In regards as to whether the grant can be claimed the rules for the fifth Self-Employment Income Support Scheme (SEISS) grant are the same as for the fourth grant.
However, there are two significant changes that have been made. Firstly, the amount of the grant is now calculated at two different rates – a higher rate of 80% of 3 months average trading profits, and a lower rate of 30% of 3 months average trading profits.
Previously you needed to have suffered reduced income but now it’s based on reduced turnover and the rate depends on the level of reduced turnover. These rates are as follows:
|If your turnover is down by
|Maximum grant amount
|30% or more
|80% of 3 months’ average trading profits
|Less than 30%
|30% of 3 months’ average trading profits
If you’re eligible based on your tax returns, HMRC will contact you in mid-July to give you a date that you can make your claim from. It will be given to you either by email, text message, letter or within the online service.
The online service to claim the fifth grant will be available from late July 2021 and the claim must be filed on or before 30 September 2021.
Are you eligible?
You will need to meet all criteria in stages 1, 2 and 3.
Stage 1: Your trading status and when you must have traded
You must be a self-employed individual or a member of a partnership. You must also have traded in both tax years:
2019 to 2020
2020 to 2021
As with prior years, you cannot claim an SEISS Grant if you trade through a limited company or a trust.
Stage 2: Tax returns and trading profits
You must have submitted your 2019 to 2020 tax return on or before 2 March 2021, and
- have in that tax year trading profits of no more than £50,000
- your trading profits in that year must be at least equal to your non-trading income
Non-trading income is any money that you make outside of your business. For example, if you also have a part-time salaried job or pension, rental income or income from overseas.
If you’re not eligible based on the trading profits in your 2019 to 2020 return, HMRC will look back at previous years.
Stage 3: Deciding if you can claim
When you make your claim you must confirm to HMRC that you:
- intend to keep trading in 2021 to 2022
- reasonably believe there will be a significant reduction in your trading profits due to the impact of COVID-19 between 1 May 2021 and 30 September 2021
The complicated calculations bit
When making your claim you’ll need to tell HMRC about your business turnover so they can calculate your grant amount.
Turnover includes the takings, fees, sales or money earned or received by your business, which, of course, is different from the taxable profit. It excludes previous SEISS grants, Eat Out to Help Out payments and local authority or devolved administration grants.
For these purposes HMRC define turnover means the takings, fees, sales and money earned by the business of the trade calculated in accordance with generally accepted accounting practice or, where an election has been made under s25A of ITTOIA 2005, the cash basis.
To make your claim, you’ll need to have 2 different turnover figures. You’ll need to work out your turnover for:
- a 12-month period starting between 1 April 2020 and 6 April 2020
- either 2019 to 2020 or 2018 to 2019
HMRC will compare these figures to work out how much SEISS grant you’ll get.
The first turnover period – the pandemic period.
The turnover figure required is for a 12-month period starting on any date between 1 and 6 April 2020. For example either 1 April 2020 to 31 March 2021 or from 6 April 2020 to 5 April 2021. If you prepare your accounts on a tax year basis, you will be able to use the same figure as will appear on the 2020/21 tax return (it is not necessary to submit the return before making a claim, but the turnover figure for the SEISS claim will be checked after the return is filed). The turnover figure should be for all of your businesses, but exclude COVID-19 support payments (such as: SEISS grants, eat out to help out payments and local authority/devolved administration grants)
If you use a different accounting date, you will need to make a separate calculation. Forget basis periods and accounting periods, what HMRC wants here is the turnover that fits almost exactly into the tax year 2020/21. This is the gross sales received in a 12-month period that started from 1 April 2020 to 5 April 2020 – essentially the sales recorded in that statutory tax year. As a result if you make up your accounts for any period other than the tax year, this turnover figure won’t be your taxable turnover for the tax year 2020/21.
The second turnover period – the reference period.
In most cases this will the turnover figure from the 2019/20 tax return but there is an option to use 2018/19 if 2019/20 was not a normal year for the business.
There are provisions to adjust the turnover figure if the accounting period was longer or shorter than 12 months but there is no requirement to make an adjustment if the period covered is less than 12 months because the business started or ceased in the tax year (this can mean that the comparison is not between two 12-month periods).
For most taxpayers the reference year is the turnover reported on the 2019/20 tax return, but for new partners it will be turnover/ profit share for 2020/21.
In this step you will have switched to looking at turnover for an accounting period and not at the turnover received in the tax year. For a business that makes up accounts to 31 December it will compare the sales booked in:
- Reference year: 1 January 2019 to 31 December 2019; to
- 2020/21: 6 April 2020 to 5 April 2021
However, if you started trading in 2019 to 2020 and did not trade in any of the three preceding tax years, you won’t need to supply HMRC with any turnover information.
Example 1 – Mohamed
Mohammed’s average trading profits were £42,000 over the last 4 tax years.
We start with his average trading profit (£42,000).
Divide by 12 = £3,500.
Multiply by 3 = £10,500.
If he is eligible for the higher grant:
Work out 80% of £10,500 = £8,400.
He’ll get the maximum grant of £7,500.
If he’s eligible for the lower grant:
Work out 30% of £10,500 = £3,150.
He’ll get the maximum grant of £2,850.
Example 2 – Mike
Mike started trading in January 2021 so he does not need to provide HMRC with any turnover figures.
His monthly average trading profits are £8,000
He’ll get 80% of 3 months’ average trading profits. The maximum grant amount is £7,500, but Mike will receive £6,400
How the grant is treated for income tax and national insurance
The grant is subject to income tax and self-employed National Insurance Contributions. It must be reported on your 2021 to 2022 Self-Assessment tax return. This is the same as previous SEISS grants received.
The grant also counts towards your annual allowance for pension contributions.
The majority of our sole traders and partnerships use either 31 March or 5 April as their year end. Therefore, turnover calculations for the pandemic year and previous years will be straightforward. However, for these individuals it also means that the turnover submitted regarding this claim MUST agree to the turnover included (or to be included) on their 2021 tax return.
HMRC have stated that they will be checking that these agree and have set up a new compliance team for this very purpose. It is for this reason that we strongly advise that if you are eligible for this grant that before you submit your claim that we prepare your accounts (if applicable) and 5 April 2021 tax return, and the turnover figure within these should be used for your claim. If you would like SRC to prepare your 5 April 2021 tax return ahead of the usual deadline, please send your records/documents to us as soon as possible to ensure they are completed before the 30 September 2021, 5th round deadline.
SRC-Time are one of the South East’s leading accountancy firms in advising businesses in all aspects of their accounting and tax affairs and we are able to assist in any issue raised above.
Our expert team is available to provide you with advice and can be contacted on 01273 326 556 or you can drop us an email at email@example.com or speak with an account manager to get any process started.