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Ready for a SEISS challenge: Penalties and claims

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As coronavirus support undergoes HMRC scrutiny, Elizabeth Whiteley summarises the checks and possible sanctions accountants and their clients need to look out for when applying for the latest self-employed income support scheme grant (SEISS).

27th Apr 2021
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The Treasury has provided HMRC with substantial resources to recover wrongly claimed coronavirus support payments, expecting to recoup over a third of grants made.

HMRC has confirmed that it will involve agents when looking into clients’ SEISS claims, despite side-lining them when clients needed to claim SEISS.

Proving SEISS was validly claimed

Entitlement conditions have evolved with SEISS varying the evidential boxes to be ticked.

Conditions which must be met

SEISS 1

SEISS 2

SEISS 3

SEISS 4

The qualifying period

Up to 13 July 2020

From 14 July to 19 Oct 2020

1 Nov 2020 to 29 Jan 2021

1 Feb to 30 April 2021

Intention to continue to trade in the tax year 2021/2022 (SEISS 4) and 2020/2021 (SEISS 1-3)

YES

YES

YES

YES

Business has been adversely affected by coronavirus

YES

YES

YES

YES

Reduced activity, capacity or demand or temporarily unable to trade in qualifying period, compared with what could reasonably have been expected but for the adverse effect of coronavirus

n/a

n/a

Sales reduced in qualifying period

Sales reduced in qualifying period

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Replies (44)

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By memyself-eye
27th Apr 2021 18:05

HMRC will 'involve' agents - how so when agents have had no input or influence on their clients claims?

I know what I would say to that 'involvement' two words: the second ending in 'f'

Thanks (18)
Replying to memyself-eye:
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By Paul Crowley
27th Apr 2021 21:35

Nothing to do with me mate
You insisted on dealing directly with the 'customer'
If only you could have used plain words when asking him the questions

Thanks (12)
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By Hugo Fair
27th Apr 2021 21:27

"Perhaps the gold standard would be for accountants to keep evidence on file for each SEISS claim their clients have made."

1. How are you supposed to know (see multiple threads on this site) when, or indeed if, your client 'made a claim'? Agents were specifically excluded not just from making the claims on behalf of clients ... and are precluded from seeing the results of any successful claims (i.e. the payments).

2. Given that first point and that, almost by definition, any such 'evidence' would have to be gathered 'after the event' (when tax returns are being prepared) ... who is meant to pay for all the effort & time in collating the evidence folder (sounding more & more like a police procedural)?

In reality, the gold standard is indeed what most accountants would aspire to (with or without the help of their clients) in NORMAL circumstances. But where schemes were introduced with woolly guidelines, it's hard to imagine similar standards being maintained by all clients (unsupported by the professionals) and a LOT of work to attempt creation of comprehensive/retrospective folders of evidence (of what was believed at the time - not whatever can be demonstrated with hindsight)!

Thanks (4)
Replying to Hugo Fair:
Liz Whiteley
By Elizabeth Whiteley
29th Apr 2021 09:57

The professional bodies have been pressing HMRC to provide data on SEISS to agents for a year now. It seems that in the fullness of time, rather than when needed, it's possible that there may be an API to pre-populate tax software with SEISS grants - personally I'm not holding my breath.
HMRC are suggesting that it has some connection with the PAYE reconciliation process!

HMRC have said that they couldn't include SEISS grant information in the 'information to help complete your tax return' under on the agent accessible information on HMRC's website because the security level is inadequate. Feels like a poor excuse to me since state pension information (sometimes) being provided and despite all the things agents can do having logged in to HMRC's site.
Although not much help to accountants, apparently individual taxpayers using HMRC software have displayed to them the amount of SEISS they received. HMRC does not pre-populate the 2021 Tax Return but if the taxpayer's declared SEISS does not agree with the initial page, a warning is displayed.

And turning to the other points raised, this must be why the Treasury is hopeful of recouping so many grants 'wrongly' claimed, or at least grants which the recipients can't prove were appropriately claimed. Perhaps HMRC will achieve a higher strike rate against unrepresented taxpayers though if accountants are able and willing to help clients justify SEISS claimed, even if this has to be part of the continuing support so many have provided free of charge to clients during the pandemic.

