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Seven deadly sins of SEISS: Traps to avoid

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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.

4th Feb 2022
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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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Replies (12)

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By jonharris999
05th Feb 2022 08:19

These points are all correct; yet I maintain, as I have done throughout this saga, that a greater sin - albeit inflicting a wound only on the self - is repaying the grant incorrectly, on the grounds that a retrospective analysis of the year shows that the business turned out to have higher turnover or profit than in an earlier year or years, and from an unfounded fear that this fact will cause a clawback from HMRC.

I have come across more than a few examples of taxpayers committing this sin - and more than a few accountants advising them to do so. I wonder if such accountants are leaving themselves open to later claims from their clients.

Thanks (2)
Replying to jonharris999:
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By Hugo Fair
05th Feb 2022 12:00

Hindsight is indeed far too prevalent ... partly out of a misapplied sense of 'fairness' but also because far too few claimants took any notice of the guidelines to maintain adequate records *at the time* (including their reasons, beliefs, etc as well as actual numbers).
This leaves them in an unnecessarily weak position when questioned by HMRC (or even by their own accountant)!

It would be nice to think that those who have ended up with SEISS on top of the amount of profit equivalent to the previous year will have invested it in growing their business (rather than sipping bubbly on extra holidays) ... but 'morality' was never at the core of capitalism - and just imagine trying to police all that!

Thanks (3)
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By Calculatorboy
05th Feb 2022 21:11

There is no way hmrc will police this ..they cant even cope with registering people for sa purposes at moment .

Ill conceived naive grant system designed by poor little rich kid politicians,

not my problem

Thanks (6)
By Nebs
07th Feb 2022 11:21

If HMRC challenge you then just tell them it was fraudulent claim, then they will simply write it off.

Thanks (2)
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By anthonystorey
07th Feb 2022 11:32

Rishi Sunak threw billions of pounds out of the window for anyone to catch, so is it not finders keepers.

Thanks (1)
By cfield
07th Feb 2022 12:30

When I first saw the heading of this article, I'd hoped for some guidance on whether to repay SEISS grants, being such a murky subject, and the first sentence was encouraging, but in the end all we got was the elementary school stuff. As Hugo Fair said, a simple increase in turnover/profits is not proof the client claimed incorrectly, as the main criteria for the first 2 grants was whether the business had been "adversely affected".

If your business was growing and profits would have been even higher but for the pandemic, you were perfectly entitled to claim. Of course, it was a huge grey area, as who is to say how much profit would have been? That was the main flaw in the scheme, not requiring claimants to submit any kind of evidence, not tailoring the claim to the damage suffered by the business and leaving it wide open to fraud and abuse. It was like the Wild West basically, no clear rules and free helicopter money for anyone who fancied it.

They refined the criteria for subsequent claims but it was still about as clear as mud. What worries me is that HMRC will now enquire into tax returns where turnover/profit went up and grants have not been re-paid, but the guidance has been very poor, and no one really seems to know when that is necessary. We are none the wiser for this article.

Thanks (0)
Morph
By kevinringer
07th Feb 2022 13:03

"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."

HMRC needed agents help to make sure CJRS worked so agents were built into CJRS from the outset. HMRC even went as far as using existing PAYE agent authority as deemed CJRS authority. CJRS was rushed out even quicker than SEISS. Because HMRC made it work for CJRS, HMRC could have made it work for SEISS. The fact HMRC did not make it work tells me it was an active decision to exclude agents because HMRC thought it could do it itself. In hindsight I am glad we agents couldn't make SEISS claims because we would have had cases where client wanted the free money but we felt they did not meet the conditions. And how would we have coped with the workload of handling all those claims?

Thanks (6)
Replying to kevinringer:
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By C J EYRE
07th Feb 2022 14:25

Yes I am glad that I did not get involved in the grants as I am at a loss on how the Revenue worked grant 4 and 5 out.
I supplied a client with her turnover figures to 5 April 2020 and 2021 she needed to send to the Revenue to claim grant 5. Her turnover had gone up in the year to 2021, so I suggested to her that she was wasting her time claiming because of the 30% reduction figure quoted by the revenue. She took great delight in phoning me to tell me that the Revenue had just sent her just over £1000

Thanks (1)
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By MartinLevin
07th Feb 2022 13:13

I submit that the mangled English used by HMRC was a problem by mis-using the word "GRANT".
Student Grants are not taxable. Therefore misleading its use, meant that early tax estimates on Financial Accounts having a different Accounting Date other than 5 April, meant that providing estimates for tax planning, thinking that they were not taxable, were blown out of the water when the 2020-2021 Tax Return arrived after 06.04.22 showing a new box. From The GoodEnglish Professor

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By AndrewV12
14th Feb 2022 12:10

Sin 4: Ignored for benefit claims

Sin 4 could come back to haunt a few, mind you most people receive a benefit of some kind theses days.

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By johnacarpenter
18th Feb 2022 12:06

The agent help line will not disclose the amount SIESS a client has received.
A 64-8 authorisation is not sufficient for this to be disclosed.

Seems HMRC are succeeding to making tax difficult.

Thanks (0)
Replying to johnacarpenter:
Morph
By kevinringer
18th Feb 2022 13:34

You can download the figure for total 2020-21 SEISS through your Self Assessment API.

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