Seven deadly sins of SEISS: Traps to avoidby
The self-employed income support scheme has supported millions of small businesses through the pandemic, but many taxpayers have misunderstood the rules and may end up in trouble with HMRC.
Self-employed individuals could apply for up to five separate self-employed income support scheme (SEISS) grants between May 2020 and September 2021, but the day of reckoning has now arrived, and the grants must either be taxed or repaid.
Here are seven sins or errors that taxpayers may commit concerning SEISS grants.
Sin 1: Not telling the accountant
Taxpayers had to claim the SEISS grants themselves through their own government gateway, as tax agents were locked out of the claim portal. This was a design feature not a bug, as HMRC said the time taken to include agent access would have slowed down the provision of grants to taxpayers who desperately needed them.
The knock-on effect is that accountants don’t have details of the SEISS grants their clients have claimed, and clients may not realise this.
The taxpayer may forget to tell their accountant (by accident or on purpose), that they received some government support. There is really no alternative but for the accountant to critically analyse the client’s bank account for unexplained receipts.
Sin 2: Not on the tax return
There is a persistent myth that the SEISS grants are not taxable – they are. The funds are taxable in the year in which they were received, and are also liable to class 4 NIC, and class 2 NIC if the taxpayer has not already reached the small profits threshold for class 2.
The first three grants were paid before 6 April 2021, so they must be declared on the taxpayer’s 2020/21 tax return.
HMRC created new boxes on the return forms to report grants from the various coronavirus support schemes as I explained in July 2021. Tax agents need to be particularly careful to include the SEISS grants in the box relating to the self-employed grants not the box for ‘any other income’ or ‘support payments such as CJRS’.
Sin 3: Incorrect tax return declaration
If the total value of SEISS grants declared on the 2020/21 tax return doesn’t match SEISS grants one to three, which HMRC believes it paid out to that taxpayer, the tax authority will automatically correct the self assessment tax calculation. This correction is notified to the taxpayer on form SA302.
It’s important to check this HMRC amendment as it could be wrong. If HMRC has corrected a grant that the taxpayer says they did not receive, its possible the individual’s tax identity has been misused to submit a fraudulent SEISS claim.
Sin 4: Ignored for benefit claims
Taxpayers who claim the state benefits, such as working tax credits or universal credit, need to include the amounts of SEISS grants received as part of their trading income figures on their benefit claim, but they may not realise they have to do this.
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