TQOTW: SEISS grants and incorporation
My client’s sole trading business was affected by coronavirus and so they claimed SEISS grants 1 – 3. After reviewing the 31st March 2021 accounts and potential bounce back in demand, my client is considering incorporating for tax efficiency. My client is a UK resident, has been carrying on his sole trade for over 4 years and his only income for those years has been his trading income.  However, I’m concerned that the incorporation and so cessation of his trade may affect the SEISS claims that my client has already made?

When the SEISS Treasury Direction was issued on 30 April 2020 it listed, under section 4, what conditions had to be met to be regarded as a ‘qualifying person’. Although from your comments your client seems to be meeting most of them, I just want to draw your attention to the following parts of the ‘qualifying person’ section.

Section 4a – carry on a trade the business of which has been adversely affected by reason of circumstances arising as a result of coronavirus or coronavirus disease

You mention that, on review of the March 2021 accounts, the client is considering incorporation for tax efficiency. I suspect this is to do with the increase of profits during this year as well as the hope of a continued profit increase going forward. As such, for completeness, I’d just like to remind you of the conditions for each of the 3 grants.

At the time of release the government added little guidance on what ‘adversely affected’ could reasonably mean. The SEISS extension directive issued 1st July 2020 again referred to ‘adversely affected’ but this time stipulating a time frame, on or after 14th July 2020, to consider the effects and your eligibility to claim the second grant.

But it was not until the SEISS 3rd extension direction, 21 November 2020, that government wrote in some additional conditions at 4.2 to enlighten us on what we should be looking out for. They also provided examples on their website. This direction stated that in the period between 1 November 2020 and ending 29 January 2021, in relation to the trade –

the business of which has suffered reduced activity, capacity or demand in that period from that which could reasonably have been expected but for the adverse effect on the business of coronavirus or coronavirus disease, and

which the claimant reasonably believes will suffer a significant reduction in trading profits for a relevant basis period from that which would otherwise have reasonably been expected as a result of that reduced activity, capacity or demand

As such, if the profits have gone up for the 31st March 2021 accounting period, we may need to review the claims made to ensure that each condition was met at the time.  For example, if the trade had already started to bounce back by September 2020 it could be the 3rd grant claim was in error but grants 1 and 2 were correct.

Section 4 (d) intend to continue to carry on a trade in the tax year 2020-21

For grants 1-3 there is a stipulation that there is an intention to carry on a trade. It seems, as you are reviewing the 31 March 2021 accounts this was clearly met. If it is only now that you are discussing incorporation, and assuming the trader has not already done this, the trade is still currently continuing hence not ceased in the 20/21 tax year.  However, as the SEISS grant 4 now focuses on an intention to trade in 2021/22 and so, as we are discussing incorporation it would seem a claim for the 4th grant would fail on this point.

In summary, if it is just SEISS grants 1 – 3 that have been claimed then the fact your client is now, in 2021/22 tax year, considering incorporation should not cause an issue for these claims. However if the trade has started to increase to an extent that we are considering incorporation at the start of the 2021/22 tax year it may be pertinent to review the earlier claims to ensure the trade was ‘adversely affected’ for the periods stipulated for each of the claims.

For ease of reference, I have included a link to the SEISS Treasury Directions:

https://www.gov.uk/government/publications/treasury-direction-made-by-the-chancellor-under-sections-71-and-76-of-the-coronavirus-act-2020

Also, the government guidance on how coronavirus could affect your trading conditions, first published 24th November 2020:

https://www.gov.uk/guidance/how-your-trading-conditions-affect-your-eligibility-for-the-self-employment-income-support-scheme#impactedbyrd

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Suzanne has been working in small practices since 2003 where she has gained a wealth of tax experience relating to smaller, owner managed businesses, buy to let landlords and individuals. Previously working in a small team, Suzanne has developed a good knowledge of all aspects of general tax, in particular income tax, VAT, corporate tax and PAYE.

Suzanne is a member of the Association of Accounting Technicians and Association of Chartered Certified Accountants.

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