SEISS on tax returns – do you need to check eligibility and what if client and agent disagree?
2020/21 income tax self assessment returns will be the first to include Self-Employment Income Support Scheme (SEISS) grants. What are the practitioner’s responsibilities for SEISS amounts entered on a return, and whose responsibility is it to check if amounts have been properly claimed?
Taxation and SEISS
The SEISS scheme has been unusual as regards to practitioner/client relations. This is because clients were obliged to make the claim themselves, yet practitioners need to include details on the tax return (as taxable amounts of SEISS received, or as amounts to be repaid voluntarily which have not previously been paid back).
Furthermore, SEISS eligibility, apart from the factual issues of amounts of profit in historic years and legal form of the business etc, is based primarily on an opinion by the claimant as to whether they have been ‘adversely affected’ by the pandemic (SEISS 1 and 2 - 30 April 2020 direction ‘adversely affected’ per para 3.3). The ‘opinion’ was more factually based for later phases from SEISS 3 onwards (SEISS 3 direction para 4.2[b]).
Deciding whether the SEISS claim was appropriate, and that no repayment is necessary, is therefore far from straightforward. The client’s decision is not to be reviewed with the benefit of hindsight, rather it is to be viewed based on the circumstances appertaining to the business at the point of claim.
Division of responsibilities
The client who claimed has the responsibility for making the decision whether to keep SEISS grants or consider repaying part or all of a grant.
Best practice for the practitioner includes taking care that entries on the tax return are not misleading or inaccurate (in line with Professional Conduct in Relation to Taxation [PCRT]) and reminding clients of the possibility of compliance activity by HMRC, and the need for appropriate contemporaneous evidence to support the decision to claim.
The key point here is likely to be reminding clients of the need for evidence that the claim was objectively reasonable at the time they claimed. The client will need to consider if they were either ‘adversely affected’ by the pandemic, for grants 1 and 2, or met the more stringent conditions for phase 3, including the reasonable belief that trading profits would fall due to the pandemic. And that these decisions are supported by sufficient evidence.
This will be particularly challenging where actual results for profitability and turnover for the pandemic period do not show any significant negative impact from the pandemic.
Actual versus expected
While the rules of the different SEISS grants varied, there is an expectation that businesses claimed where they had been negatively affected by the pandemic. When preparing the trading accounts for the 2020/21 return, advisers may become aware that turnover/profitability for the most recent period has increased as compared to previous years or show little to no impact caused by the pandemic. What is the adviser’s responsibility in such cases?
Evidence that it was right to claim
It is worth reemphasising that this is not about hindsight or second guessing. HMRC has stressed in meetings and in guidance that the decision to claim must have been reasonable at the time of the claim; in the light of business information, guidance, and the scheme rules at the time. It is not about retrospection.
The specific tests changed across the various phases of SEISS, and the impact of this is discussed below. It is possible that HMRC compliance activity will, in due course, make comparisons between actual trading performance and profitability submitted on the tax returns and the SEISS eligibility conditions.
In this context, it may be helpful to review with the client the reasons for paying a grant back, given on the HMRC voluntary repayment page. The reasons listed include errors such as the impact of amendments to returns, incorporation, or ceasing to trade.
If the client still considers that they did qualify (and the ‘adversely affected rule’ is particularly vague), it will be sensible to remind the client of the likelihood of HMRC compliance activity over the coming years, and the need for evidence to support their decision to claim.
The risk of compliance activity may be heightened where tax returns for the pandemic period do not show a fall in turnover/profitability. But an increase in profitability/turnover alone would not invalidate a ‘adversely affected’ claim, if there is other evidence of the impact of the pandemic at the time. For example, trade may have recovered later in the year.
The exact nature of the evidence will depend on the rules for that phase of SEISS. For example, HMRC’s view in the June 2020 guidance (phase 2) put it like this:
You should also keep any evidence that your business has been adversely affected by coronavirus such as:
- business accounts showing a reduction in turnover
- confirmation of any coronavirus-related business loans you have received
- dates your business had to close due to lockdown restrictions
- dates you or your staff were unable to work due to coronavirus symptoms, shielding or caring responsibilities due to school closures
Examples of how a business might be adversely affected were given in the guidance as:
Your business could be adversely affected by coronavirus if, for example:
you’re unable to work because you:
- are shielding
- are self-isolating
- are on sick leave because of coronavirus
- have caring responsibilities because of coronavirus
- you’ve had to scale down or temporarily stop trading because:
- your supply chain has been interrupted
- you have fewer or no customers or clients
- your staff are unable to come in to work
(NB: Conditions changed for later grants)
Additional evidence from SEISS 3 onwards
For SEISS phase 3, there was an additional caution in the guidance that ‘You should wait until you have a reasonable belief that your trading profits are going to be significantly reduced, before you make your claim’.
If turnover and profitability actually increased, taking the year as a whole, then this would suggest that other persuasive, contemporaneous evidence would be needed to show that the claimant’s assessment at the time of the claim was reasonable.
Comparisons may be far from straightforward as periods of account may not exactly match claim periods.
Eligibility and repayment
One difficulty is the number of times the HMRC guidance has changed (over 400 pages in the archived guidance), and the different conditions attached to different phases of the scheme.
The starting point for a review of eligibility is the Treasury directions and Legislation (schedule 16 FA2020) together with the HMRC guidance (HMRC SEISS guidance National Archives index - 430 pages).
HMRC guidance for the third grant included some examples and guidance, which can be found in the National Archives.
Normally one might expect SEISS claimed in error to be repaid via the voluntary repayment route, direct to HMRC. Hence the self assessment return is something of a ‘last chance’ if no other route has been taken. If this last chance is not taken and HMRC compliance later identifies incorrectly paid grants, penalties are likely to apply.
If practitioner and client disagree
The client retains primary responsibility for claiming SEISS and for repaying any amounts incorrectly claimed. As discussed above, the decision to claim is nuanced and based on the client’s opinion at the time of claim. It is therefore difficult for a practitioner to second guess. The practitioner’s primary role will be to explain the compliance risk and ensure that, as far as possible, client records are sufficiently robust to face HMRC challenge.
In exceptional cases, where the practitioner considers the client’s position to be blatantly unsupportable, it may be necessary for the practitioner to consider ethical,Anti Money Laundering (AML) and PCRT angles. There are a number of aspects to this issue.
These would include Professional Conduct in Relation to Taxation, ICAS Code of Ethics and Anti Money Laundering. There is also a more technical tax return aspect considered below.
As regards AML, members may contact the ICAS Technical Helpdesk (Ethics team for reporting issues; practice team for AML procedures). The ICAS Ethics Team are able to discuss on the phone an approach as to whether a report should be made in a specific case.
PCRT Helpsheet A – tax filings, which is guidance supplementary to the key PCRT principles, provides an overview of client and practitioner responsibilities as regards tax returns. At para 13 it says: a member should take care not to be associated with the presentation of facts they know or believe to be incorrect or misleading, not to assert tax positions in a tax filing which they consider to have no sustainable basis.
If there is an unresolved disagreement, then it will be helpful to turn to Helpsheet C – dealing with errors. This includes a flowchart of possible actions. A discussion with the ICAS Practice Support may be helpful in such circumstances.
Practitioners and clients alike will be concerned to ensure that SEISS and other pandemic support has been correctly claimed. They will also want to be best prepared for any possible HMRC challenge. Before filing the 2020/21 tax return it would be prudent to ensure that clients are confident that their claims were appropriate and that they retain sufficient evidence to justify that decision.