On 5 November, the Chancellor announced an extension to the SEISS grants. The SEISS Grant Extension will last for six months in total, from 1 November 2020 to 30 April 2021. A further grant will cover February to April, as grants will be paid in two lump sum instalments, each covering a three-month period. This is in line with the reintroduction of the Coronavirus Job Retention Scheme (CJRS).

There will also be an increase in the overall level of the next SEISS grant from 55% to 80% of trading profits.

The next grant (the ‘third’ grant) will cover a three-month period from the start of November until the end of January. The UK government will pay a taxable grant,  based on 80% of three months’ average trading profits, paid out in a single instalment and capped at £7,500.  

The government has already announced that there will be a fourth grant covering February 2021 to April 2021 and will set out further details, including the level of that grant, in due course. 

To be eligible for the grant extension, self-employed individuals, including members of partnerships, must:

  1. have been previously eligible for the Self-Employment Income Support Scheme first and second grant (although they do not have to have claimed them)
  2. declare that they intend to continue to trade and either: 
  • be currently actively trading but are impacted by reduced demand due to coronavirus
  • were previously trading but are temporarily unable to do so due to coronavirus

The online service for the next grant will be available from 30 November 2020.

Full details on checking if you or your clients are eligible and how to claim will be published on GOV.UK in the week commencing 23 November.

The previous grants

The initial scheme allowed self-employed individuals to claim a taxable grant worth 80% of their trading profits up to a maximum of £2,500 per month for three months and capped at £7,500 altogether. The deadline for claiming the first grant was 13 July 2020. 

On 29 May, the scheme was extended for those people whose trade continued to be, or was newly, adversely affected by Covid-19 (coronavirus).

Eligible self-employed people were able to claim a second SEISS grant since 17 August; this was a taxable grant worth 70% of their average monthly trading profits for three months, paid out in a single instalment and capped at £6,570 in total.

The deadline for claiming the second SEISS grant was 19 October 2020 and the portals for claiming the previous grants are now closed.

Repayment

HMRC has announced that those individuals who may have overclaimed or should not have claimed due to not meeting the eligibility criteria should tell HMRC and repay any appropriate amounts to HMRC. Further details of the repayment of the grant are available here

Below is a list of frequently asked questions from ACCA members.

Income tax deferred payments

What is the support available for 2019/20 outstanding income tax liabilities?

Deferral is automatic for the self-employed second payment on account for 2019/20, which was due to be paid by 31 July 2020 otherwise. It was initially deferred until 31 January 2021. 

On 23 September 2020, the chancellor announced a further option to taxpayers with self-assessment tax debts up to £30,000, and who are unable to make these payments in full by January 2021. Once they have submitted their tax return for 2019-20, taxpayers can set up a Time to Pay payment plan of up to 12 months usingthe self-serve online ‘Time to Pay’ system, without needing to phone HMRC. However, if the tax debt is more than £30,000 or they need a longer period than 12 months to repay their debt, then they need to contact HMRC to set it up.

In order to use this service, taxpayers must meet the following requirements:

  • no outstanding tax returns
  • no other tax debts
  • no other HMRC payments set up
  • the self-assessment tax bill is not more than £30,000
  • it is no more than 60 days since the tax was due for payment. 

If taxpayers do not meet these requirements, they might still qualify for Time to Paybut will need to call HMRC to set this up.

Setting up a 'Time to Pay' arrangement will mean that HMRC will charge interest on the tax paid late, which will be applied to any outstanding balance from 1 February 2021.

Access the online facility.

What support is available to the self-employed?

  • Grants covering a shortfall in trading income due to the adverse effects of coronavirus can be claimed by self-employed individuals and members of partnerships. The grants are taxable and assessed to National Insurance as part of the income for the tax year in which the grants are received. 
  • Individuals can sign up for an email alert from HMRC regarding updated guidance and claims.

When will the support be available? 

  •  First grant: claims for the first SEISS grant, which opened on 13 May, had to be made no later than 13 July. Eligible self-employed people had to make a claim before that date.

  • Second grant: the grant was available to claim from 17 August until 19 October

  • Third grant under Winter Economy Plan: this will cover the three-month period from 1 November 2020 to 31 January 2021 and will be available for claiming from 30 November 2020. The grant will be calculated at 80% of three months' average monthly trading profits, paid out in a single instalment and capped at £7,500 in total. This is an increase from the previously announced amount of 55%. 

  • Fourth grant under Winter Economy Plan: this will cover the period February 2021 to April 2021. The bovernment will set out further details, including the level, of the fourth grant, in due course.

HMRC requires a bank account number and sort code to pay the grant into (only provide bank account details where a Bacs payment can be accepted). You’ll have to confirm to HMRC that your business has been adversely affected by coronavirus.

It is imperative that HMRC has the correct contact details of taxpayers (current address, phone numbers and email) so that applicants can be notified of their eligibility to claim.

Once the claim has been submitted, HMRC will confirm if the grant is approved. HMRC is aiming to pay the grant within six working days of the claim submission, although it may take up to 10 days in some cases where complications or other issues exist.

What are the conditions?

