Tax Writer Taxwriter Ltd
Share this content

Second SEISS grant explained

To qualify for the second SEISS grant the business must be adversely affected by the coronavirus pandemic on or after 14 July 2020. Rebecca Cave explores what this will mean in practice.

14th Jun 2020
Tax Writer Taxwriter Ltd
Share this content
Chancellor visits an open market
Flickr_HMTreasury_aw

The Chancellor’s announcement on 29 May told us the SEISS would be extended with a second tranche of money available from August. Further details on this second grant were released on 2 July, but there are still outstanding questions.

We don’t know when the online portal will open for the second SEISS grants. But we do know the amount of the grant will be calculated at 70% of the taxpayer’s annual average profits, capped at £2,190 per month, and payable for three months.

The other conditions to qualify for the second grant remain the same as for the first SEISS grant.

Adversely affected

The main addition to the HMRC guidance for SEISS is further emphasis on the requirement for the business to have been “adversely affected” by the coronavirus pandemic as a pre-condition for claiming the grant.         

What is meant by “adversely affected” is left to HMRC to interpret, as there is no definition of this term in the HMRC SEISS Direction published on 30 April. It is possible that a further HMRC direction will be published before applications open for the second SEISS grant.

To be considered adversely affected HMRC says a business must have temporarily stopped trading, the trading has been scaled back, or the business has incurred additional costs. HMRC suggests five possible causes behind the adverse affects on the trade as:

  • supply chain has been interrupted
  • fewer or no customers or clients
  • staff were unable to work
  • one or more of the business contracts has been cancelled
  • the business has had to buy protective equipment in order to trade following social distancing rules.

The HMRC guidance was amended on 2 July to acknowledge that the trade could be adversely affected due to increased costs. For example, many businesses have had to undertake more cleaning, install screens and signage, and provide protective equipment to staff.

In addition, HMRC states that the business will have been adversely affected if the owner(s) can’t work because they are:

  • shielding themselves or someone else in their household
  • self-isolating
  • on sick leave because of coronavirus; or
  • have caring responsibilities because of coronavirus

In all cases, the taxpayer should keep records of how and why they believe their business has been adversely affected, and for which periods.

Continue to work

HMRC emphases that the self-employed taxpayer can continue to work in their business while receiving the SEISS grant, which is in stark contrast to the conditions for directors of their own companies. If directors choose to furlough themselves and claim CJRS for their pay, they must cease all productive work for their company and any connected businesses, while they are furloughed.  

Timing

HMRC provides no guidance on how long the period of non-trading has to last for, or by what percentage the normal level of trading business has to reduce by, for the business to qualify as adversely affected. One could argue that a cessation of trading for as little as a few days would be enough.

Accurate recording of the timing of trading conditions and costs for the business will be crucial, as the second SEISS grant can only be claimed if the business is adversely affected on or after 14 July 2020.

The government clearly expects many businesses to bounce back to near normal operation from July onwards, and it does not want to continue paying business support grants unnecessarily.

HMRC has provided a series of examples of a builder who is unable to work for particular periods and whether the timing of the work allows her to claim the first or second SEISS grants.

In the last example, the builder becomes sick with coronavirus in August and can’t work for six weeks, so she becomes eligible to claim the second SEISS grant.

An additional example has been added of a shop which was closed until 14 July, but opened on 15 July with fewer customers in the shop and increased costs due to social distancing. The business owner qualifies for both the first and the second SEISS grant. 

The possibility of catching the virus will remain a real risk until a vaccine is available to the entire population, which poses the question: how long will the second SEISS grant remain open for? We just don’t know at this stage.

We do know that the first SEISS grant must be claimed by 13 July 2020, so encourage your clients to claim it, if they are eligible, and have not yet done so.

Tax hit

Tax agents can’t claim the SEISS grants on behalf of clients, but you can help clients understand whether their business has been adversely affected, and calculate the tax hit.

Both of the SEISS grants are treated as taxable income for 2020/21, no amount of the first grant is apportioned to 2019/20. The tax on this income will be payable by 31 January 2022.

For construction industry subcontractors, who are used to receiving their income with CIS-tax deducted at 20% or 30%, the SEISS grant will be a cashflow fillip as no tax is deducted at source. This means those CIS subbies may well have tax to pay for 2020/21 rather than be due a tax refund.

Kate Upcraft and Rebecca Benneyworth will be joining AccountingWEB’s Coronavirus Q&A webinar this Wednesday at 9am to answer your questions on the second SEISS grant and the revised Coronavirus Job Retention Scheme. Register to attend the webinar here.

