technical-news/update-self-emplo... and https://www.att.org.uk/news-events/events/self-employment-income-support... respectively).

Thanks (1)
Replying to Richard Wild:
avatar
By Mags135
30th Nov 2020 18:04

The correct link to the webinar on the CIOT website is https://www.tax.org.uk/policy-technical/technical-news/self-employment-i....

Thanks (2)
avatar
By BelGrant
30th Nov 2020 16:12

The new SEISS rules are very opaque on what they mean by the word 'significant'. What is significant to you may not be to me, so it is highly subjective.

Furthermore, the Government has failed to grasp that sole traders are in business; they aren't workers or employees. Therefore it isn't just about Covid impacts on profit losses from regular clients, but also on the omission of improved profitability due to Covid related new client cancellations and postponements. Businesses are about growth not just about maintenance. So if I maintain profit but a new client who would have made me more profit now isn't in the picture - permanently or temporarily; surely my business has still been adversely impacted.

Also, sole trader freelancers have no mutuality of obligation with their clients, otherwise they would be an employee or, at least, a contract worker. Therefore, they are free to reject work and accept it at will. How will the Government know for sure whether profitability over the Phase 3 period is adversely affected by a freelancer's deliberate choices not to accept work not due to being denied offers of work due to Covid. How are they ever going to make that distinction when freelancers are not obliged to accept any work that's available, quite legitimately.

The whole SEISS Phase 3 criteria is very ill thought through.

My approach is to gather evidence three-fold.

1. Macro economic policy and specific periods and how it has affected the general sector I service. Lockdown is an obvious example if clients in my field can't operate. News reports on what sectors are impacted (eg., retail, consumer, lifestyle).

2. My bank profits, compared to those in the same comparable months in the SATR assessment band-width applied to qualify for SEISS in the first place (e.g., 18-19, and before if relevant)

3. Asking specific clients to write to me and agreeing that their offers of work has changed. reduced or been postponed due to being furloughed themselves or reduced workloads due to their own clients pulling out of programmes, reducing capacity.

4. Knock on adverse impacts due to increased competition from rival freelancers working in my field. Public social media forums, poster comments to corroborate the general view that work has decreased and hasn't picked up to typical levels.

Apart from that, I fail to see what else I can do.

Thanks (1)
avatar
By KPowis
12th Dec 2020 09:52

Hi, I have claimed the 3rd grant but I am worried about spending it. The significant reduction in profits, should this include the SEISS money as part of your accounts? I know in any event my profits will be reduced this year and there are many factors to support my claim but I.am worried about the way the government has written the terms for application.

Thanks (0)
Replying to KPowis:
avatar
By jonharris999
12th Dec 2020 13:26

Lots of people are asking the same or similar questions. This poorly-drafted legislation is, in my view, making people apprehensive quite unnecessarily.

My present approach is to take the Directions as straightforward.

To be eligible, you are asked to make two judgements at the time you make the application: one about reduction in demand etc in the whole period, and one about the effect of that reduction on your profits for the year. There seem to me to be only narrow circumstances in which most people would meet the first condition and not the second. Several of the examples given in HMRC's guidance are helpful here; they show reasons for reduced profit unconnected to the general disruption, or they show reasons why the reduction is not "significant" in one case or another. Otherwise it is pretty obvious that the first condition leads to the second in the vast majority of cases.

Critically, you make your judgements before making your application; you are judging the state of affairs BEFORE you make the application and receive the grant, not after it.

The Directions evidently imply HMRC could challenge a taxpayer because there was no significant reduction, or because there was no reasonable belief. They expressly do not contain any ability to challenge a taxpayer because the belief turned out in retrospect to be an incorrect belief. The only question in the game is, is your belief reasonable at the time you hold it, at the point at which you decide that you are eligible and can apply.

Say someone has significantly reduced demand in November, but no reduction in Dec and Jan, and that overall this adds up to a significant reduction over the whole period. That person is eligible. Perhaps the grant, when added to their normal profits for Dec and Jan, will then make them exceed what would have been normal profits for the period and indeed for the basis period; because perhaps a grant of 80% of their profit for the whole period is greater than the significantly lost income of only one month. But that does not affect their eligibility. HMRC did not ask anyone to consider this; to do so would have required a third judgement which does not exist in the Directions.

It was open to the Treasury and HMRC to provide for this scenario if they had wanted to do so. They could have required a judgement to be made, for example, about each individual month's profit. They did not do so. Taxpayers are asked only to make judgements about the whole period.

Here's another example by way of further proof. Suppose a pub in Tier 3 has been required to close for the whole period until today (12 Dec) and there is obviously great uncertainty about the period from today until 31 Jan. There is no question that the owner is eligible when they make their application on 1 December. Suppose then that restrictions are completely lifted on 29 Jan and then that on 30 Jan, a Texan billionaire decides to hire the pub for his wedding, gives every guest a magnum of the most expensive champagne, and thereby contributes a greater amount of profit than the owner could have expected in the whole period. That has no effect whatsoever on the owner's eligibility and there are no grounds in the Directions under which the grant can be clawed back or challenged.

If you have suffered a reduction in the period, and if you reasonably believe that your profits for the basis period would have been greater if you hadn't - in other words, you can't make up the reduction by putting your prices up, and you haven't decided not to trade for some other, non-Covid reason - then you are eligible at the point you make your application. What happens to your profits after you make your application is not a matter that the Directions appear concerned with.

Thanks (1)