Last updated: 07 Jul 2020 03:23 Posted in:

On the 25th March 2020, Chancellor Rishi Sunak announced the Self-Employment Income Support Scheme (SEISS). This allowed HMRC to calculate and provide an appropriate taxable grant to self-employed individuals ‘whose livelihoods are adversely affected by coronavirus’, based on their average income.

The news was well-received. There had been concern that the self-employed would need to wait on Universal Credit until their industries were able to operate again. Now, with the scheme being extended with a second grant, a large number of sole traders are able to come out of lockdown relatively unscathed.

However, accessing this scheme is no small feat. To ensure your clients qualify for the additional support through June, July and August, Mike Parkes from AIA partner, GoSimpleTax, explains the application process and your role within it.

What is the SEISS?

SEISS is a scheme set up to support self-employed workers unable to earn as a result of COVID-19. The scheme opened to applications of its first grant on the 13th May 2020 – covering income for March, April and May – with HMRC identifying eligible self-employed workers and inviting them to enter their bank details online.

The support is determined by the individual’s average profits from the past three tax years. HMRC adds up the total profit for the combined three years, divides it by three, and uses that to calculate the monthly amount – a useful method if the earnings in one of your three years was significantly different from the other two.

In the initial period (March-May), the grant you receive would be 80% of the determined average profit – much like employee furlough. There is a limit though. The grant is capped at £2,500 a month for those that are eligible, and it is taxable (meaning you must declare it on your Self Assessment tax return). From June to August, this percentage will drop to 70%. It’ll be paid as a single instalment that covers three months’ profits, and capped at £6,570 total.

The deadline for applying for the first grant is 13th July 2020. Applications for the second grant are due to open from 17th August 2020, but your client must confirm that their business has been adversely affected by COVID-19 either on or after 14th July 2020.

Who qualifies for SEISS?

  • To be eligible for SEISS, there are a series of requirements your clients need to meet. These are:
  • They must earn the majority of their income through self-employment
  • Their average trading profits need to be less than £50,000 a year
  • They have filed a tax return for the 2018/19 tax year
  • They have traded during the 2019/20 tax year and intend to continue trading in 2020/21

Of course, this will allow some self-employed individuals to get support even without three years’ worth of tax returns. If that applies to your client, then averages will be taken using what history is available.

However, those without a single, full year’s Self Assessment history (those who have started self-employment in the 2019/20 tax year) won’t qualify. This is to prevent fraudulent claims.

Can my client keep working?

Yes, provided they intend to continue working as a self-employed individual in the 2020/21 tax year. They can even work at another job in order to support their household income while receiving payments. However, they will still need to prove that their payments represent the majority of their income (i.e. greater than 50%).

As the SEISS payment will constitute earned income, you should beware if your clients were on Universal Credit to supplement their income. This may stop, and they may need to re-apply for Universal Credit in July.

How do I help my client stay compliant with HMRC?

Provided they qualify for the SEISS and they submit their Self Assessment tax return with all the relevant information, they should stay on the right side of the taxman.

However, you and your clients should also bear in mind that the second payment on account deadline has been extended. Usually, some self-employed individuals are required to pay their second payment on account on 31st July. However, with COVID-19 causing a significant disruption to many sole traders’ cash flows, HMRC has decided to delay this deadline until 31st January 2021.

While this initially sounds beneficial, if your clients normally make a second payment on account, it could result in the perfect storm next year when all their tax responsibilities come at once – causing greater harm to their cash flow and potentially leaving your clients with little in the bank in January. It’ll pay to file your clients Self Assessment early, be aware of their tax bill, and put any plans in place to meet your clients obligations.

About GoSimpleTax and Your AIA Member Discount

With GoSimpleTax software you can avoid being caught off guard in January by working out your clients tax liability ahead of time.

Their award-winning platform lets you log your income and expenditure in real time, and uses this information to automatically calculate your tax bill.

AIA members visit www.gosimpletax.com to claim your 25% discount or check out the new freemium version of the software.