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Getting the timing right for your Self-Employed Income Support Scheme grant tax liability

SEISS payments are taxable as part of the profits of the self-employed. Here we explain which tax year you need to include them in.

Updated 1 October 2021

Some background

The Self-Employment Income Support Scheme (SEISS) was introduced by the Government in spring 2020 to give support for self-employed individuals whose business has been adversely affected by Coronavirus (COVID-19). Since then there have been several taxable grants calculated on a percentage of average monthly trading profits.

Grant 1: From 13 May 2020 the scheme allowed an eligible individual to claim a taxable grant based on 80% of their average monthly trading profits in the three tax years 2016/17, 2017/18 and 2018/19. This was paid out in a single instalment equal to three months’ profits, capped at £7,500. 

Grant 2: The second grant was available from 17 August 2020 and based on 70% of average monthly trading profits in the same three tax years. It too was paid out in a single instalment equal to 3 months’ profits, but capped at £6,570. 

Grant 3: This grant covered a three-month period from 1 November 2020 to 31 January 2021. Like grant 1 it was based on 80% of an eligible individual’s average monthly trading profits in the past three tax years at the time (ie 2016/17, 2017/18 and 2018/19) and capped at £7,500.

Grant 4: This was open to applicants from April 2021 till 1 June 2021. It offered a taxable grant based on 80% of three months’ average trading profits, paid out in a single payment (and capped at £7,500). As with previous grants, trading profits could not be more than £50,000 and at least equal to non-trading income. As the calculation now took into account the tax year 2019-20, if you previously claimed SEISS grants you could receive grants that were higher or lower in value than any previous SEISS payments received.

Grant 5: This fifth and final SEISS grant covered the May to September 2021 period. The grant’s amount was determined by how much a self-employed business’ turnover had been reduced. It was worth 80% of three months’ average trading profits, capped at £7,500, for those with a higher reduction in turnover (30% or more). For those with a lower reduction in turnover, of less than 30%, then the grant was worth 30% of three months average trading profits and capped at £2,850. The grant is taxable and was paid out in a single instalment.

Qualification for 5th grant meant applicants must:

Note: HMRC first looked at applicants 2019 to 2020 Self Assessment tax return. Trading profits had to be no more than £50,000 and at least equal to the applicant’s non-trading income. If the applicant was not eligible based on their 2019 to 2020 tax return, HMRC then looked at the tax years 2016 to 2017, 2017 to 2018, 2018 to 2019 and 2019 to 2020.

All 5 grants are now closed to applicants.

Paying the tax on the Grant

SEISS payments are taxable as part of the profits of the self-employed. In the Chancellor’s Budget 2021, it was confirmed that grants from the SEISS made on or after 6 April 2021 will be taxed in the year of receipt regardless of the accounting year end. The Finance Act ensures this measure has effect for the tax year 2020/21 and for subsequent tax years.

What this means

The SEISS payments that were made in the 1st, 2nd and 3rd grants formed part of the self-employed profits for 2020/21 and you are taxed on them in that tax year.

There is an exception to this which affects partnerships. Ordinarily SEISS payments claimed by a particular partner will be retained by them and declared on the same basis as a sole trader, as described above.

Where exceptional SEISS payments claimed by a particular partner are not retained in full by them, but instead included in partnership income and distributed between the partners, the SEISS payments are included within the turnover of the partnership return for the accounting year of receipt.

As an example, on a 31 July 2020 year-end assessed within the 2020/21 tax year only the first (rather than the first three) SEISS payments will be included. The  second and third SEISS payments, along with the fourth and fifth SEISS payments if claimed,  will be included within the 31 July 2021 year-end for the 2021/22 tax year.

HMRC recently released guidance for those who have already submitted their 2020 to 2021 Self Assessment tax return online, and claimed a SEISS grant before 6 April 2021. This is because HMRC may have made an adjustment to your return if:

Read HMRC’s guidance on how to declare your SEISS payment in your Self Assessment online tax return here.

The availability of the fourth grant from the end of April 2021, and the fifth grant from July 2021 mean both are counted as part of your income of 2021/22 and taxable for that tax year. 

Penalties

In a bid to deter fraud with the Self-Employment Income Support Scheme, in March 2021 it was announced a 100% tax charge can be levied on individuals who receive SEISS payments to which they are not entitled. The provisions are being extended to enable HMRC to recover payments where an individual was entitled to the grant at the time of claim but subsequently ceases to be entitled to all or part of the grant.

Can we help?

If you would like help or advice relating to the tax treatment of your SEISS payments, please contact one of our specialists shown on this page.

Specific advice should be obtained before taking action, or refraining from taking action, in relation to this summary. If you would like advice or further information, please speak to your usual Shipleys contact.

Copyright © Shipleys LLP 2021

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