HMRC has issued guidance to self-employed taxpayers about how to apply for the fifth SEISS grant, the portal for which is due to open later this month, however this guidance is both confusing and in some cases simply wrong! Even as an accountant I have struggled to understand what it means, but I’ll do my best to explain it here.
Am I getting paranoid in thinking that the government just want to put taxpayers off from claiming this grant particularly, as was the case for the first four SEISS grants, accountants won’t be permitted to apply on behalf of their clients who will need to have two different turnover figures prepared in order to claim? Working out those figures won’t be easy for many so a good deal of hand-holding will be required from their bookkeepers or accountants.
When applying for the first two SEISS grants the taxpayer had to make a declaration that their business had been ‘adversely affected’ by the Covid restrictions, which was a term open to much interpretation, but neverthesless most self-employed taxpayers applied.
To qualify for the third and fourth SEISS grants the taxpayer also had to declare that their sales had reduced in the qualifying period due to the pandemic, compared to what would reasonably be expected for that period. The taxpayer was not asked to supply any figures to back up this assertion that sales were actually less than expected but it nevertheless put off many from claiming.
We were warned back in June that HMRC was tightening up the turnover test for the fifth SEISS grant and that taxpayers would have to prove their sales had reduced in order to qualify. HMRC has now released guidance on how to work out turnover for this test, but it is not logical, it may well confuse tax advisers and taxpayers alike and in one respect is actually wrong
There are four steps to achieve the two figures necessary for the application:
Step 1: 2020/21 turnover
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 year.
Where the taxpayer makes up their accounts for any period other than the tax year, this turnover figure won’t be the taxable turnover for the tax year 2020/21. However, the HMRC guidance seems deliberately designed to confuse, as it tells the taxpayer to refer to their 2020/21 self-assessment tax return to find their turnover figure.
To add further confusion, HMRC suggests that checking the business bank account for money received from customers is a good way to determine the turnover figure for the required 12-month period! Erm…what about VAT, HMRC?
Mercifully the fifth bullet point under “where to find your turnover figure” advises the taxpayer to ask their accountant or tax adviser, although in most cases it’ll probably be their bookkeeper who has this information.
Step 2: Adjustments for grants
Where the taxpayer has treated ‘money in’ as turnover they must then deduct any amounts of Covid-related business support grants received from that figure. This includes SEISS and Eat Out to Help Out grants, and any local authority grants. Although these grants are all taxable, and must be included in the taxable profit reported on the taxpayer’s tax return, they are not part of the turnover figure for this exercise. With me so far?
Commenced or ceased trading
The guidance on turnover continues – but appears to have been written by someone who hasn’t read the other conditions for the SEISS grants – because it says where the business has started or ceased in 2020/21 the taxpayer should include all the turnover received in the year to April 2021, even if the trade covered less than 12 months.
This is surprising (aka wrong) as if the taxpayer has ceased trading before 6 April 2021 and doesn’t intend to trade in 2021/22 they will not qualify for the SEISS-5 grant at all.
Similarly, the taxpayer must have been in business before 6 April 2020 and submitted a tax return including self-employed profits for 2019/20 by 2 March 2021, in order to qualify for the SEISS grant.
It is possible that the taxpayer could have several successive or concurrent trades, in which case the sales figures for all trades must be aggregated for the year to April 2021.
The directions for partners, rather than sole traders, still has me confused. Partners who have no other business are told to use the partnership’s total turnover figure for the year to April 2020, with no adjustment for the proportion relating to the particular partner’s profit share.
Partners who also have another concurrent business, or who joined the partnership in 2020/21, must include only the proportion of the partnership turnover that relates to their profit share in their reference year (see step 3).
Step 3: Reference year
The reference year is used to determine the turnover figure used as the base comparison to the 2020/21 turnover (result of step 2).
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. If 2019/20 was an unusually low year, the reference year turnover is that reported on the 2018/19 tax return.
At this point, the guidance has now switched to looking at turnover for an accounting period not the turnover received in the tax year. For a business that makes up accounts to 30 April, it will compare the sales booked in:
- Reference year: 1 May 2018 to 30 April 2019; to
- 2020/21: 6 April 2020 to 5 April 2021
Step 4: Compare the figures
Only where the reference year turnover is higher than the 2020/21 turnover (result of Step 2) will the taxpayer qualify for the SEISS-5 grant.
If the 2020/21 turnover has reduced by 30% or more compared to the turnover in the reference period, the grant will be 80% of three months average profits capped at £7,500. In other cases where the reduction in turnover is less than 30%, the grant is 30% of three months average profits capped at £2,850.
Remember in all cases the comparison is of turnover not profits of the business.
Is your head hurting?
It is difficult to imagine how HMRC could have made this application process more difficult for even the most diligent and honest of taxpayers to follow. I sincerely hope that this guidance is clarified in the near future, as currently it includes so many misleading and confusing statements that it will be unlikely that many taxpayers can claim without help from their accountant or bookkeeper, but perhaps that is the intention after all.