Claiming the next self-employed grant may not be straightforward as Rob Stokes, head of audit at Optimum Professional Services, explains
News announced in the Budget of a fourth and fifth round of the Self-Employment Income Support Scheme (SEISS) was widely welcomed.
The fourth round of the Covid funding grant, available for the self-employed and those in a partnership, was already on the cards, but the addition of a fifth meant SEISS support would continue to be available until September.
Moreover, these fourth and fifth tranches would now draw in a further estimated 600,000 who became self-employed during the 2019/20 tax year, as long as they had completed their 2019/20 self-assessment tax return and returned it by 2 March 2021, at the latest.
So far, so good. However, the claims process, relatively straightforward for the first three SEISS grants, has been tightened up and could lead to people missing out.
Claiming the fourth SEISS grant
Self-employed people who started a business during the 2019/20 need to provide evidence of this, so HMRC is writing to them, asking for confirmation of their identity and proof they have been trading, before they can claim the fourth SEISS grant.
This verification process has been introduced in response to HMRC’s understandable concerns of potential fraud, but the unintended consequence is likely to mean legitimate claimants are left out.
Only those who started trading as a self-employed business after 5 April, 2019 will receive the SEISS verification letter from HMRC and it is by no means certain all will be contacted.
And of those who are, if they don’t carefully follow a set process, they could also be excluded.
Here’s how the process works:
The first step is receiving a letter – most people who have been written to will have received this by now.
Within two weeks of receipt, they will be contacted by phone by HMRC. Agents – such as accountants – cannot get involved in the process so if HMRC only has an agent’s contact number they will asked to be passed on to the business owner.
Here is where there may be an issue, because the call will be from an ‘unknown’ number, and many of us automatically reject such calls. Our advice is, don’t. It may well be HMRC, and they will only try calling three times, any time from 8am to 5.30pm.
Miss or fail to take the call, and chances of successfully claiming SEISS round four may be scuppered.
During the phone call, HMRC will ask for an email address and to this will be sent an email with a link to a Dropbox account.
It goes without saying there is a risk of this email ending up in spam, so careful checking is advisable.
The next step is to make digital copies of ID (such as passport or photo driving licence), plus copies of UK bank statements, to prove the business has been active.
These must be uploaded to the HMRC Dropbox within two days, after which time the link will expire.
The HMRC portal to then go on to apply for the grant will open in late April. As with the other SEISS grants, agents cannot apply on a business owner’s behalf.
It is clear that this verification process is fraught with dangers, because we are all encouraged to be vigilant and suspicious of what seem to be bogus phone calls and emails. This process also creates a real issue for those who are digitally excluded, as they face being completely left out of the system.
Those successfully claiming the fourth SEISS will receive a taxable grant based on 80 percent of three months’ average trading profits, paid out in a single payment and capped at £7,500 in total.
The value of the grant is based on average trading profits for up to four tax years between 2016 to 2020, where available.
As with previous grants, trading profits must be no more than £50,000 and at least equal to non-trading income in order to claim the fourth SEISS grant - another area where some may fall outside the grant, as starting a business may mean the profits are not at least equal to other income sources.
And eligibility for the fourth SEISS grant also depends on whether a significant financial impact from coronavirus was experienced between February 2021 and April 2021.
Claiming the fifth SEISS grant
The Government has also announced that there will be a fifth and final SEISS grant, covering the period between May and September, which eligible people can claim from late July.
The amount of the fifth grant will be determined by how much turnover has been reduced. The grant will be worth 80 per cent of three months’ average trading profits, capped at £7,500, for those with a higher reduction in turnover (30 percent or more).
For those with a lower reduction in turnover, of less than 30 per cent, the grant will be worth 30 per cent of three months’ average trading profits. Further details will be provided on the fifth grant in due course.
Putting aside tax
While eligibility for the fourth and fifth rounds of SEISS depends very much on whether there was a significant financial impact from Covid, the application process for the first three rounds was less strict.
Many businesses applied quite legitimately but the impact of Covid on their finances wasn’t as severe as was expected.
This means there are many business owners who have had an unexpected increase in their profits, for which they must put aside tax, as the SEISS grants are taxable in the hands of the recipient.
For some, such as those working in construction who are used to having their tax deducted at source, they could be in for a nasty surprise in the form of a large tax bill. Our advice is, put the money aside now.
Rob Stokes is head of audit at Optimum Professional Services www.optps.co.uk