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Replying to Liz Whiteley:
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By Paul Crowley
29th Apr 2021 15:33

That gets us off the hook
Cannot be trusted with details of SEISS paid by HMRC.
WE MUST TRUST client
Way to go incompetent HMRC
How the hell can we be trusted with pension details?

Difficult to believe any of the cr4p coming from HMRC
Perhaps HMRC IT guys were not told that SEISS was taxable?

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Backwoodsman
By backwoodsman
28th Apr 2021 06:42

Thank you Liz for the really useful summary of the varying grant conditions - appreciated.

Thanks (3)
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By Matrix
28th Apr 2021 07:31

“Before advising clients about SEISS..”

We didn’t and don’t advise clients about SEISS. We prepare the tax return. This year I am asking for three additional pieces of information: the SEISS grants claimed, any incorrect claims and an estimate of current year profits if they want us to reduce their POAs. That is enough extra work. I am not going back in time to see whether the conditions were met and I doubt my clients would want to pay me to do so.

Thanks (13)
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By jonharris999
28th Apr 2021 08:14

Where does the wording "Sales reduced in the qualifying period" come from - is that intended to be a necessary description of evidence ? It's a possible one, I agree - but it's not necessary. A reduction in demand or activity would do, too. It follows that a reduction in demand would lead to a reduction in sales, but "Demand or activity reduced" is a much easier concept for most clients to address and get their heads round.

"If a claimant didn’t know they were not entitled when the grant was received there will be no penalty" - it is very hard to imagine circumstances where this could have been the case without a deliberate and intentional flouting of the "reasonable belief" criterion. I'm yet to hear an example of one, in fact.

Thanks (5)
Replying to jonharris999:
Liz Whiteley
By Elizabeth Whiteley
29th Apr 2021 10:07

Turnover does need to have been reduced though. If a trader has charged higher prices for reduced activity so that there is no impact on turnover, they have worked smarter but wouldn't be entitled to SEISS. HMRC's examples show just how constrained the availability of SEISS 3 and 4 was intended to be https://www.gov.uk/guidance/how-your-trading-conditions-affect-your-elig... .

Thanks (0)
Replying to Liz Whiteley:
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By jonharris999
29th Apr 2021 10:50

Well - certainly the examples are examples, but I didn't read any suggestion anywhere that they were intended to be exhaustive.

To my mind the pivotal problem here is addressed by your bold type in the left-hand column of your table: turnover-compared-to-what. There is already ample evidence in Any Answers of clients and indeed accountants repeatedly making the mistake of comparing turnover to earlier years. There is no basis for doing this. Evidence of reduced demand and activity is, as night follows day, evidence of reduced turnover compared to what turnover would have been if there had been no crisis; and for me, it follows that there will be only a very small number of people (I repeat, I've yet to see or hear an example of one) who claimed incorrectly. It will only be those who cannot prove a reduction in demand, or those whose belief that turnover would be reduced was demonstrably unreasonable at the time they held it. The superstition persists, very clearly, that you claimed incorrectly if your profit is more than last year's. I think we should be calling out this error from the rooftops.

Thanks (2)
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By Ros Martin
28th Apr 2021 09:08

Very useful summary, thank you. My concern is around the question of reduction of profits. Do we take into account the local authority grants received? I am assuming you would net off the CJRS against any wages in working out the profits but it is the LA amounts which worry me as many small businesses have had significant payments. I appreciate that you might consider that ethically you should not be looking for more money but that is a different argument and I want to know what the position is so that I know what to tell people! Any comments gratefully accepted.

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Replying to Ros Martin:
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By JoandToby
28th Apr 2021 09:57

.

Thanks (1)
Replying to Ros Martin:
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By wizwozzoo
28th Apr 2021 10:08

HMRC "Covid-19Support" email of 20.04.2021 states:
"Customers do not have to consider any other coronavirus scheme support payments that they have received when deciding if they’ve had a significant reduction in their trading profits."
"any other" appears quite sweeping. I would have expected CJRS payments to have been included in the profit calculation, but this could be interpreted as they should not. Typical HMRC vagueness.

