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SEIS claimants who cease trading may have to pay back grants - and penalties
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Seize the moment for SEISS 4

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Liz Whiteley summarises the key conditions surrounding the latest phase of the self-employed income support scheme.

19th Apr 2021
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Almost five months after the last round of the Self-Employment Income Support Scheme (SEISS), HMRC is now sending emails, letters or messages within its online service advising those whose tax returns show they may be entitled to claim the fourth SEISS grant when their April when their personal claims window opens.

The window will open in “late April” according to HMRC and will close for all SEISS 4 claims on 1 June 2021.

SEISS has evolved

Coronavirus isn’t alone in having spawned variants. The newest SEISS variant, SEISS 4, covers the period from 1 February 2021 to 30 April 2021 and brings 2019/20 tax returns into account, both for eligibility and in calculation of the amount of the grant. This will open the scheme to some new applicants who started up in 2019/20; it excludes not only those who are no longer trading but also some who had little or no profit relative to other income in 2019/20.

Eligibility is determined by HMRC and only applies to those whose 2019/20 tax returns were submitted before 3 March 2021.

HMRC will test eligibility for 2019/20 in isolation to see if profits are under £50,000 and at least half the relevant income. For those who don’t qualify based on 2019/20 alone, HMRC will then evaluate the four tax years 2016/17, 2017/18, 2018/19 and 2019/20 combined to test if average profits across the four years are under £50,000 and at least half of relevant income.

If trading hasn’t continued through all four tax years, only the most recent continuous two or three tax years with trading income are used in determining both eligibility and amount.

Amount is also determined by HMRC, and SEISS 4 will again be 80% of three months’ average profits, but it is likely to be different to SEISS 3. The amount of SEISS 4 could be higher or lower than SEISS 3 because 2019/20 profits will be included for the first time in working out average profits.

There is no mechanism to claim a smaller amount – the only option would be to make the claim and voluntarily repay part of it.

Entitlement

Just because HMRC’s historical records may show eligibility does not mean that someone is necessarily entitled to claim. There are two important declarations required:

  1. Traded as self-employed in 2020/2021 and intending to continue to trade in 2021/2022
  2. Must have reasonable belief there will be a significant reduction in trading profits due to reduced self-employed income (not just increased costs) because of reduced business activity, capacity, demand or inability to trade due to coronavirus. There are several key terms in this declaration which will be discussed in more detail in a follow-on article next week.

Having a new child affected the 2019/20 tax year?

It may be possible in some limited circumstances for someone to make a claim even if having a new child means they do not meet the eligibility tests based on their 2019/20 tax return. They must have submitted a 2018/19 tax return and meet all other eligibility and entitlement criteria. HMRC advises: “Before making a claim, you must contact us to verify that having a new child has affected your eligibility.”

For these purposes “having a new child” includes being pregnant, giving birth (including a stillbirth after more than 24 weeks of pregnancy) and relates to the six months after giving birth, and caring for a child within 12 months of birth or adoption placement for a claimant who has parental responsibility.

Tax on SEISS payments

All SEISS variants are taxable and class 4 NICable and for SEISS 4 this will be in 2021/22, the year in which the grant is made, even though most of the qualifying three months are not in 2021/22.

SEISS grants received must be declared on self-assessment returns separately from normal business turnover.

Be prepared for HMRC checks

HMRC has repeatedly said all SEISS claims will be checked. The focus of checks will principally be the entitlement declarations claimants make, since HMRC itself is determining eligibility and amount. HMRC can be expected to automate checks to some extent by comparing SEISS claims with turnover and profits on self-assessment tax returns for 2020/21 and eventually with 2021/22 tax returns.

The next article on SEISS 4 will cover these checks and the possible sanctions.

Replies (14)

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By bosclibby
21st Apr 2021 09:49

"Must have reasonable belief there will be a significant reduction in trading profits due to reduced self-employed income (not just increased costs) because of reduced business activity, capacity, demand or inability to trade due to coronavirus"

Do we know for what period this is relevant? Presumably the period 1/2/21 to 30/4/21?

