By Howard Gross, Society of Professional Accountants chairman
The self-employed income support scheme (SEISS) has been vital for many sole traders and individuals operating in partnerships during the coronavirus pandemic, but how many considered the potential long-term costs in their moments of need?
Back in January 2020, the UK’s self-employed population passed five million for the very first time. More than half of those – around 2.7 million, according to HMRC – were thrown a lifeline by the SEISS just three months later.
Accountants are used to helping the self-employed, usually with filing their tax returns or advising on business structures to get them up and running. But for once, accounting professionals could only advise their clients on how to claim this government support during the pandemic. Sole traders and those in partnerships had to claim the support themselves.
You probably made use of HMRC’s online eligibility checker, to advise customers on whether or not they qualified for the emergency funding and pass on the details they needed to apply.
Most accountants were offering the same advice at the time: applications, at least to begin with, offered the self-employed a taxable grant of 80% of their monthly trading profits, paid in a lump sum of up to £7,500 to cover three months of lost profits due to COVID-19.
Round two of the SEISS
A second advisory phase is already under way, as applications for a final grant paid through the SEISS are set to open next month. This will cover 70% of average monthly trading profits, again for three months, and will be capped at a reduced total of £6,570.
That’s great for the businesses experiencing short-term cashflow troubles as a result of the coronavirus, but did those who signed up to the support consider the possible long-term costs of putting their data into HMRC’s increasingly intuitive servers?
HMRC has made no secret of putting the spotlight of its tax investigations on the potential misuse of coronavirus support schemes, which have cost the Treasury more than £160 billion so far this year.
An amendment to Finance Bill 2019-21 is currently going through the House of Lords which, if written into law, will allow the tax authority to recover grants claimants were not entitled to receive and issue penalties in deliberate cases of non-compliance.
If you have a client who has been overpaid through the SEISS, be aware that HMRC expects you to inform them or they might be liable to a penalty. More details are sure to come out of the woodwork in the near future.
I’m sure you won’t need reminding that if any of your clients are in receipt of a SEISS grant, it will be liable for income tax and class 4 NICs when the time comes to file 2020/21 tax returns.
Recipients may assume the lump sums are exempt for tax and NICs purposes as they are labelled ‘grants’. This will undoubtedly trip up some taxpayers who might have used the money as soon as they received it, instead of budgeting for these liabilities at the time.
Pay particular attention to clients who are self-employed subcontractors in the construction industry. They might miss out on their usual refund after submitting their tax return, as the grants were not taxed at source like their other income.
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