Thanks (3)
Replying to Ros Martin:
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By john hextall
28th Apr 2021 11:53

I would say the purpose of these grants is to make up for the loss in profits and so should be excluded from the calculation. They will of course be extra profit on which tax is payable but should be netted off when you make the comparison between this year and last, for example.

Thanks (1)
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By petestar1969
28th Apr 2021 09:36

On a related issue, has anyone had a 2021 tax return with SEISS grants on it processed by HMRC yet?

I've submitted 2, 1 a relatively small case with a refund and a second that would normally be a refund but this year he has to pay.

Both returns are shown as received by HMRC on our agent portal but neither have been processed so the "Tax" bit on their account is empty.

Thanks (0)
Replying to petestar1969:
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By arthvirg230
28th Apr 2021 09:47

yes - done several - mainly for CIS subbies - and yes the tax refunds have come out - HMRC are a bit slower this year in processing the refunds - but of course they have no staff.... and are generally pretty useless overall.. i believe its due to coronavirus..!!!!!

Thanks (5)
Replying to petestar1969:
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By 2003bluecat
28th Apr 2021 09:48

petestar1969 wrote:

On a related issue, has anyone had a 2021 tax return with SEISS grants on it processed by HMRC yet?

I've submitted 2, 1 a relatively small case with a refund and a second that would normally be a refund but this year he has to pay.

Both returns are shown as received by HMRC on our agent portal but neither have been processed so the "Tax" bit on their account is empty.

We've had a refund for a tax return come through within a week, but no SEISS on that one.

We've got 1 or 2 to file this week so will keep an eye out (also one a small refund and one that would usually be a refund but is now a payment).

Thanks (2)
Replying to petestar1969:
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By Paul Crowley
28th Apr 2021 09:56

2 with SEISS
No delay in processing
Refunded very quickly

Thanks (0)
Replying to petestar1969:
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By crofte
28th Apr 2021 09:57

Yes, I've filed one for 2021 but it didn't have an SEISS claim on it and the same thing has happened - shown as received but no tax figure showing yet.

Thanks (0)
Replying to petestar1969:
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By JoandToby
28th Apr 2021 09:58

Yes, we've had three of these now, all subbies with CIS repayments due. All three had claimed SEISS.

Tax Return shows as received but the repayment section is blank. HMRC told me there is a glitch on their software where the return shows as received but isn't actually "captured", so it needs to be referred to a department for manual keying!

The first one happened a couple of weeks ago and took 4 days to resolve but the latest 2 we have been told to allow 7 working days for them to sort it.

Trouble is, it doesn't notify you that anything has gone wrong, it's usually when you are chasing a rebate for your client.

MTD for income tax looks like it will be great fun :)

Thanks (2)
Replying to petestar1969:
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By SimonStone
28th Apr 2021 10:01

Yes, we've had 2 returns with SEISS claims (only the first grant was claimed) and HMRC have processed. It did take a bit longer than usual - we submitted on Thursday, and they only appeared on the portal yesterday.

Not had any yet where we've had to include SEISS wrongly claimed.

Thanks (0)
Replying to petestar1969:
By Husbandofstinky
28th Apr 2021 10:15

Have checked some already submitted with SEISS and surprisingly they have gone through, tax and all.

This tax year there has been a couple of wobblies. One submission took three days to get a response and a further one whereby the return has been received but the tax not adjusted for. This one is the same as the funnies we all had last year (global term) including many others here on AW.

Thanks (0)
Replying to petestar1969:
Teesside
By Teesside
28th Apr 2021 13:01

I've had some that have SEISS on the return that have been fully processed and refund paid but I do have some that haven't been processed yet. I've telephoned HMRC and have been told it's an error at their end and gave me a resolve date of 05/07/2021!

Thanks (0)
Replying to petestar1969:
wolfy
By rob winder
29th Apr 2021 09:05

I've submitted one, which is marked as received but not processed.

I've also submitted my own which has no SEISS and this has been processed.

Thanks (0)
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By Ammie
28th Apr 2021 10:22

I shake my head in disbelief. If the scenario doesn't highlight further HMRC confusion and weaker control I don't know what is.

I agree with a lot of what has been said. We are now to police a situation that we were emphatically ordered not to get involved with, in fact totally blocked from doing so. Our increasing level of free civil service work is subsidising HMRC shrinking staffing levels.