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Replying to bosclibby:
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By ianmac2509
21st Apr 2021 10:00

Reasonable belief
In order to claim the fourth grant, you must reasonably believe that you’ll suffer a significant reduction in trading profits, due to reduced business activity, capacity, demand or inability to trade due to coronavirus between 1 February 2021 and 30 April 2021. You must keep evidence that shows how your business has been impacted by coronavirus resulting in less business activity than otherwise expected.

HMRC expects you to make an honest assessment about whether you reasonably believe your business will have a significant reduction in profits.

https://www.gov.uk/guidance/claim-a-grant-through-the-coronavirus-covid-...

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Replying to bosclibby:
Liz Whiteley
By Elizabeth Whiteley
21st Apr 2021 10:17

This is something which will be addressed in more detail in next week's article, but there are two elements with different reference periods:
1. 'the business of which has suffered reduced activity, capacity or demand in the qualifying
period' - reduction in TURNOVER in the qualifying period (1/2/21 to 30/4/2021)
AND
2. 'a significant reduction in trading profits for a relevant basis period from that which would otherwise have reasonably been expected as a result of that reduced activity, capacity or demand' - significantly reduced PROFITS in at least one of the basis periods that the three months Feb/Mar/Apr 2021 fall into. So for traders with 30th April year ends the significantly reduced profits will need to be in y/e 30/4/21 for SEISS 4; for any other year end date, there are two potential basis periods only one of which needs to have significantly reduced profits for SEISS 4. The significant reduction in profits must be looked at for the basis period as a whole, usually 12 months, not just the 3 months of the qualifying period.

P.S. A client friendly document on Proving Entitlement to SEISS 1-3 is available from my website www.cleartaxinfo.online

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Replying to Liz Whiteley:
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By possep
21st Apr 2021 13:38

P.P.S. at a cost of £12.00

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By Wiganer Elaine
21st Apr 2021 11:24

If profits are usually around say £25000 and these are reduced because of lower turnover and increased costs to say £13000 BUT, they received the business rates grant of £10000 which effectively means they have a taxable profit of £23000, can the 4th SEIS still be claimed?

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Replying to Wiganer Elaine:
Liz Whiteley
By Elizabeth Whiteley
21st Apr 2021 16:19

HMRC's guidance says: 'You do not have to consider any other coronavirus scheme support payments that you have received when deciding if you’ve had a significant reduction in your trading profits.'
https://www.gov.uk/guidance/claim-a-grant-through-the-coronavirus-covid-...
Depending on other income, the trader's tax will be higher than usual with only a small reduction in profits and SEISS on top of that. Whether it's morally right to keep the full amount is for the trader to decide.

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By Hugo Fair
21st Apr 2021 17:33

If you're still preparing your follow-on article for next week, it might be worth finding out what's going on with regards to any 'new parent' rules for the 4th round.

I've no idea myself, but the GOV.UK updates at https://www.gov.uk/guidance/help-and-support-if-your-business-is-affecte... show:
* 20 April 2021:
A YouTube video about 'Self-Employment Income Support Scheme (SEISS) – Claiming the fourth grant if you’re a new parent' has been added.
* But later the same day a further update was added:
The YouTube video about 'Self-Employment Income Support Scheme (SEISS) – Claiming the fourth grant if you’re a new parent' has been removed!

So what changed?

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By fawltybasil2575
21st Apr 2021 18:29

@ Hugo Fair.

I trust that the following two links will assist – the first is to the relevant GOV.UK guidance and the second to guidance from LITRG:-

https://www.gov.uk/guidance/how-different-circumstances-affect-the-self-...

https://www.litrg.org.uk/tax-guides/coronavirus-guidance/self-employment...

[The third section of the GOV.UK guidance is of course the relevant section].

Basil.

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By AndyC555
27th Apr 2021 13:09

"Eligibility is determined by HMRC and only applies to those whose 2019/20 tax returns were submitted before 3 March 2021."

