‘THIS UPDATE IS SUBJECT TO CHANGE AT SHORT NOTICE AS THE GOVERNMENT RELEASES ITS OWN UPDATES – THIS GUIDANCE WAS LAST UPDATED WEDNESDAY 14 JULY 2021’
The 5th grant will be determined by how much your turnover has been reduced in the year April 2020 to April 2021 and in most cases 2 different turnover figures will be required as set out in our ‘Eligibility’ section below. The 5th grant will be worth: (There will be 2 levels of grant) · 80% of 3 months’ average trading profits, capped at £7,500, for those with a turnover reduction of 30% or more · 30% of 3 months’ average trading profits, capped at £2,850, for those with a turnover reduction of less than 30% The 5th grant is taxable in the 2021/2022 tax year. We explore how this might differ for partnerships later. The 5th grant can be claimed from late July 2021.
The 5th grant will be determined by how much your turnover has been reduced in the year April 2020 to April 2021 and in most cases 2 different turnover figures will be required as set out in our ‘Eligibility’ section below.
The 5th grant will be worth: (There will be 2 levels of grant)
· 80% of 3 months’ average trading profits, capped at £7,500, for those with a turnover reduction of 30% or more
· 30% of 3 months’ average trading profits, capped at £2,850, for those with a turnover reduction of less than 30%
The 5th grant is taxable in the 2021/2022 tax year. We explore how this might differ for partnerships later.
The 5th grant can be claimed from late July 2021.
In most cases, the straightforward answer is: 2020/2021 as per Para 3 Schedule 16 FA 2020.
When will the 4th and 5th grants be taxable?
For any SEISS payments received on or after 6 April 2021, Section 106 and Schedule 16 FA 2020 will be amended so that the grant will be taxable in the tax year it was received. For most people this means that the 4th and 5th Grants are likely to be taxed in 2021/2022.
The answer for all 5 grants might be different where a partnership is concerned. See below
HMRCs manuals also state that the SEISS grant overrides the GAAP, or where applicable, the Cash Basis rules.
Government guidance states that ‘the grant also counts towards your annual allowance for pension contributions.’
The first 3 grants should be taxed in 2020/2021 except where the payment forms part of partnership income. Where a partner pays the SEISS into the partnership and it is not retained by the partner then it will be treated as partnership income and it will be taxable income of the accounting period of the partnership.
The meaning of Turnover
‘Turnover’ means the takings, fees, sales and money earned by the business.
The previous SEISS grants should not be included in your turnover figure. Nor should we include Eat Out to Help Out payments, local authority grants or devolved administration grants.
Additionally, where the basis period exceeds 12 months the turnover would be time apportioned. Where you are a member of a partnership the turnover figure is the turnover of the partnership. If you have more than one business as a sole trader then you must include the total turnover from all of your businesses.
Here is a link to HMRCs examples.
Where to find the turnover figure on your tax return
There is a box for turnover on your tax return. If you submit a paper return, the box is different depending on which Self-Assessment sections you complete. For section:
SA200 (short tax return) it is box 3.6
SA103S it is box 9 (short self-employment pages: Turnover was below the VAT threshold)
SA103F it is box 15 (full self-employment pages)
SA800 (for partnerships) it is box 3.24 or 3.29
Eligibility criteria for the 5th grant:
The amount of the fifth grant will be determined by a turnover test. How much your turnover has been reduced in the ‘Pandemic period’ 12 months from April 2020 to April 2021 will determine how much you receive.
For those that prepare accounts on a tax year basis this ‘pandemic period’ turnover figure will be the figure that is or will be shown on the 2020/2021 tax return.
The ‘Pandemic period’ turnover figure should be compared with the ‘reference period’ turnover in order to calculate the percentage fall in turnover.
As such and in most cases, you’ll need to have 2 different turnover figures. You’ll need to work out your turnover for:
· The ‘Pandemic period’ a 12-month period starting on any day between 1 April 2020 and 6 April 2020
· The ‘reference period.’ This will be either the 2019/2020 tax year or 2018/2019 tax year
In most cases the ‘reference period’ will be that shown on the 2019/2020 tax return. If this was not a normal year for your business, you can use the turnover reported in your 2018 to 2019 tax return.
If you started to trade in 2019/2020 and did not trade in the 3 years between 2016 -2019 (2016/2017, 2017/2018 and 2018/2019) then HMRC will not ask you for any turnover figures.
In addition, the following should also apply:
The 2019/2020 tax return must have been submitted by 2 March 2021 and show self-employment/partnership trading profits to be no more than £50,000 and at least equal to non-trading income.
If this is not the case then HMRC can look at the tax years 2016 to 2017, 2017 to 2018, 2018 to 2019 as well as 2019 to 2020.
You must also have traded in both tax years:
· 2019 to 2020
· 2020 to 2021
You must either:
· be currently trading but are impacted by reduced demand due to coronavirus
· have been trading but are temporarily unable to do so due to coronavirus
You must also declare that:
· you intend to continue to trade
· you reasonably believe there will be a significant reduction in your trading profits due to reduced business activity, capacity, demand or inability to trade due to coronavirus from May 2021 to September 2021
What if you have been overpaid?
A grant can be thought of as overpaid if the taxpayer was not eligible for the grant or if the taxpayer received more than HMRC said they were entitled to.
The taxpayer must notify HMRC of an overpayment. HMRC say ‘you must tell us within 90 days of receiving the grant.’
Amending a Tax Return
If a taxpayer amends a tax return on or after 3 March 2021 and this either lowers the amount that they are eligible for or causes them no longer to be eligible then they should notify HMRC.
If the taxpayer amends the return before claiming the grant, they must tell us within 90 days of receiving the grant.
If the taxpayer amends the return after claiming the grant, they must tell us within 90 days of making the amendment.
If the amount that the taxpayer is eligible for is lowered by £100 or less then they do not need to tell HMRC.
· HMRC have created an online form that can be used in order to tell HMRC about any amendments that took place from 3 March 2021 to any of your tax returns or if you need to pay back a SEISS grant.
Penalties for not repaying an overpaid grant
If a taxpayer was not entitled to the grant and has not repaid it by the latter of the above dates then HMRC can charge a ‘failure to notify’ penalty. This penalty very much depends on the taxpayer’s behaviour. Please refer to factsheet CC/FS11a.
HMRC will charge late payment interest.
Having said that, HMRC state in factsheet CC/FS47 ’If you did not know you were ineligible for the grant when you received it, we will only charge you a penalty if you have not repaid the grant by 31 January 2022.’We expect the following to result in a change to the factsheet.
HMRC have released a Policy Paper on 3 March 2021 (budget day) to apply to any SEISS payments made on or after 6 April 2021. The proposed revisions amend s106 and para 8 Schedule 16 Finance Act 2020. An overpayment will be met with a tax charge equivalent to the amount of the grant to be recovered. Click here
Is an overpaid grant to be included on the taxpayer’s 2020/2021 Tax Return?
Yes, if we are considering the 3 earlier grants, unless you have repaid it before you have submitted your tax return.
Making a claim
It is crucial to observe that HMRC will contact and invite those that are eligible to apply. Applications will need to be made online when the invitations have been issued by HMRC. HMRC state ‘Your tax agent or adviser cannot make the claim for you. You must make the claim yourself.’
The taxpayer will need a Government Gateway user ID and password and they can create one when they use the eligibility tool (see above). They will also need their UTR and NI number as well as their banking details.
This seems an opportune moment to remind readers that HMRC does not send texts or make calls asking for bank or credit card details. If this happens then it is likely to be a scam. Please be wary.
We continually update this guidance and we hope that this article helps you to help your clients.