Support for the self-employed: where are we now?

The Self Employment Income Support Scheme (SEISS), which provides a cash grant to self-employed workers affected by the coronavirus outbreak, was announced back on 26 March 2020. Since then the scheme has been highly popular, with over £6.8bn of support having been claimed at the time of writing.

However, that’s not the end of the story. Recent announcements that both the self-employed and their advisers need to be aware of include the detail of how the second round of grants will work and the setting of a new deadline for claims under the first round of grants.

Round two of the SEISS

The most notable recent announcement was on May 29, when the chancellor confirmed that the SEISS would be extended.

A second grant payment will be made to eligible individuals in August 2020 in respect of the months of June, July and August. The Government have made it clear that this will be the final extension of the scheme, and that no further payments are to be expected.

The eligibility conditions for the second grant are identical to those for the first round of the SEISS. This means that if you have already made a claim for the SEISS, then provided that:

• your business continues to be adversely affected by coronavirus; and
• you have not changed your mind about continuing to trade in 2020/21,

you should also be eligible to claim for a payment in this second round of the SEISS.

However, you don’t need to have claimed a grant in the first round to receive the second grant.

What’s it worth?

The second grant payment will be slightly less generous than the first, and will be worth:

• up to 70 percent of average monthly trading profits,
• for a period of three months,
• capped at an overall maximum of £6,570.

As before, HMRC will calculate how much eligible individuals will receive, and apart from the lower percentage of profits (previously 80 percent) and lower cap (previously £7,500) being applied, the calculation of the second grant will be exactly the same as in the first round.

In particular, HMRC will use the same average monthly trading profits figures as were used to calculate the first grant. This means that there is no point in rushing to file the 2019-20 self-assessment return in the hope it might improve your chances of getting a grant, or the amount received (though you will of course benefit from the extra time to plan for tax bills which comes from filing a return early).

When and how to make claims

Claims for the SEISS grant can be made online and must be made by the recipient, not their agent.

The online claims portal for the first round of the SEISS opened on May 13. It has recently been confirmed that the deadline for first round claims is July 13, 2020. If you are eligible for a payment under the first round, but have not yet claimed, you should do so soon.

The online claims portal for the second, and final, grant payable in August is not yet available. We understand that this will operate along the same lines as that for the first round.

When are grants taxable?

Amounts received under the SEISS will be subject to income tax and National Insurance contributions, but do not have to be repaid.

They will need to be reported on the recipient’s self-assessment tax return, but to date there was some confusion as to exactly which tax return. This was exacerbated by the fact that the single payment received under the first round of the SEISS is in respect of the months March, April and May 2020, and therefore spans two tax years.

This confusion was cleared up when draft legislation on the taxation of coronavirus grants and payments was published on May 29, 2020. You This indicates that the entire SEISS grant will be taxable in tax year 2020/21, regardless of the year end of the business and whether they apply the cash or accruals basis.

The deadline for filing the 2020/21 self-assessment return is not until January 31, 2022, meaning that recipients will not have to pay tax on SEISS grants for some time. Whilst this is likely to be welcome news, recipients will need to remember to budget to pay tax on their SEISS grants as well as their ordinary business income.

It’s not yet clear where the grant will be reported on the self-assessment return, but we expect this to be clarified in due course.

Penalties and powers

The same draft legislation also introduces new powers for HMRC to recover SEISS payments which the recipient is not entitled to, and charge a penalty in cases of deliberate non-compliance.

The claw back will be effected by applying an income tax charge equal to 100 percent of the excess payment, either by HMRC raising an assessment or requiring individuals to show the amount as a tax charge on their return.

HMRC will also be able to charge a penalty of up to 100 percent of the incorrectly claimed grant in cases of deliberate non-compliance. This could include, for example, where a business claimed the grant despite knowing that they were not eligible (because for example at the time of claiming the grant, they had no intention to continue trading or had already ceased to trade or had not been adversely affected by coronavirus).

HMRC have recently updated their guidance to highlight that, if you think you’ve been overpaid a grant, you need to tell HMRC or could be liable to a penalty. Further details on how to do this are expected soon.

You can find more detail on the SEISS scheme generally, including eligibility, how grants are calculated and how to claim in the SEISS guidance note and accompanying FAQs on the ATT website.