A friend of mine (who should perhaps have used an accountant!) files his own tax return. He's now found out that whilst he loaded all the information on-line at HMRC and thought he had pressed the submit button, he either didn't or did and something went wrong. Since he didn't get a late filing penalty in February (which ordinarily he would have) he had no idea this had happened and his first knowledge of this was when he applied for the SEISS grant in April.

He now finds he isn't eligible for the 4th grant and I didn't have the heart to tell him that as far as I can see he won't be eligible for the 5th grant either.

OK, on the one hand he should have done things properly but on the other this seems a massive financial penalty for what seems to have been an honest mistake.

He's asked me if there is any appeal process at all but I'm not aware of one. Anyone hear different?

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By ozzie1952
29th Apr 2021 11:44

I have a client who has not claimed SEISS before as he only started self employment in 2018/9. He works as a self employed person in a tattoo parlour which has ben closed during the lockdown periods. During those periods he had no income from that source of income. However, rather than doing nothing he found himself other self employed income meaning that his income from February 2021 to April 2021 has not gone down. There is no doubt that he lost income from the tattoo parlour self employed income. On that basis, can he claim SEISS 4? Would the answer be any different if he was employed under PAYE in those periods when he could not go to the tattoo parlour?

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By ozzie1952
29th Apr 2021 11:45

I have a client who has not claimed SEISS before as he only started self employment in 2018/9. He works as a self employed person in a tattoo parlour which has ben closed during the lockdown periods. During those periods he had no income from that source of income. However, rather than doing nothing he found himself other self employed income meaning that his income from February 2021 to April 2021 has not gone down. There is no doubt that he lost income from the tattoo parlour self employed income. On that basis, can he claim SEISS 4? Would the answer be any different if he was employed under PAYE in those periods when he could not go to the tattoo parlour?

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By ozzie1952
29th Apr 2021 11:58

I should have said. My client above is now back in the tattoo parlour as now re-opened.

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By fawltybasil2575
29th Apr 2021 20:52

@ ozzie1952.

I assume that (as appears implied in your question) (i) the Self-Employment profits have been well below £50K p.a; (ii) the 2019/20 Tax Return was submitted by 2 March 2021; and (iii) the client prepares Self-Employment figures up to any date from 31 March to 5 April each year [the dates 5 and 6 April per (iii) below assume 5 April to apply].

On those assumptions, and if I fully understand your question, I consider that your client will be entitled to claim SEISS 4, on the following conditions:-

(i) The 2019/20 Self-Employment profit was at least equal to the Other Taxable Income in 2019/20 [or, if not so, albeit less likely, taking the tax years 2018/19 and 2019/20 together).

(ii) The client expects to continue in Self-Employment in (but not necessarily throughout) 2021/22.

(iii) The “Turnover shortfall” in the period 1 February 2021 to 30 April 2021 (ie the difference between (a) the actual Turnover in that period and (b) the Turnover which would have arisen had Coronavirus not impacted on his business income) was “significant” in relation to his Self-Employment income in (a) the period 1 February 2021 to 5 April 2021 and/or (b) the period 6 April 2021 to 30 April 2021.

It is of course the “significant” element of (iii) which is, being subjective at best, a potential problem in principle: in your client’s case, however, and somewhat “reading between the lines” of your question, I would not think that this nebulous “significant” factor would be a problem.

I have referred above to a reduction in “Turnover”. The legislation actually refers to a reduction in “activity, capacity or demand” (in normal cases, one can realistically interpret that phrase as “Turnover”).

My above answers would be unaffected if the client had been “employed under PAYE in those periods”.

As a separate point, I assume that the client did not qualify under SEISS 1/2/3 due to his failing the “50%” test in 2018/19 (presumably due to his Employment income in that year exceeding his Self-Employment income).

Basil.

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Replying to fawltybasil2575:
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By [email protected]
01st May 2021 12:48

Wasn't ozzie1952 asking whether the client would be able to claim if he had started a new self-employed business? ie. his profit from tattooing is significantly reduced, but his overall profit may not be because of the new employment.

I'm interested in the answer because I have 7 clients who are tattoo artists, who have all turned their hands to other work while not able to tattoo.

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