As taxpayers become able to claim the long-awaited 4th grant, HMRC are now looking into eligibility and have now been tasked with recovering payments made to taxpayers that were not eligible to receive the coronavirus support payments.
The 2020/21 self-assessment tax return has separate boxes for grants to be recorded but also has a box to declare grants that have been overclaimed.
However, to add more confusion, the grants had different conditions to be met and therefore is not straight forward. The conditions also mention a ‘qualifying period’ and a ‘basis period’, which are quite different.
Each grant has a qualifying period, being the period, it relates to:
- Grant 1 – up to 13th July 20
- Grant 2 – from 14th July 20 to 31st October 20
- Grant 3 – from 1st November 20 to 31st January 21
- Grant 4 – from 1st February 21 to 30th April 21
However, the ‘basis periods’ relate to the date your annual accounts are made up to. Generally, for many taxpayers, this will be the same as the tax year – 6th April 20 to 5th April 21.
The eligibility conditions that must be met for all 4 grants:
- Intention to continue to trade in the tax year 2020/21 – if yes, can claim the SEISS grants 1-3
- Intention to continue to trade in the tax year 2021/22 – if yes, may be able to claim the SEISS grant 4 also, – subject to 2 more conditions to be met, as below
- Business has been adversely affected by coronavirus – applies to all 4 grants
Grants 3 and 4 have two further conditions to be met:
- Reduced capacity, activity, demand or temporarily unable to trade resulting in reduced sales in the qualifying periods for each grant
- Reasonable belief that the business will suffer a significant reduction in trading profits in at least one whole basis period due to the condition above
So, to be eligible for the last 2 grants, you need to be able to evidence that for during the qualifying period, your sales have been reduced and that this has led to a significant reduction in your trading profits over at least one whole basis period, all due to the pandemic.
This could mean you are not eligible for all 4 grants, depending on your circumstances. You should not assume you are eligible based on HMRC allowing you to claim in the first place as these were based on confirmation to the above by you at time of claiming.
It could be in some circumstances that non eligibility may not be apparent until your accounts are prepared for the tax year 2020/21.
This maybe as for many taxpayers, the qualifying periods may fall into two separate accounting years and therefore there must have been a reasonable, honest belief that profits for at least one whole of those basis years will be significantly lower, due to sales reduction (and not higher costs) and because of the pandemic.
What does adversely affected mean?
- Being unable to work as was shielding, self-isolating, on sick leave or having care responsibilities due to coronavirus
- Scaling down or temporarily stopped trading due to interrupted supply chains, fewer or no customers, staff unable to work, contracts cancelled, and the business tried to replace the lost work
Please be aware that isolation or care responsibilities due to arrivals into the UK are not seen as valid reasons to be ‘adversely affected by coronavirus.’
What is meant by significant?
No definition has been given to date, HMRC have only stated that it should be an honest assessment. However, as a guideline, the 5th grant structure will be based on showing a 30% reduction. Smaller reductions could be argued as being significant, especially in the cases of a taxpayer having no other source of income. The best guide is to assess / forecast what your profits would have been if it wasn’t for the pandemic.
What to do in the case of non-eligibility
If you had not intended or have not stopped trading in the tax years above, you may not have been eligible for the grants and would be required to declare this on your 20/21 tax return. For the 3rd and 4th grants, further conditions also need to be met for the claim to be valid.
To avoid any penalties, the grants are to be repaid along with any tax owing for the tax year, by 31st January 2022.
However, Failure to notify HMRC of a grant received and was not entitled to when received will be treated as a deliberate and concealed act and will attract a penalty.
HMRC have a web page for those needing or would like to voluntarily repay some or all SEISS claims made…
What should you do now?
- Detail each grant – the amount received, and date claimed and SEISS grant each relates to
- For each claim made, gather supporting evidence, detailing how the pandemic has affected your business, financially and otherwise, for each qualifying period.
These should include facts known at the time of each claim, detailing any dates and events occurring within each period, that had an adverse effect on your business due to coronavirus. For instance, being unable to work due to sickness, isolation, shielding or care responsibilities. This could include school and childcare closures.
Keep this information along with your 20/21 tax return preparations and pass to your accountant, if you have one, together with your Income & Expenditure for the accounting year.