Newly self-employed eligible for SEISS grants and basis for claiming tightened

Fourth and fifth grants for self-employed individuals has been confirmed in the 2021 Budget extending support up to 30 September 2021 and have been opened-up to self-employed taxpayers who started to trade in 2019/20.

In headline terms, the fourth grant will cover the three-month period from February until the end of April set at 80% of their average 3-monthly trading profits and capped at £7,500. The fifth grant covers the five months May to September but still with a maximum grant of £7,500 and a restriction for businesses where turnover has been reduced by less than 30%.

Who can apply?

For the fourth and fifth grant, self-employed individuals or members of a partnership can apply if:

• You were trading and have submitted your Income Tax Self-Assessment tax return for 2019/20 by 2 March 2021.
• You are trading when you apply, or would be except for COVID-19.
• You intend to continue to trade.
• You reasonably believe there will be a significant reduction in your trading profits during the period covered by the grant.
• You have self-employed trading profits of less than £50,000, and at least half your taxable income comes from self-employment in 2019/20.

If you do not meet the two parts of the test (<£50,000, at least 50%) in 2019/20, a four year average for 2016/17 to 2019/20 can be used.

You are still eligible if you meet the criteria above but did not claim the previous grants. You must keep evidence that shows how your business has been impacted by COVID-19 resulting in less business activity than otherwise expected. You must also decide if the impact on your business will cause a significant reduction in your trading profits for the tax year you report them in.

Restrictions on fifth grant (May to September 2021)

• The maximum fifth grant remains a one-off payment of £7,500 for the five-month period 1 May to 30 September 2021. The level of grant that can be claimed will depend on the impact on the business turnover in the year April 2020 to April 2021.
• If your turnover has reduced by 30% or more compared to the reference period, the fifth grant would be 80% of average three-monthly profits up to a maximum of £7,500.
• If your turnover is reduced by less than 30% the fifth grant would be 30% of average three-monthly profits up to a maximum of £2,850.

The details of how this turnover reduction will be assessed have yet to be released.

What next?

• HMRC have indicated they will contact eligible taxpayers from mid-April 2021 and advise them whether and when they can potentially claim the fourth grant.
• HMRC will contact taxpayers via email, SMS or post (depending on the data they hold). When you are contacted by HMRC you will need to log into your Government Gateway account.
• As the fourth grant is expected to open the grants to a further 600,000 taxpayers HMRC will be allocating a particular day for each taxpayer to first apply. Claims will be made from late April 2021 to 31 May 2021.
• If you don’t have a Government Gateway account, you should be able to set one up as part of the application process.
• Within the SEISS portal, taxpayers will see the detailed HMRC calculation showing their potential claim amount and will be asked to:
  • confirm eligibility criteria;
  • complete declarations, including that the business has been adversely affected by coronavirus leading to a significant reduction in trading profits; and
  • supply the bank account details for the grant to be paid into

Note: Only the taxpayer can make this application; not your agent and not by giving your agent your access details. HMRC’s anti-fraud measures require that it is only the taxpayer who applies and, if there are flags raised in the application, the SEISS payment could be delayed.

Payment

• Subject to a successful application, HMRC are aiming to process claims from application to payment in six working days. Each grant is paid as a single lump sum direct to your bank account.

What happens if you cease to qualify and have received a grant?

As claims can be made and paid during the grant period, Budget 2021 also announced powers for HMRC to recover 100% of grants paid where the taxpayer qualified at the time of the claim but does not qualify later. HMRC already has the power to recover grants incorrectly or fraudulently claimed and to charge penalties as appropriate.

We will be regularly updating the Budget pages of our website. If you would like to discuss the implications, please don’t hesitate to get in touch. Alternatively, book your place on our Budget question time webinar on Friday 5 March 2021 to find out more.