COVID-19 business support - updated SEISS guidance
By Philip McNeill, Head of Taxation (Tax Practice and Owner Managed Business Taxes)
21 April 2020
Philip McNeill reviews the updated HMRC Self Employment Income Support Scheme guidance.
HMRC has updated its guidance on SEISS. The updated version provides more details of how total income and average profits are calculated and covers the treatment of farmers’ averaging claims and losses.
For an overview of the basic conditions see the earlier article COVID-19: Chancellor announces assistance for the self employed.
Calculating total income and profits
A key change is that the guidance now includes detailed examples of how to calculate profits and total income, as well as how these figures interact with the ‘50% of total income’ and ‘under £50,000 profits’ rules.
An additional page of guidance, How HMRC works out total income and trading profits for the Self-employment Income Support Scheme does the number crunching.
In overview, trading losses are taken into account as negative profits, so if the results of the relevant three tax years are £65,000 profits, £55,000 profits and a trading loss of £30,000 this will give average profits for the three tax years of £30,000.
Other work
HMRC has confirmed that if you qualify for SEISS you can still continue to work on a self-employed basis, take on additional work on an employed or self-employed basis, or undertake voluntary work.
In the words of the guidance ‘If you receive the grant you can continue to work or take on other employment including voluntary work’.
Prudence suggests that anyone considering taking on additional work should keep reviewing the guidance for clarification and further updates as to exactly what forms of work are permitted.
Interaction with Universal Credit
Someone who is self-employed can make a claim for universal credit whilst waiting to receive the SEISS grant. However, any grant received will be treated as part of self-employment income and may affect the amount of Universal Credit payable. Any Universal Credit claims for earlier periods will not be affected.
When?
We have now been told that the online service should be up by mid-May, with HMRC issuing invitations to claim. Payments would then be made by early June 2020.
Loss of profits due to COVID-19
The guidance now says:
‘You will need to confirm to HMRC that your business has been adversely affected by coronavirus. HMRC will as usual use a risk based approach to compliance.’
While compliance with this condition may be straightforward where there is clear evidence that a business has been obliged to temporarily cease trading due to COVID-19, guidance on its interpretation where profits have been reduced by COVID-19 is awaited.
Special issues
Loans covered by the loan charge
Any self employed individual who has received payment for work or services in the form of a loan (or another form of credit) covered by the loan charge may be able to claim.
In this case eligibility and average profits will be based on the average of 2016-17 and 2017-2018. If the business was not trading in 2016-17, then profits for 2017-18 alone will be used.
For anyone affected by the loan charge rules, the 2018-19 tax return should be filed by 30 September 2020 at the latest. It is not necessary to file 2018-19 by 23 April 2020, as would otherwise be the case.
Farmers averaging
The new guidance says that profits figures before averaging will be used. There is no mention of averaging for creators of literary or artistic works, so it is not clear whether HMRC will take the same approach here.
Calculating trading profits
Much more detail has been provided on how trading profits and total income are calculated for the purposes of SEISS. In essence, profits will be trading turnover less tax allowable deductions (including capital allowances), but before deducting the personal allowance or brought forward losses.
Total income is taxable income from all sources – like savings income, pension and property income, taxable state benefits and miscellaneous taxable income.
The implication here is that total taxable income is compared to trading income, before any deduction for pension contributions or deductions are made.
Partnerships are not explicitly covered but given the format of the calculations it seems reasonable to make an initial assessment on the basis of partnership shares - and await clarification of the details.
Conclusion
While some questions remain unanswered, the updated guidance will enable most businesses to decide if they are likely to qualify, even before HMRC issues invitations to claim next month. This will assist with business-critical decisions on medium term viability and the outlook for alternative income streams.
The guidance may be updated again so it is worth checking for the latest version: