SEISS: Bills for overpaid grants hit taxpayers

During the Covid-19 pandemic HMRC was under pressure to provide cash support to businesses, so the self-employed income support scheme (SEISS) was speedily devised and implemented. Although the grants paid out were based on tax-return data, there were opportunities for fraudsters to game the system, particularly for the fourth and fifth SEISS grants that were paid in 2021.    

Claim high then amend 

These final two SEISS grants were based on the taxpayer’s reported profits in their tax returns for 2016/17 to 2019/20, which HMRC held in its systems on 2 March 2021. 

A dishonest taxpayer could potentially inflate their SEISS grants by reporting higher profits in their 2019/20 tax return (due by 31 January but penalties we waived for those that filed by 28 February 2021), and then amend that tax return before 31 January 2022.

The taxpayer may have thought they could get away with massaging the figures on their 2019/20 tax return, as the tax due for that year could be partly deferred using the automated online system to apply for Time to Pay. However, if any of the tax returns for 2016/17 to 2019/20 were amended after 2 March 2021, either by the taxpayer or by HMRC, the amount of the fourth and fifth SEISS grants may also have to be adjusted.

HMRC may amend the tax return as a result of an enquiry or to correct an “obvious” error. Where the taxpayer has entered into a contract settlement with HMRC, a charge or revenue assessment has been raised, these are not considered to have modified the return, so don’t count as amendments.     

What HMRC checks  

HMRC has now had the time to examine the SEISS claims in detail and compare them to the taxpayer’s amended tax returns including the 2020/21 tax return, which will generally cover the relevant period for both the fourth and fifth SEISS grants. 

Remember that the tricky turnover test for the fifth SEISS grant required the taxpayer to state that their business turnover for 2020/21 was lower than that for a comparison year as reported on the 2019/20 tax return. If the turnover was actually higher in 2020/21 than the comparison year then the fifth SEISS grant would not be due, and would now have to be repaid.

As the fifth SEISS grant was paid at two levels (30% or 80% of average profits), HMRC is also checking that the grant was paid at the right level. 

Where the amount of the grant has to be adjusted downwards by £100 or more, due to a tax return amendment, the taxpayer should have voluntarily repaid the excess amount of the SEISS grant. 

Where the SEISS grant has been adjusted down by less than £100, no action is taken.   

Consequences 

If the taxpayer has not informed HMRC that they want to repay some or all of the grant, HMRC will collect the excess grant by way of a formal assessment.

HMRC sets out how that assessment is calculated in a letter to the taxpayer, which should be copied to the tax agent. 

As this letter and assessment relate to the tax return and not only to the SEISS grant, HMRC should communicate with the appointed tax agent on this issue. Only where the SEISS grant is sole subject of the query will HMRC refuse to talk to the tax agent without an additional authorisation letter.    

How to pay 

The taxpayer must either submit an appeal against the assessment, or pay the amount demanded within 30 days of the date on the HMRC letter.  

If the taxpayer can’t pay the full amount within that period, they should immediately apply for a Time to Pay arrangement by calling HMRC on 0300 322 9497. Tax agents can help with this, but the client has to talk directly to HMRC to give authority for the instalments under the Time to Pay agreement to be collected by direct debit. 

If the assessment is not paid within 30 days a 5% late payment supplement will be levied and interest will apply from 31 January 2023 on any amounts unpaid at that date.