The fourth Self-Employment Income Support Scheme (SEISS) covers the period 1 February 2021 to 30 April 2021.
The scheme provides financial support to self-employed individuals or members of a partnership that have been negatively impacted by coronavirus.
Prior to making a claim, it is important to consider the specific eligibility criteria for this grant, particularly the requirement to have a ‘reasonable belief’ that there will be a ‘significant reduction’ in trading profits. Without proper assessment of these requirements, applicants risk exposing themselves to HMRC penalties if it is later considered that the criteria have not been met.
Financial eligibility criteria
Self-employed individuals or members of a partnership must have traded in both the tax years
- 2019 to 2020 (and submitted their tax return on or before 2 March 2021); and
- 2020 to 2021.
HMRC look at trading profits and non-trading income on Self-Assessment tax returns to determine eligibility for the grant. Non-trading income is the amount recorded as ‘total income received’ on the online or paper tax calculation, less trading income.
To be eligible for the grant, trading profits must be both of the following:
- No more than £50,000; and
- Equal or more than non-trading income.
Eligibility will be established based on tax returns for
- The tax year 2019 to 2020, or if there is no eligibility based on this year alone;
- An average of the tax years 2016 to 2017, 2017 to 2018, 2018 to 2019 and 2019 to 2020.
Trading eligibility criteria
Claimants must either
- Be currently trading but are impacted by reduced demand due to coronavirus; or
- Have been trading but are temporarily unable to do so due to coronavirus.
Examples of reduced activity, capacity and demand include
- Fewer customers or clients than normal, resulting in reduced activity due to social distancing or restrictions;
- Contracts that are cancelled and not replaced; or
- Carrying out less work due to supply chain disruptions.
Increased costs are not considered as reduced activity, capacity or demand.
Examples of previously trading but temporarily unable to do so include
- Closure due to government restrictions;
- Shielding or self-isolating in-line with NHS guidelines and unable to work from home;
- Positive test for coronavirus and unable to work; and
- Caring responsibilities, for example as a result of school or childcare facility closures.
They must also declare that they
- Intend to continue to trade; and
- Reasonably believe there will be a significant reduction in trading profits.
A reasonable belief that there will be a significant reduction in trading profits
A ‘reasonable belief’
There must be a reasonable belief that there will be a significant reduction in trading profits due to reduced business activity, capacity, demand or inability to trade due to coronavirus between 1 February 2021 and 30 April 2021.
Evidence must be retained to demonstrate how the business has been impacted by coronavirus, with a subsequent reduction in business activity.
A ‘significant reduction’ in profits
HMRC expects an honest appraisal of the business impact between 1 February 2021 and 30 April 2021, and whether this will result in a significant reduction in trading profits for the tax year they are reported in.
Individual and wider business circumstances should be taken into account when deciding if the reduction is significant.
Other coronavirus scheme support payments do not have to be taken into consideration when making a decision on whether there has been a significant reduction in profits.
Clear and honest assessment
The significant reduction in profits assessment is a subjective assessment by the taxpayer and there is no direction from HMRC as to how this is assessed.
HMRC will expect claimants to have taken positive action to determine the amount of the reduction in profitability and to have recorded the action taken to assess whether this criteria has been met or not.
If no assessment has been carried out and evidenced prior to the taxpayer making the claim, there is a risk of exposure to significant HMRC penalties if it is then later considered that the criteria have not been met but the fourth grant has been claimed and not repaid within 90 days, if the taxpayer is not in fact entitled to it.
Average trading profits from up to four years’ of submitted tax returns will be used to calculate the grant amount.
The fourth SEISS grant is worth
- 80% of three months’ average trading profits;
- Up to a cap of £7,500.
The grant is paid in a single instalment and is based on a calculation of average trading profits.
It is subject to Income Tax and self-employed National Insurance Contributions and must be reported on the 2021 to 2022 Self-Assessment tax return.
The grant counts towards the annual allowance for pension contributions.
Making a claim
The online service for the fourth SEISS grant will be live from late April 2021.
Applicants that are eligible based on their tax returns will be contacted by HMRC in mid-April with a date from which they can make their claim – this will either be by email, letter or within the online service.
Claims must be made on or before 1 June 2021.