SEISS: Meaning of adversely affected explained
A key condition for claiming the SEISS grants is that the business must be adversely affected by the coronavirus pandemic. Rebecca Cave answers your questions about what this means in practice.
The HMRC directions for the first SEISS grant and the second SEISS grant both require that a claim may only be made if the business has been “adversely affected by the health, social and economic emergency in the United Kingdom resulting from coronavirus and coronavirus disease”.
Unfortunately, the drafters of the directions neglected to define what they meant by 'adversely affected', so this term was left to HMRC to explain in guidance.
What do the words mean?
Where there is no legal definition of a term in law you have to interpret the words as they would be commonly be understood in everyday English.
To be 'affected' means to be changed by something, in this case by the coronavirus pandemic, and the direction tells us this can be through any of the three concurrent emergencies: health, social or economic.
The term “adversely” implies the change must be in a negative direction, but how negative?
HMRC recently confirmed that there is no minimum threshold over which the business income or costs need to have changed. Thus, even a small drop in sales or increase in costs will allow the trader to honestly assess that their business has been “adversely affected”.
Ramesh Nagarajan asked: My turnover is 5% down compared to last year. Am I adversely affected by Covid19?
If you can tie the 5% decrease in your turnover to the coronavirus pandemic, your business has been adversely affected and you do qualify for the SEISS grants assuming you meet the other conditions.
The first and second SEISS grants apply to different periods for which the business must be adversely affected.
The direction for the second SEISS grant clearly states that the business must be adversely affected on or after 14 July 2020. As applications for the second SEISS grant close on 19 October 2020, the adverse effect must occur before that date.
The direction for the first SEISS grant did not specify a timescale, but the tense implies a past event before the claim is submitted. As applications for the first SEISS grant closed on 13 July 2020, the adverse effect would have to apply sometime between mid-March 2020 when businesses started to shut down, and 13 July 2020.
Mark Nejad asked: Are bookkeepers regarded as adversely affected if quite a few of their clients are not asking for the service due to inability to pay the fees, but expected to eventually ask for the service due to the January SA return due date?
A business in this situation is adversely affected, because their turnover between March and October has been reduced below what would normally be expected. It is irrelevant that the bookkeeper optimistically expects the demand for their services to increase significantly after October 2020.
HMRC is clear that the taxpayer should make an honest assessment of the performance of its own business. However, the business owner should also keep records of how the business was adversely affected. These records could include:
- Dates when staff were unable to work due to illness, shielding or caring responsibilities
- Dates when the business was physically closed due to lockdown restrictions
- Receipts for additional costs incurred
- Contemporaneous sales records that show a reduction for particular periods
Jilbo asks: Some of my clients are saying: How would HMRC know if I wasn't affected at 14 July or a later date? They're not going to be able to check everyone.
As part of the SEISS claim, HMRC asks the taxpayer to confirm that their business has been adversely affected by coronavirus.
This is similar to the declaration made on any tax return – that the statements made in the document are true. The first point of the HMRC Charter is that HMRC will assume the taxpayer is telling the truth unless it has a good reason to think otherwise and taxpayers are truthful and act within the law. If taxpayers set out to be dishonest in their declarations to HMRC, then they undermine the bedrock of the tax system.
SimonStone asks: I have a client whose profits will be increased on the same period last year, and when looking at 2020/21, will be higher than 2019/20. However, she says that profits would have been even higher after 14 July, if not for covid19. Is she eligible to claim the SEISS grant?
If the client can show that her costs have increased in 2020/21 compared to 2019/20 because of the pandemic, she would qualify for the SEISS grant. The test, as HMRC set it out, is that either business income is lower or costs are higher. The key will to show why and how costs increased during the pandemic.