Budget 2021 - Extended Self-Employed Support

SELF-EMPLOYED INCOME SUPPORT SCHEME

Two further instalments of SEISS grants were announced in the Budget, after a longer than expected delay to the first of those, which will be grant number 4. This 4th grant is now due to be notified to taxpayers in mid-April with claims opening at the end of the month. Grant 5 is to follow in July.

Details of the conditions attached to the two grants took some time to emerge, with information only being issued on 9 April. We'll set out what we know below.

GRANT 4 (PAYABLE LATE APRIL 2021)

Grant 4 is to be at the same 80% level (capped at £7,500) as grants 1 and 3 although the underlying data for the calculation will now include 2019/20 tax return information as well as the prior 3 years.

To be eligible for grant 4 you must meet the following tests/conditions:

1. Your 2019/20 trading profits must be no more than £50k and more than half of your total income for that year OR your average trading profits from 2016/17 to 2019/20 must meet the same tests.
2. You must have traded in 2019/20 and submitted your tax return by 2 March 2021.
3. You must have traded in 2020/21.
4. You must at the time of making the claim be either prevented from trading by coronavirus OR be trading but your trade is impacted by reduced demand due to coronavirus.
5. You must also be able to declare that you intend to continue trading (i.e. you have no immediate plans to cease trading) AND "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".

The first 3 tests are fairly clear but tests 4 and 5 introduce more subjective matters.

The recent more detailed guidance clarifies the position somewhat regarding these tests. The statement at point 5 above needs to relate to the period from 1 February 2021 to 30 April 2021 and needs to result in reduced profits for the tax year(s) in which those periods are reported. There is no link to profits for the same period in the prior year, just that overall profits for the tax year are less than they would have been had it not been for the coronavirus effect resulting in reduced business activity, capacity, demand or inability to trade in that specific 3 month period. The word 'significant' is still critical though and is undefined, so will need to be applied to your circumstances.

Our guidance is that if you intend claiming do not just tick the boxes - think about the statements and record evidence to back up your decision. Remember that these questions are being asked at a particular moment in time and it may be difficult to recall the full circumstances you faced at that moment if challenged by HMRC some time later. We are already aware of HMRC enquiry activity in this area and it is likely to be a target for them for some years to come.

The last date for claims for grant 4 will be 1 June 2021.

GRANT 5 (PAYABLE JULY 2021)

At first glance grant 5 seems to be a clearer cut matter, being based on a comparison of business turnover from 2019/20 against 2020/21. If your turnover fell by more than 30% then you will be entitled to an 80% grant, capped at £7,500. If it fell by less than 30% then the grant level will be at 30%, capped at £2,850. The base data will be the same as for grant 4.

What we don't yet know is whether the turnover will be based on your accounting year which ends in the tax year (which could mean comparing turnover to April 2019 against the year to April 2020), or on a strict tax year basis. The latter would appear to make most sense but tax returns use accounting year data when it comes to trading accounts. Also HMRC will not hold data on 2020/21 turnover so will not be able to cross-check claims for some time. Again, putting together and retaining evidence to back up claim decisions will be vitally important.

As before, agents such as ourselves are not permitted to be part of the actual claim process (for either grant) but please feel free to seek our advice.