The self-employed could previously apply for the first and second grants if they:

  • have submitted their income tax self-assessment tax return for the tax year 2018/19 
  • traded in the tax year 2019/20
  • are trading when they apply, or would be except for Covid-19
  • intend to continue to trade in the tax year 2020/21
  • have lost trading/partnership trading profits due to Covid-19.

In addition, eligibility is also determined by at least one of the following conditions being true:

  • having trading profits/partnership trading profits in 2018/19 of less than £50,000 and these profits constituting more than half of their total taxable income
  • having average trading profits in 2016/17, 2017/18 and 2018-19 of less than £50,000 and these profits constituting more than half of their average taxable income in the same period.

If the business started trading between 2016 and 2019, HMRC will only use those years for which they filed a self-assessment tax return. 

  • You should not claim the grant if you’re above the state aid limits or operating a trade through a trust.

What happens if all the self-assessment tax returns are not submitted? 

If all the self-assessment tax returns for three years have not been submitted, HMRC will work out the average trading profit based on continuous periods of self-employment, which will be either:  

  • the tax years 2017/18 and 2018/19 
  • the tax year 2018/19 only, even if you were self-employed in the tax year 2016/17. 

Is there a tool to check the eligibility for the claim? 

Yes. HMRC has created an online tool to check the eligiblity for this claim. Taxpayers will need their unique tax reference (UTR) and national insurance (NI) number to hand before they can use the tool. 

Can the self-employed ask their accountants to make a claim on their behalf?

No. HMRC has clearly specified that the self-employed cannot ask their accountant to make the claim on their behalf. If an accountant attempts to make a claim on behalf of their client, this will trigger a fraud alert and will result in significant delays to payment. However, they can help to prepare their clients by ensuring that they have the relevant information ready. Please see our further article on how accountants can help clients here.

To make the claim, the client has to have a Government Gateway account. If they do not have one, they need to create one sooner rather than later.

Full details are here.

Is there an allowance if my profits were affected in 2018/19 due to parental leave? 

Yes. The chancellor announced on 17 June that parents, including mothers, fathers and those who have adopted, who took time out of trading to care for their children within the first 12 months of birth of the child or within 12 months of an adoption placement, will now be able to use either their 2017/18 or both their 2016/17 and 2017/18 self-assessment returns as the basis for their eligibility for the SEISS. 

Are the recently registered self-employed who have not filed any tax return yet eligible?

According to the Treasury, it is very difficult to assess the benefit level for recently registered self-employed people. They may instead have to look at alternative financial support, i.e. Universal Credit or Employment and Support Allowance.  

Is there any extension on filing a 2018/19 return if the taxpayer has missed the deadline?

If the tax return for 2018/19 was not filed in January 2020, the deadline was extended to four weeks from 26 March 2020, i.e. 23 April 2020. Claims based on late returns submitted between 26 March 2020 and 23 April 2020 will be subject to additional anti-fraud checks. 

Can a taxpayer amend already submitted returns? 

HMRC will use data on the 2018/19 tax returns already submitted to identify those eligible. Any changes made to submitted returns after 26 March 2020 will not be taken into account when working out the eligibility or amount of the grant.  

To avoid scheme abuse, HMRC will use data on 2018/19 returns already submitted to identify those eligible and will risk assess any late returns filed before 23 April 2020 deadline in the usual way.

How are trading profit and total income calculated? 

As per HMRC guidance issued, trading profit is the taxable profit (after capital allowances etc) declared on the self-assessment, prior to off-setting of losses brought forward from previous years and personal allowance. 

Your total income is the total of all your: 

  • employment income 
  • trading profits 
  • property income 
  • dividends 
  • savings income 
  • pension income 
  • miscellaneous income (including social security income)
  • losses and personal allowances will not be deducted from the income to arrive at taxable profit.

HMRC example

If you’re not eligible based on the 2018/19 self-assessment tax return, HMRC will then look at the tax years 2016/17, 2017/18 and 2018/19.

  2016/17 2017/18 2018/19 Average for the three tax years Total
Trading profit/(loss) £50,000 £50,000 -(£10,000) - not eligible £30,000 £90,000
Non-trading income £15,000 £15,000 £15,000 N/A £45,000
Eligibility using the tax year 2018/19 only N/A N/A No N/A No
Eligibility using the three tax years N/A N/A N/A

Yes

 Yes

So even if you made a loss in the tax year 2018 to 2019, you would still be eligible because:

  • your average for the three tax years is £30,000 - which is less than £50,000
  • the sum of the trading profits for the three tax years (£90,000) is at least equal to the sum of your non-trading income of £45,000 for those years.

HMRC further guidance on calculation of profits can be accessed here.

Does farmers' averaging affect the grant relief?  

HMRC has confirmed that it will use profit figures before averaging the claim, to work out the eligibility and the amount of the grant.  

Can an individual affected by a new child make a claim?

If you’re self-employed and have a new child, you may still be able to make a claim if this either affected the trading profits or total income you reported for the tax year 2018/19 or you did not submit a return for 2018/19.

