Self-Employed Income Support Scheme (SEISS) – some concerns and queries
By Philip McNeill, Head of Taxation (Tax Practice and Owner Managed Business Taxes)
2 April 2020
Philip McNeill discusses some of the outstanding queries and uncertainties that attach to the Self-Employed Income Support Scheme – and points to watch out for – as at 1 April 2020.
HMRC updated its guidance on 14 April and has provided answers to some of the questions raised here.
What is it?
SEISS is a grant for the self-employed and partnerships which have lost income due to coronavirus. To be eligible you must have been trading during 2018-19.
How much?
The amount you receive is based on average business trading profits for the years you were trading between 2016-17 and 2018-19.
Support is capped at £2,500 a month and cannot exceed 80% of average profits. SEISS will cover profits for three months, though the scheme may be extended.
Restrictions and exclusions
SEISS is not available where annual trading profits are £50,000 or more. Applicants must derive more than half their taxable income from trading as a sole-trader or in partnership. You need to pass these tests for either your 2018-19 income, or for the average of the three years 2016-17 to 2018-19.
To be eligible you need to be trading when you apply for SEISS (or be prevented from trading due to Coronavirus at that date). You also need to have been trading in the tax year to 5 April 2020 and intend to trade during the year to 5 April 2021.
You will only be eligible if your 2018-19 tax return is filed by 23 April 2020.
Income assessed
HMRC will use the reported income for the tax years 2016-17, 2017-18 and 2018-19 to calculate your average monthly profits.
If you started trading after 5 April 2016, HMRC will use the self-assessment returns for the years you have filed.
How and when
Expect grants to be paid from the beginning of June 2020. HMRC will contact businesses it considers are eligible and invite them to apply online.
Beware of scams
Access to the scheme is expected to be via the Business Tax Account. HMRC may notify you by text or email to sign in via Government Gateway to apply. Anything purporting to be from HMRC which invites you to click on a link to access SEISS is a scam.
It is not known yet how agents might apply on behalf of clients.
Uncertainties and problem areas
Mix of income
Key areas to watch will be the mix of taxable income. Individuals who are both employed and self-employed/in trading partnership, or have rental income will be ineligible if the trading income is less than half of the total taxable income.
It is not yet clear exactly how the 50% limit will be calculated. Will this be based on taxable income before reliefs such as pension contributions, EIS and other deductions?
It is not yet confirmed how holiday letting businesses will be treated, but these might be expected to count as trading income, whereas income from property rental business or buy-to-let would be non-trading income.
Impact on social security benefits
Individuals who claim tax credits will need to include the grant as income when it is received. This is likely to apply to Universal Credit claimants as well.
Level of income reduction due to Coronavirus
There is no guidance so far of the extent of loss of earnings needed due to Coronavirus. The guidance suggests that businesses may still be trading when they apply for a grant, but no indication has been given of whether there will be any abatement of the grant due to current earnings.
Will a business which has suffered a 50% loss in income be eligible for the same size of grant as a business suffering, say a 100% loss in earnings?
SEISS rules indicate that taxable profit, rather than accounting profit will be taken into account. Where businesses only prepare annual accounts, it may be impracticable to identify reductions in income in the period covered by the claim – namely March to May 2020.
Losses and averaging
It is also unclear how average income for previous years will take account of losses. Are such years to be ignored, or treated as income of nil and included so increasing the number of months over which remaining income is averaged?
Amending returns
HMRC’s view on amending claims and elections is also unclear. Some taxable income figures may be amended in the ordinary course of events, or to take account of claim made outside a return (eg for EIS relief). Presumably, ‘ordinary course of events amendments’ will feed into the SEISS basis figures if the amendments are processed before the claim is made.
But what is the position for amendments which could potentially be made in order to change the SEISS entitlement, such a disclaiming capital allowances? Fair play might suggest that returns should be left ‘as is’.
Links
Claim a grant through the coronavirus (COVID-19) Self-employment Income Support Scheme
Other help
The Coronavirus Financial Support on the Government’s Business Support website has an overview of the support available.
We’d welcome your feedback on the Self-Employed Income Support Scheme – do let us know if you have any queries or concerns and we will collate these and take them back to HMRC. Contact us on tax@icas.com.