As we have previously advised clients and friends (https://src-time.co.uk/furlough-6-0-the-self-employment-income-support-scheme/), there will be a third and fourth Self-Employed Income Support Scheme (SEISS) payment as part of the government’s support measures for the self-employed during the COVID-19 pandemic. However, two days ago the government guidance was subtly amended. We analyse the impact of this change below.
The basic conditions
To make a claim for the third grant the business must have had a new or continuing impact from coronavirus between 1 November 2020 and 29 January 2021.
The third taxable grant is worth 80% of the applicant’s average monthly trading profits, paid out in a single instalment covering three months’ worth of profits, and capped at £7,500 in total.
Applications open from 30 November and claims must be made by 29 January 2021.
To qualify, applicants must have traded in both tax years 2018/19, and submitted a self-assessment tax return on or before 23 April 2020 for that year, and 2019/20.
Initial government guidance
Earlier government policy announcements indicated that to qualify for the third grant, the business needs to not only be adversely affected due to coronavirus but also to:
- be currently trading but be impacted by reduced demand due to coronavirus; or
- have been trading but be temporarily unable to do so due to coronavirus.
Latest government guidance
- intend to continue to trade; and
- reasonably believe there will be a significant reduction in their trading profits due to reduced activity, capacity or demand or inability to trade due to coronavirus.
It is our understanding that the significant reduction in trading profits test is to be applied to the accounting period as a whole. For many taxpayers, for example those that use a 31 March or 5 April accounting date, the significant reduction of trading profits will be expected to appear in the results they report on their 2020/21 tax return. However, some taxpayers, for example those that use a 30 April accounting date, will not report the trading results for the relevant period until their 2021/22 tax return.
We have concerns regarding two aspects of these new requirements:
- The significant reduction in trading profits test applies to the tax year as a whole, which means that claimants will have to forecast their results to establish eligibility.
- It seems unlikely that HMRC will be able to effectively enforce the new requirements as to do so, it would have to consider some 2021/22 tax returns which may be submitted as late as January 2023.
HMRC’s guidance indicates that it expects claimants to make ‘an honest assessment’ about whether they reasonably believe that their business will have a significant reduction in profits.
For example, Abdul is a cafe owner who has fewer customers due to government restrictions on households mixing, which reduces his takings and reasonably believes this will significantly reduce his trading profits is eligible to claim.
In contrast, Karen is another café owner who increases her prices and believes her trading profits will not reduce significantly, is not eligible to claim the third grant.
Michal is a builder with coronavirus symptoms who self isolates for five days before receiving a negative test, is unable to work from home but is able to rearrange his contracts. He does not believe there will be a significant reduction in his trading profits, and is not eligible to claim the third grant.
His friend Jamal is an electrician who is still trading but has had increased costs due to buying masks, cleaning supplies and screens is also not eligible because increased costs were the only impact on the business and it has not lost customers.
SRC-Time are one of the South East’s leading accountancy firms in advising the self-employed and partnerships in all aspects of their tax affairs and we are able to assist in any issue raised above.
Our expert team is available to provide you with advice and can be contacted on 01273 326 556 or you can drop us an email at email@example.com or speak with an account manager to get any process started.