Who gets what support?
HMRC announced the self-employed income support scheme (SEISS) on 26th March. I’m pleased to tell you that HMRC has released a little more information on the details of how this scheme will work in practice.
Until today, all we knew was that HMRC would pay a taxable grant to self-employed individuals equivalent to 80% of their average trading profits for three months, capped at £2,500 per month.
SEISS Update: Which Business Gets What Support?
Unfortunately, it is quite difficult for HMRC to determine how much self-employed individuals earn in real-time, to replace their lost income with government support.
Most accountants and their small business clients have derided Making Tax Digital as yet another superfluous statistical requirement by HMRC. Whilst I did consider MTD to be unnecessary, by an ironic twist, if it had been in place, with reports on self-employed income quarterly, the calculation of the support needed for each person could well have been easier and quicker.
The government has chosen to base the amount of each taxpayer grant on average trading profits. Trading profits reported in the last three tax returns for the years: 2015/16 to 2018/19. If the taxpayer started trading within this three year period the monthly average of profits will be calculated from the periods in which they were trading.
The taxpayer (or their accountant) does not need to provide any figures at this stage. HMRC will arrive at the taxpayer’s average earnings by totalling up the reported profit for the three tax years (or a shorter period as applicable) then divide by three to arrive at a typical average year. One-quarter of that average annual profit will then form the basis of the SEISS grant awarded – at the 80% rate.
The number of months covered by a SEISS grant will extend beyond three months, but only if the coronavirus shutdown continues beyond the end of June.
SEISS Grant: Who does not qualify?
The SEISS grant will not be payable to anyone in the following categories:
- Has average annual profits of £50,000 or more – these taxpayers will get nothing
- Has not submitted a tax return for 2018/19
- Anyone who receives less than half of their annual taxable income from self-employment
- Has already ceased trading permanently
- Anyone who started trading on or after 6th April 2019
If the taxpayer has not submitted their 2018/19 tax return, they have until 23rd April 2020 to submit it to qualify for the grant. Penalties for late filing and late payment of tax applying as usual.
The purpose of the SEISS grant is to help traders through the coronavirus crisis. The business must have traded in 2019/20 to qualify for the assistance. It would still be trading if it hadn’t been for the interruption to commerce due to the coronavirus. If the trader has decided to cease trading completely, no grant is payable.
HMRC do not regard Property letting businesses as a trade. Landlords will not qualify for the SEISS grant even if more than half of their taxable income is from rental income. Similarly, the letting of furnished holiday accommodation is not strictly a trade, despite its status as a trade for some pensions and CGT purposes. I believe it is harsh; landlords will be among the hardest hit of all “self-employed”.
How will the SEISS grant be delivered?
HMRC will contact those taxpayers who are eligible for this grant and will invite them to apply for the payment online. It is not clear if how HMRC will contact those qualified. I assume initially by letter because HMRC has already made it clear that it certainly won’t be by email or text message.
HMRC warns taxpayers not to be taken in by scammers who email, text, or call, offering money from HMRC then ask for the business bank details to be confirmed. It is vitally important that you are not tempted to click on a link in an email, or reply to a text, purporting to be from HMRC; it will be fake!
When contacted, you will need to confirm to HMRC that you were trading in 2019/20 and expect to continue to trade in 2020/21. You may have to provide an estimate of your business turnover for 2019/20 at that point.
When will you get the SEISS cash?
The entire SEISS grant for the months of March, April and June will be payable in one lump sum into your bank account. Sadly, payment is unlikely until early June.
It is also important to remember that the grant will be taxable income. You will have to report it on tax returns for the 2020/21 tax year. Taxpayers in receipt of working tax credits or universal credit will have to treat the SEISS grant as part of their self-employed income for 2020/21.
Tax accountant’s Summary
In truth, there is fundamentally nothing new in this update by HMRC; rather just a bit more flesh on the bones.
David Jones Tax Accountant
I’m a somewhat disappointed that it will be damn near impossible to get any cash out of the government until June if you’re self-employed.
Many of this firm’s self-employed clients are genuinely suffering at the moment. Bland assurances from the government that there’s a choice of ESA or Universal Credit to claim is somewhat disingenuous. Even if you get through after spending hours on the phone, you’re not likely to get much more initially than £78 per week. I’d like to see the average tax inspector keep his/her family on such a paltry amount!
David Jones is the Senior Partner and Founder of Morgan Jones & Company. Born in Liverpool and an Accountancy graduate of the University of Wolverhampton, David spent twenty years working for the Customs & Excise in London then Shrewsbury before starting his own business. David's depth of knowledge of the UK tax system and his ability to communicate this learning has seen Morgan Jones & Company grow into Shropshire's most respected Accountancy Practice.