Replies (9)

Please login or register to join the discussion.

avatar
By johnjenkins
15th Jun 2020 10:00

Interesting about the CIS subbies. I think that they will gladly accept the extra income, even if it means not getting a refund. The best way to deal with it is to tell them that they should put 20% away just as though it was a normal payment. Some will, some won't.
I think, Rebecca we should also look at the prospect of a lockdown for a period every year. If covid-19 is a one off , then no problem but what if it's part of a new strain of virus that could possibly hit us every year. Scientists and the people in "the know" don't seem to be able to answer that one. I'm certainly not scaremongering but our business habits will change quite dramatically if it does happen. Let's hope it's a one off, but I have my doubts.

Thanks (0)
avatar
By pauljohnston
15th Jun 2020 10:43

Thanks Rebecca.

As with the 2nd Tranche Furlogh I am concerned that businesses will continue to furlough as long as possible - and run wth reduced staff. Putting more burden on the state

Because there is still the question adversley effected for SElf-Employed I do wonder how many wont rush back and thus be able to claim. Rebecca uses a lady builder. Many small builders dont work much in August so I would imagine that the SEIS will be looked on as a freebie handout

Perhaps a better scheme would have been to reduce % of furlough payments faster except those businesses that cant open Pubs etc

Thanks (0)
By djn24
15th Jun 2020 11:40

'Accurate recording of the timing of trading conditions and costs for the business will be crucial, as the second SEISS grant can only be claimed if the business is adversely affected on or after 14 July 2020'.

I'm surprised by this as this grant surely covers June, July and August? Unless they are saying that at least half of this period must have been affected?

Thanks (2)
avatar
By North East Accountant
15th Jun 2020 13:00

No clear definition from HMRC of what "adversely affected" actually means.

What joy..... after the outbreak is over we will be arguing for years with HMRC about this.

Thanks (0)
avatar
By Jrufus11
15th Jun 2020 13:20

So if you work in the construction industry but missed the 23 April deadline for the tax returns from 2017 till now but you have your tax returns ready to be checked before the second grant can you qualify is this type of situation even being looked at and considered ??

Thanks (0)
By cfield
15th Jun 2020 14:54

The Government could have minimised SEISS costs enormously by making people quantify how much profit they've lost, rather than just giving away 80% of average profits for the first grant and 70% for the second. I know that would have complicated it, but if people want the pay-outs, they must expect the onus to be put on them to justify it. Yes it would have been wide open to fraud, but no more than it is now, and as sole traders they could have been chased later for any over-claims without a limited company to hide behind.

As things stand, you get a huge pay-out even if your profits are only £100 down. That can't be right. For some firms, this has been a real gravy train. Makes me wish I hadn't incorporated now!

All they would have needed to do is compare their income (gross profit for retailers/manufacturers) for March to May and June to August with last year. Then a box to say how much overheads have gone up (or down). Then one box to say it was all due to COVID-19, no other reason, and another box claiming a % if it was partly due to COVID-19. Those too innumerate to do it themselves could have asked an accountant (or anyone else able to do simple sums).

How many billions might that have saved? Someone will work it out one day, once the hoof prints from stampeding horses have filled with dust and the stable door lies broken on its hinges.

As an aside, are these SEISS grants subject to Class 4 NI contributions? I suppose not, as they are not earnings. There will have to be a separate line on the 2020/21 tax returns for them. Bet they haven't even thought of that one.

Thanks (0)
Replying to cfield:
avatar
By johnjenkins
15th Jun 2020 15:55

Although you are right if we live in a perfect world.
At the time nobody new how much damage or for how long this virus would inflict.
The Government made a bold statement "whatever it takes". It was stated at the time that there would be winners and losers. I think they have done all they could from a general overview. Does HMRC et al have the time to twerk and tweek. Don't forget as you close one door, another would open.
What I am worried about is that this problem arises every year.

Thanks (0)
Replying to cfield:
By djn24
16th Jun 2020 08:40

cfield wrote:

As things stand, you get a huge pay-out even if your profits are only £100 down. That can't be right. For some firms, this has been a real gravy train. Makes me wish I hadn't incorporated now!

As an aside, are these SEISS grants subject to Class 4 NI contributions? I suppose not, as they are not earnings. There will have to be a separate line on the 2020/21 tax returns for them. Bet they haven't even thought of that one.


I agree that they should have quantified a reduction in profits to be able to claim. I would think most accountancy firms, if that's what you mean, would be over the £50k profit so would be no claim anyway.
I've assumed that it will be liable to class 4 NI as the income is just added to profits like a grant for example.
Thanks (0)
Replying to cfield:
By Rebecca Cave
16th Jun 2020 09:03

ICAEW have confirmed that the SEISS grant is subject to self employed NICs, so it counts as earnings for both class 2 ( small profits thresold) and class 4 NIC.
https://www.icaew.com/coronavirus/self-employment-income-support-scheme

Thanks (0)