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Coronavirus Self-Employment Income Support Scheme

04/05/2020
 
The Government has published further details of the Self-Employment Income Support Scheme (“SEISS”) for those unincorporated business affected by the Coronavirus outbreak. 
 
We have set out below a summary of the scheme rules as well as details of likely timings and how the scheme will apply to different business types.  HMRC are to start contacting taxpayers they believe to be eligible for grants from today (4 May) although it is likely to take some time to contact all eligible taxpayers.  The online claims system is expected to be available from 13 May onwards.  
 
The information requirements to enable a claim to be made are set out in the details below – anyone who does not have all of the information required should act now to obtain the information they need so they are able to claim once the system becomes available.  
 
HMRC have also released an online tool to allow taxpayers to check their eligibility - https://www.tax.service.gov.uk/self-employment-support/enter-unique-taxp...
 

What is the purpose of the scheme?

The purpose of the scheme is to provide financial support to the self-employed whose businesses have been affected by the Coronavirus outbreak.  The guidance lists examples of how a business may be affected including:
 
The business owner is unable to work because they: 
 
• are shielding 
• are self-isolating
• are on sick leave because of coronavirus
• have caring responsibilities because of coronavirus
 
The business has had to scale down or temporarily stop trading because: 
 
• its supply chain has been interrupted
• it has fewer or no customers or clients
• its staff are unable to come in to work
 
There is no requirement for the business to temporarily stop trading in order to claim the grant, and a self-employed individual who becomes an employee in the short term is also not excluded from claiming provided they meet the conditions below and in particular the intention to continue trading in 2020/21.
 
WR comment – although this list is not comprehensive it is evident there has to be a clear link between the Coronavirus outbreak and a reduction in business activity.  We would expect that HMRC would expect the business to be able to demonstrate this as part of any audit activity they undertake after grants are paid under the scheme.  Consideration should be given to this point before deciding to claim under the scheme.
 

Who can claim?

Taxpayers whose business has been adversely affected by the outbreak can claim if they are a self-employed individual or a member of a partnership and:
 
• They traded in the tax year 2018/2019 and submitted your Self Assessment tax return on or before 23 April 2020 for that year
• They traded in the tax year 2019/2020
• They intend to continue to trade in the tax year 2020/2021
 
Businesses which operate through a trust are unable to claim, nor are businesses which have received significant state aid in the form of (for example) grants from the government.
 
WR comment – the effect of these conditions is that businesses set up on or after 6 April 2019 are unable to claim under the scheme. While from a practical point of view it is understandable that HMRC need an objective way of measuring income (see below) this does seem particularly unfair on relatively new businesses which could be more vulnerable to adverse consequences of the Coronavirus outbreak than better-established businesses.
 
The trust and state aid restrictions are in practice unlikely to have widespread impact
 

What are the income limits?

Grants under the scheme will be available to those who meet the following income requirements:
 
• Profits from self-employment in the 2018/19 tax year of no more than £50,000, OR
 
• Average profits from self-employment for the tax years 2016/17, 2017/18 and 2018/19 of no more than £50,000.
 
If the business only traded in 2017/18 & 2018/19 the average will be taken over the two years, while for businesses which only traded in 2018/19 this will be the reference year for the scheme.  2018/19 will be the reference year for individuals who were self-employed in 2016/17, then not self-employed in 2017/18 and became self-employed again in 2018/19.
 
Assuming one of these tests is met, there is a further requirement that income from self-employment was at least 50% of the individuals’ total taxable income.  In considering 2018/19 as a standalone year this test is applied to the income for 2018/19 only.  Where the average trading income of two or three years is taken into account, the test will be applied by comparing trading income to total taxable income across all of the years and not on a year by year basis. 
 
WR comment – there are some useful clarifications here, particularly that it will be the total income across all three years which will be looked at for the 50% test.  This is helpful for those who may have made a loss in one of the years and would therefore have failed the 50% test for that particular year if they had received any other income in that year.
 

How will HMRC calculate trading income?

Trading income will be calculated as turnover from trading activities less tax allowable expenses, capital allowances and flat rate expenses (such as business mileage). If the £1,000 trading allowance has been claimed instead of actual expenses this will be taken into account in calculating trading income.  Losses brought forward from earlier years and the tax-free personal allowance will be ignored in the calculations.  
 
WR comment – It is clear the scheme is intended to allow HMRC to arrive at a relatively simple and objective measure of trading profits, removing potential distortions from non-cash items such as depreciation and the effect of non-tax allowable items such as business entertainment.  Where this does seem to produce an unfair result is for businesses which have invested heavily in plant and machinery which qualifies for annual investment allowance in any given year, thereby reducing their profits by 100% of the cost of the kit and therefore reducing the amount of grant available under the scheme.
 

How will the rules apply to partnerships?

Partners share of the trading profits of a partnership will be calculated in broadly the same way as above based on the partnership profit share as included in the partner’s return.  Any non-trading partnership income will be excluded (and will presumably then be counted as non-trading income for the purposes of the 50% test above).  Depending on profit sharing ratios etc it is entirely possible that one partner in a business may qualify for a grant while a second partner may not.
 

How will HMRC work out the grant?

Having established the level of trading profits, HMRC will calculate the grant based the average trading profits for the tax years 2016/17 to 2018/19 (even if qualification is based on the 2018/19 profit only).  The average will be multiplied by 3/12 and then 80% of the resulting figure will be taken.  The grant will be the lower of this figure or £7,500 (which in effect equates to £2,500 per month for the three months over which the scheme currently operates from April – June 2020).  
 
WR comment – as matters stand the scheme is set to run for the three months to June 2020, which coincides with the current end date of the employee furlough scheme.  It remains to be seen whether either scheme will be extended – matters may become clearer on this when the Government makes further announcements regarding lockdown measures over the bank holiday weekend.
 

What is the process?

HMRC are to start contacting taxpayers who they believe to be eligible for the scheme from today (4 May) with a view to making payments commencing on 25 May or within 6 working days of making a claim if later. The online service to make claims is due to be available from 13 May. HMRC will be working out eligibility in terms of levels of profitability but it will still be up to the individual taxpayer to make a claim which will include a statement that their business has been adversely affected by the Coronavirus outbreak. In order to claim taxpayers will need their:
 
• Self-Assessment Unique Taxpayer Reference (UTR) number 
• National Insurance number 
• Government Gateway user ID and password
• Bank account number and sort code for the account into which they want the grant to be paid
 

Many clients who use their accountants to file their tax returns will not have Government Gateway account.  If that is the case and you wish to make the claim yourself you should consider signing up for the Government Gateway as soon as possible – details of how to do this are via the following link:

https://www.gov.uk/log-in-register-hmrc-online-services/register 

There is a clear statement in the guidance that HMRC will review claims and take action to recover grants they consider to be dishonest or inaccurate.
 
There will be a mechanism of taxpayers to ask HMRC to review their circumstances in the event they believe they are eligible when HMRC have concluded they are not.  
 
WR comment – as indicated above, claimants will need to be clear that they are able to demonstrate that the Coronavirus outbreak has adversely affected their business.  For the large majority this will not be a major issue but it is evident HMRC do not want the scheme to be seen as a “free for all” where anyone can claim irrespective of whether their business has been impacted or not.
 

How is the grant treated for tax purposes?

Grants under the scheme are in effect compensation for loss of profits due to the Coronavirus outbreak and will themselves therefore be subject to income tax and national insurance.

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