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COVID-19: Updated guidance on Self-Employed Income Support Scheme (SEISS) from the Institute of Chartered Accountants in England and Wales (ICAEW)

16 April 2020: ICAEW’s Tax Faculty highlights the key additions to HMRC’s guidance on the coronavirus self-employed income support scheme (SEISS), which now includes details on calculating trading profits and more information on the interaction with universal credit.

HMRC has published further guidance on the SEISS and details of how to work to work out total income and trading profits. Much of the core detail discussed in the Tax Faculty’s initial outline of the scheme remains consistent. However, HMRC’s guidance has been supplemented with additional clarity on: making a claim, eligibility for the scheme and SEISS’ interaction with universal credit, as well as further support on calculating profits and total income (details outlined below).

The government is aware that there are still questions unanswered. The guidance is very clear though: don’t contact HMRC about the SEISS at the moment.

ICAEW understands that HMRC will publish further guidance to provide more clarity. ICAEW will update its coronavirus hub as more information becomes available.

Making a claim

HMRC makes it clear that the online service should be available from early June and that HMRC will aim to contact those eligible by mid-May. Taxpayers are asked not to contact HMRC for further details yet. Helpfully, the updated guidance indicates that further information will be provided in due course about how those who are unable to make a claim online will be able to apply.

ICAEW is seeking clarity on whether agents will be able to apply on behalf of clients as it recognises that many taxpayers will need this support.

Interaction with claims for universal credit

A claim for universal credit (UC) can be made while individuals wait for the SEISS grant to arrive. However, HMRC does warn that the grant could affect how much UC applicants are entitled to later on. Some advisers and self-employed individuals may need further specialist advice around how the grant will interact with UC given that many may be unfamiliar with the benefits system.

ICAEW can confirm that any grant received will be classed as income for UC purposes in the claim period the payment is received and may affect the entitlement to UC for that claim period. Any UC claims for periods in which no grant is received should not be affected. It is also important to remember that this grant is taxable, so subject to income tax and NIC.

Eligibility for the SEISS

HMRC has simplified some of the language and presentation around calculating the thresholds for eligibility, making them easier to understand without making fundamental changes to the original version of the guidance. Individuals must have trading profits of less than £50,000 and these profits must constitute more than half of their total income.  

The key trading conditions around eligibility have not changed, including that individuals must ‘have lost trading profits due to coronavirus’. It remains unclear how these conditions will be monitored or if HMRC will impose any claw-back mechanism should these conditions not be met. The guidance does indicate that claimants will need to confirm to HMRC that their business has been adversely affected by COVID-19 and that HMRC will ‘use a risk-based approach to compliance.’ What this will mean in practice is yet to be seen.

Calculating profits

HMRC’s guidance on how to calculate trading profits offers further insight into the computation required. It appears that HMRC is only interested in business income less allowable business expenditure, examples of which include: office, staff and travel costs. It would appear that deductions, such as pension and gift aid, will therefore be ignored for the purposes of this calculation. 

HMRC has tightened the wording around how the average profit will be calculated indicating that profits and losses will be added together and divided by three. The examples within the guidance confirm this is to be read literally so losses will in fact reduce any average figure, featuring as a negative in the computation.  Although, any losses brought forward will not be deducted when calculating trading profit for the current period.

HMRC has also provided further detail around how average trading profit will be calculated where individuals have not been self-employed throughout the three-year period. The average trading profit will be based on periods of ‘continuous’ self-employment. This will mean that 2016/17 figures will be ignored where the self-employment does not continue into 2017/18 and grants would be based on 2018/19 only.

The guidance is also now explicit that any changes in amended returns submitted after 26 March 2020 will not be taken into account when considering eligibility or the amount of any grant. This is obviously aimed at preventing any claimants who might consider disapplying reliefs or altering their filing positions to increase profits and maximise eligibility.

The updated guidance also provides further clarity for farmers who claim farmers’ averaging relief stating that HMRC will use the amounts before the impact of the averaging claims to work out both whether a farmer can claim and the quantum of any grant. We assume that other affected professions, such as artists and writers may take a similar approach. However, the ICAEW is concerned that taking profit figures before the impact of averaging relief might cause issues and make matters more complex.

Calculating total income

The guidance explains that total income will be the sum of all the key classes of income (for example earnings, dividends, savings etc. For the majority of people, this is likely to correspond to the ‘total income received’ figure on the individual’s tax return computation, which is available to download when submitting the return.  

Details of how the SEISS will interact with the loan charge has also been added to the guidance including a different method for calculating ‘average trading profits’, excluding the 2018/19 year as that year will show an inflated amount of income.   

While this further clarity is welcome, both ICAEW and HMRC recognise more detail may be required. Given that that the computation has not been directly linked to the applicant’s tax return and computation figures, we anticipate further questions from agents and taxpayers will arise.

Finally, ICAEW urges any relevant parties who have not completed their 2018/19 return to hurry up and do so as this must be submitted by 23 April 2020 to be eligible for the scheme.