Despite this, I believe that many non entitled claimants will still walk away scott free. I would respectfully suggest HMRC work a little more closely with the sizeable loans they freely handed out. The stories out there are too many to ignore or to accept as just false.

The billions lost are just another layer of billions lost through panic management during the pandemic. (Let's ignore that on BJ's refurb!)

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By raju m
28th Apr 2021 10:30

Heads you loose
Tails HMRC win.
It will be fun

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Replying to raju m:
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By memyself-eye
28th Apr 2021 10:57

'Fun'?
Not for me I've retired.....

Did I say that before?

Thanks (3)
Replying to memyself-eye:
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By mfbrown185
29th Apr 2021 15:01

"did i say that before?" Yes you did, and i am very jealous - so don't rub it in. Two years and counting down for me!!

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Replying to memyself-eye:
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By mfbrown185
29th Apr 2021 15:15

"did i say that before?" Yes you did, and i am very jealous - so don't rub it in. Two years and counting down for me!!

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By wizwozzoo
28th Apr 2021 11:03

Thank you for clarifying the period that the reduction in profit relates to:
"The significant reduction in profits must be for the basis period as a whole, not just the qualifying period"
This is the conclusion I came to from reading the legislation, but still had some doubt in my mind, so really helpful to know this. Makes it really difficult for a client to judge if their profits will be lower for say a 31.01.22 year end (basis period 01.02.21 - 31.01.22). Even when considering the period as a whole, it may be a buoyant year (due say to a large contract arising in the latter part of the year), but if profit is suppressed to a "significant" degree, to that which was expected, due to the lower sales in the qualifying period, a claim could still be valid. Clearly some notes in the white space on the tax return would be advised in such circumstances, but it is easy to see how this kind of scenario could result in a challenge from HMRC.

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Replying to wizwozzoo:
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By GANDONAS
28th Apr 2021 13:15

Hello

Id does however say that " Before you make a claim, you must decide if the impact on your business between 1 February 2021 and 30 April 2021 will cause a significant reduction in your trading profits for the tax year you report them in " which I read as being that the impact of lost business in the qualifying period should cause the significant reduction over the whole basis period in order to claim , so neither can be looked at independently ?

Thanks (0)
Replying to wizwozzoo:
Liz Whiteley
By Elizabeth Whiteley
29th Apr 2021 10:57

It does seem likely that the scenario you have suggested could easily be flagged up by HMRC's machinery for a challenge. However, if the large contract arising in the latter part of the year wasn't anticipated when the SEISS 4 claim was made, that would form part of the response to the challenge. To be prepared for the scenario to play out it would be useful to keep a time-line (could include a diary, email archive, notes and projections) of when circumstances changed and new contracts came along.

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By ireallyshouldknowthisbut
28th Apr 2021 13:17

Thanks for the article.

I have dealt with 3 sole traders now who have made claims but who's outcomes for the year have been close to or exceeded the prior year. All of them have been very time consuming to explain the issues to the clients and try and work out what (if anything) should get clawed back.

There are going to be years and years of appeals and tribunals in this area and my current advice is "unless its clearly wrong, leave 'em in, but don't spend the cash". its very hard to give decent advise in anything other than a vanilla "business was shut for the year" or a "you worked as normal don't be daft" type scenarios. Virtually every client is going to be some kind of grey.

Thanks (3)
Replying to ireallyshouldknowthisbut:
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By jonharris999
28th Apr 2021 16:20

Not to go over ground which is covered in lots of threads on Any Answers, but I do not grasp why this exercise is said to be difficult or time-consuming.

Your clients are in trouble if, and only if, they lied when they judged when applying for rounds 1&2 that their businesses were adversely affected, or when applying for Round 3 that their reasonable belief was etc etc. If they didn't lie, they have no problem.

It should not even be necessary to consider any prior year - there is no basis for doing so.

Thanks (0)
Replying to jonharris999:
By ireallyshouldknowthisbut
29th Apr 2021 14:03

its not a question of "lying" or "not lying", its matter of establishing eligibility within the framework above, in particular of how the business outcome was vs the normal pattern. Many people just "took the cash offered" with little thought to if they should or not. We send out guidance to clients at the time, but that is hopelessly out of date now.

