With under a week to go until applications open for the third grant available of the self employment income support scheme (SEISS), HMRC has published guidance which includes new criteria claimants must meet regarding the impact coronavirus is having on their business
Applicants must now declare themselves to be either currently trading, but impacted by reduced demand due to coronavirus, or to have been trading but temporarily unable to do so due to coronavirus.
Those applying must also declare that they intend to continue to trade and that they ‘reasonably believe’ there will be a significant reduction in their trading profits.
HMRC’s guidance states the tax authority is expecting an ‘honest assessment’ about whether or not the business will suffer a significant reduction in trading profits due to reduced business activity, capacity or demand or inability to trade due to coronavirus during the period 1 November to 29 January 2021, and applicants will be expected to keep evidence to support this.
On the question of what constitutes a ‘significant reduction’ in trading, HMRC says it cannot make this decision for a business because individual and wider business circumstances will need to be considered.
However, the guidance does provide a list of examples designed to help applicants decide.
For example, a cafe owner who has fewer customers due to government restrictions on households mixing, which reduces her takings and reasonably believes this will significantly reduce her trading profits is eligible to claim.
In contrast, a café owner who increases her prices and believes her trading profits will not reduce significantly, is not eligible to claim the third grant.
A builder with coronavirus symptoms who self isolates for five days before receiving a negative test, is unable to work from home but is able to rearrange his contracts. He does not believe there will be a significant reduction in his trading profits, and is not eligible to claim the third grant.
An electrician is still trading but has had increased costs due to buying masks, cleaning supplies and screens is also not eligible because increased costs were the only impact on the business and it has not lost customers.
In another example, a dentist returns from a holiday abroad and has to self-isolate for 14 days due to quarantine rules. As this is the only impact on her business, she is not eligible to claim the third grant, because reduced demand due to self-isolation after foreign travel is not included in the eligibility criteria.
ICAEWS’s tax faculty is warning that claimants are likely to need advice from their agent to consider whether they are eligible, while unrepresented taxpayers may well miss the fact that the criteria are significantly different from those that applied to the first and second grants.
It is also pointing out that the significant reduction in trading profits test is to be applied to the accounting period as a whole.
For many taxpayers, for example those that use a 31 March or 5 April accounting date, the significant reduction of trading profits will be expected to appear in the results they report on their 2020/21 tax return.
However, some taxpayers, for example those that use a 30 April accounting date, will not report the trading results for the relevant period until their 2021/22 tax return.
The ICAEW tax faculty says it is concerned about two aspects of these new requirements.
Firstly, the significant reduction in trading profits test applies to the tax year as a whole, which means that claimants will have to forecast their results to establish eligibility.
Secondly, it maintains it seems unlikely that HMRC will be able to effectively enforce the new requirements as to do so, it would have to consider some 2021/22 tax returns which may be submitted as late as January 2023.
Self employed individuals who were not eligible for the first and second grant based on the information in their self assessment tax returns, are not be eligible for the third.
To make a claim for the third grant the business must have had a new or continuing impact from coronavirus between 1 November 2020 and 29 January 2021.
The third taxable grant is worth 80% of the applicant’s average monthly trading profits, paid out in a single instalment covering three months’ worth of profits, and capped at £7,500 in total.
Applications open from 30 November and claims must be made by 29 January 2021.
To qualify, applicants must have traded in both tax years 2018/19, and submitted a self assessment tax return on or before 23 April 2020 for that year, and 2019/20.
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