During the Chancellor’s announcement on 29 May, self-employed individuals discovered that the Self-Employment Income Support Scheme (SEISS) would be extended, and it has since been confirmed that individuals will able to claim a second amount of money from 17 August 2020.
Once HMRC has checked the application, funds will be paid into the taxpayer's bank account within six working days.
A new HMRC Direction setting out the rules for the extended SEISS emphasises that claims for the second grant must be submitted by 19 October 2020.
The amount of this second and final SEISS grant will be calculated at 70% of the taxpayer’s annual average profits, capped at £6,570 for three months. The other conditions to qualify for the second grant remain the same as for the first SEISS grant, (applications for the first grant closed on 13 July).
The main addition to the HMRC guidance for SEISS is further emphasis on the requirement that a self-employed individual's business must have been 'adversely affected' by the pandemic as a pre-condition for claiming the grant.
What is meant by 'adversely affected' is left to HMRC to interpret, as there is no definition of this term in the HMRC SEISS Direction published on 30 April. It is possible that a further HMRC direction will be published before applications open for the second SEISS grant.
To be considered 'adversely affected', HMRC says a business must have temporarily stopped trading, the trading has been scaled back, or the business has incurred additional costs. HMRC suggests five possible causes behind the adverse affects on the trade as:
supply chain has been interrupted
fewer or no customers or clients
staff were unable to work
one or more of the business contracts has been cancelled
the business has had to buy protective equipment in order to trade following social distancing rules.
The HMRC guidance was amended on 2 July to acknowledge that the trade could be adversely affected due to increased costs. For example, many businesses have had to undertake additional cleaning, install screens and signage, and provide protective equipment to staff.
In addition, HMRC states that business will have been adversely affected if the owner(s) can’t work because they are:
shielding themselves or someone else in their household
on sick leave because of Coronavirus; or
have caring responsibilities because of Coronavirus
In all cases, the taxpayer should keep records of how and why they believe their business has been adversely affected, and for which periods.
Continue to work
HMRC emphases that the self-employed taxpayer can continue to work in their business while receiving the SEISS grant, which is in stark contrast to the conditions for directors of their own companies. If directors choose to furlough themselves and claim CJRS for their pay, they must cease all productive work for their company and any connected businesses, while they are furloughed.
HMRC provides no guidance on how long the period of non-trading has to last for, or by what percentage the normal level of trading business has to reduce by, for the business to qualify as 'adversely affected'.
Accurate recording of the timing of trading conditions and costs for the business will be crucial, as the second SEISS grant can only be claimed if the business is adversely affected on or after 14 July 2020.
HMRC has provided a series of examples, one of which features a builder who is unable to work for particular periods and whether the timing of the work allows her to claim the first or second SEISS grants.
In this example, the builder becomes sick with Coronavirus in August and can’t work for six weeks, so she becomes eligible to claim the second SEISS grant.
An additional example has been added of a shop which was closed until 14 July, but opened on 15 July with fewer customers in the shop and increased costs due to social distancing. The business owner qualifies for both the first and the second SEISS grant.
Your accountant/tax agent can’t claim the SEISS grants on your behalf, but we can help you understand whether your business has been adversely affected, and calculate the tax hit.
Both of the SEISS grants are treated as taxable income for 2020/21, no amount of the first grant is apportioned to 2019/20. The tax and NIC due on this income will be payable by 31 January 2022.
If you are struggling to understand the many rules and ever-changing legislation for the self-employed during COVID, please contact us for support.