I have a client who's t/o doubled but profitability dropped as they changed the mix of their business to higher price/low margin stuff, but then made a load of money from catch up form the normal business towards the end of the year, so came out with a profit well ahead of normal, turnover up 40% and claimed all 3 grants. Unpicking that mess is not untrivial and I think it would be naïve to assume that would not send HMRC's systems into a "looks like we have got a chancer here" mode, when in fact there is probably merit in the first claim, and possibly the second one.

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Replying to ireallyshouldknowthisbut:
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By jonharris999
29th Apr 2021 14:32

I assume nothing of the kind. I simply worry that accountants and more likely unrepresented claimants will needlessly cave under challenge because they don't understand the rules. Comparing actual outturn to a "normal pattern" might help some claimants, but might well not help others and that isn't a problem. They don't have to now make a comparison with their normal pattern. They had to, at the time, make a judgement about how they believed things would shape up. That's an entirely different thing and, as I keep saying, a considerably easier one to evidence.

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By jethro
28th Apr 2021 14:59

One of my clients called me last summer to say she had received a letter from HMRC "inviting" her to make a grant claim. To say this surprised me was putting it mildly; she is an elderly lady in her 70's whose only source of "self employed" income is as a Lloyd's Name. I advised her, of course, that she was not entitled to the grant but nonetheless she insisted on making a claim which she said she would do by telephone as she has neither a computer nor the internet. To my total amazement she ended up receiving almost £6500.

So, as there is presumably a record of the phone conversation with HMRC confirming her entitlement, who am I to say it has been incorrectly paid?

Thanks (1)
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By North East Accountant
28th Apr 2021 16:26

HMRC guidelines on SEISS were so vague, and subjective, they are virtually useless.

And show me one person who reads all the T&C's before ticking a box on a download or an online login.......

Government desperate for money.... let HMRC off the leash to claw back as much as possible from dubious claims.

A taste of what's to come once they have MTD in perhaps.

Thanks (2)
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By C J EYRE
28th Apr 2021 19:37

It appears that clients with a none 5 April year end will be very penalised tax wise because of the SEISS grants received.
Take somebody with a 31 May 2020 year end.. They may not have traded in April/May 2020, but had full income to the end of March 2020. This 10 months trading period could produce a large profit figure. You then have to add on the 3 SEISS grants received during 2020/21. This could now put the client into 40% tax. for 2020/21.
The business does not trade again until 12 April 2021, leaving only 2 months profit for the 2021/22 tax year.
I am now looking to change my clients year end to 5 April 2021, adding the none trading period to the large 10 months profit, , and then take off a very large overlap relief amount, thus reducing their profit for the 2020/21 tax year, and also reducing their tax liability to now 20%
Can anybody see a problem with doing this.

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Replying to C J EYRE:
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By GANDONAS
28th Apr 2021 20:24

Worth checking whether change of accounting date without commercial reason or in effect, to avoid tax liability, constitutes a permitted change ?

Thanks (1)
Replying to GANDONAS:
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By Paul Crowley
29th Apr 2021 15:06

Never heard of that. Any basis for such a strange opinion?
HMRC have looked to encourage lining up with tax year for years

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Replying to Paul Crowley:
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By GANDONAS
29th Apr 2021 17:58

Covered by Elizabeth below

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Replying to C J EYRE:
Liz Whiteley
By Elizabeth Whiteley
29th Apr 2021 11:30

From my reading of HMRC's manual page BIM81045 as long as the basis period hasn't be changed in the previous five years, the change doesn't have to be made for commercial reasons.
In your example, there may also be a SEISS 4 claim to be included in 2021/22.
One other comment - once upon a time the Chancellor said the SEISS 3 was the final SEISS grant, but more grants were washed in by fresh waves of covid. If there are future covid disruptions leading to further SEISS variants, it's possible 2020/2021 tax returns may be brought into the mix for SEISS amount and entitlement so yet another complicating factor.

Thanks (1)
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By Wanderer
29th Apr 2021 15:33

Liz, many, many thanks for this article. Brilliant presentation in tabular format. Will be most useful.

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