For this scheme, 'having a new child' is any of the following:

  • being pregnant
  • giving birth (including a stillbirth after more than 24 weeks of pregnancy) and the 26 weeks after giving birth
  • caring for a child within 12 months of birth if you have parental responsibility
  • caring for a child within 12 months of adoption placement.

You must have been self-employed in the tax year 2017/18 and submitted your tax return for that year, and must also meet all other eligibility criteria. You’ll need to confirm to HMRC that being a new parent affected your trading profits or total income in the tax year 2018/19 and provide supporting evidence such as:

  • child benefit reference number
  • birth or adoption certificate number
  • maternity allowance reference.

Can a company director make a claim?

A director of their own company who is paid through PAYE may be eligible to get support using the Coronavirus Job Retention Scheme

A director/shareholder cannot be treated as self-employed for this purpose. A director can continue to run their business in terms of performing their statutory duties as officeholders, but they must be furloughed from other day-to-day activities for raising any revenue for the company. Guidance issued up to 6 April 2020 states: 

‘Where furloughed directors need to carry out particular duties to fulfil the statutory obligations they owe to their company, they may do so provided they do no more than would be judged reasonably necessary for the purposes, ie they should not do work of a kind they would carry out in normal circumstances to generate commercial revenue or provide services to or on behalf of their company. This also applies to salaried individuals who are directors of their own personal service company (PSC).’

The chancellor has confirmed that ‘Work undertaken by a director of a company to fulfil a duty or other obligation arising by or under an Act of Parliament relating to the filing of company accounts or provision of other information relating to the administration of the director’s company must be disregarded for the purposes of cessation of all work in relation to furloughed employees’.

The claim will be only for the 80% of their salary processed through PAYE. Dividends are not included for the calculations of this grant. If a director is furloughed under the scheme, the company should document it and also communicate to the director in writing.

To avoid fraud, there are expected to be cross-checks between the applications for grants against PAYE records for each employer.

What should the self-employed do if they are contacted about the scheme? 

  • The self-employed should access this scheme only through GOV.UK. If someone texts, calls or emails claiming to be from HMRC, saying that you can claim financial help or are owed a tax refund, and asks you to click on a link or to give information such as your name, credit card or bank details, it is a scam. HMRC contact with taxpayers will not contain any links to click, so if such an email or text is received, it will likely be a scam.

How is the grant accounted for?

You must keep a copy of all records in line with normal self-employment record- keeping requirements, including: 

  • the amount claimed 
  • the claim period
  • the claim reference number for your records 

evidence that your business has been adversely affected by Covid-19.

Additionally, the grant must be reported:

  • on self-assessment tax returns – this is fully taxable and subject to national insurance
  • as self-employed income for any Universal Credit claims
  • as self-employed income and that the person is working 16 hours a week for any tax credits claims.

Ask your clients to retain records for: 

  • business accounts showing a reduction in turnover 
  • confirmation of any Covid-19-related business loans received 
  • dates their business had to close due to lockdown restrictions 
  • dates where they or their staff were unable to work due to Covid-19 symptoms, shielding or school closures.

Is VAT payable on the grant?

The basic principles of supply and consideration can be expected to apply. VAT is a tax on supplies for consideration, so where a grant is made, and nothing is expected to be done in return, it will not be subject to VAT. HMRC guidance on supply and consideration can be seen here.

Hence, the business support funding being made available to alleviate the Covid-19 impact does not fall into this category and will be outside the scope of VAT.

Can a self-employed person still work while claiming this grant?

Yes.  A self-employed person who is claiming the grant can. continue to work, start a new trade or take on other employment, including voluntary work or duties as an armed forces reservist.

What happens if the self-employed individual has not lost any trading profits due to Covid-19? 

HMRC has stated that provided claims are genuine and in accordance with the guidance issued for businesses affected by Covid-19, the grant will not be repayable. The guidance states that HMRC will consider the business has been affected if:

You’re unable to work because you:

  • are shielding
  • are self-isolating
  • are on sick leave because of Covid-19
  • have caring responsibilities because of Covid-19

You’ve had to scale down or temporarily stop trading because:

  • your supply chain has been interrupted
  • you have fewer or no customers or clients
  • your staff are unable to come in to work.

What support is available for limited liability partnership members?

Members of limited liability partnerships (LLPs) who are designated as employees for tax purposes (‘salaried members’) under the Income Tax (Trading and Other Income) Act (ITTOIA) 2005 are eligible to be furloughed and receive support through the Coronavirus Job Retention Scheme. 

To implement any furlough, the LLP agreement may need to be varied. This may include a separate agreement between the LLP and an individual member, setting out the terms applicable to that member’s relationship with the LLP. For an LLP member who is treated as being employed by the LLP (in accordance with s863A of ITTOIA 2005), the reference salary for this scheme is the member’s profit allocation, excluding any amounts that are determined by their performance, or the overall performance of the LLP.  

If any LLP members are not designated as employees as stated above, they should be able to claim the self-employment income support. 

Working for you

ACCA continues to raise areas with government where policy change is required, as well as requesting further clarification with departments such as HMRC.

If you have any matters of significance that are likely to affect the wider accountancy profession, you can bring this to our attention by emailing UKPolicy@accaglobal.com.