HMRC has published further guidance on the self-employed income support scheme (SEISS) together with details of how to work to work out total income and trading profits. However, HMRC’s guidance has been supplemented with additional clarity on: making a claim, eligibility for the scheme and SEISS’ interaction with universal credit, as well as further support on calculating profits and total income
HMRC has made it clear that the online service should be available from early June and that HMRC will aim to contact those eligible by mid-May. Taxpayers are asked not to contact HMRC for further details yet. Within the updated guidance there is indication that further information will be provided for those who are unable to make a claim online so that they will still be able to apply.
Claims for universal credit (UC) can be made while individuals wait for the SEISS grant to arrive. However, applicants do need to be aware that the grant could affect how much UC applicants are entitled to later on. Some advisers and self-employed individuals may need further specialist advice around how the grant will interact with UC given that many may be unfamiliar with the benefits system.
There has been confirmation that any grant received will be classed as income for UC purposes. This will be in the claim period the payment is received and may affect the entitlement to UC for that claim period. Any UC claims for periods in which no grant is received should not be affected. It is also important to remember that this grant is taxable, so subject to income tax and NIC where applicable.
HMRC has simplified some of the language and presentation around calculating the thresholds for eligibility. This should make them easier to understand without making fundamental changes to the original version of the guidance. The key points being individuals must have trading profits of less than £50,000 and these profits must constitute more than half of their total income.
The other key trading conditions around eligibility have not changed, including that individuals must ‘have lost trading profits due to coronavirus’. It does however, remain unclear as to how these conditions will be monitored or if HMRC will impose any claw-back mechanism should these conditions not be met. The guidance does indicate that claimants will need to confirm to HMRC that their business has been adversely affected by COVID-19 and that HMRC will ‘use a risk-based approach to compliance.’ What this will mean in practice is yet to be seen.
HMRC’s guidance on how to calculate trading profits offers further insight into the computation required. This suggests that HMRC is only interested in business income less allowable business expenditure, examples provided include: office, staff and travel costs. Therefore it would appear that deductions, such as pension and gift aid, will therefore be ignored for the purposes of this calculation.
HMRC has tightened the wording around how the average profit will be calculated indicating that profits and losses will be added together and divided by three. The examples provided within the guidance confirm this is to be read literally so losses will in fact reduce any average figure, featuring as a negative in the computation. Any losses brought forward however, will not be deducted when calculating trading profit for the current period.
There is also further detail around how average trading profit will be calculated where individuals have not been self-employed throughout the three-year period. The average trading profit will be based on periods of ‘continuous’ self-employment. This will mean that 2016/17 figures will be ignored where the self-employment does not continue into 2017/18 and grants would be based on 2018/19 only.
Importantly, and presumably a fraud prevention measure, The guidance is also now explicit that any changes in amended returns submitted after 26 March 2020 will not be taken into account when considering eligibility or the amount of any grant. This is aimed at preventing any potential claimants who might consider dis-applying reliefs or altering their filing positions to increase profits and maximise eligibility.
The guidance explains that total income will be the sum of all the key classes of income (examples provided include earnings, dividends, savings etc). For the majority of people, this is likely to correspond to the total income received figure on the individual’s tax return computation, which is available to download when submitting the return.
Details of how the SEISS will interact with the loan charge has also been added to the guidance including a different method for calculating ‘average trading profits’, excluding the 2018/19 year as that year will show an inflated amount of income.
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