GETTING TO GRIPS WITH YOUR CLIENTS GRANTS AND THEIR SELF-ASSESSMENT

Last updated: 21 May 2021 01:00 Posted in: AIA

Self-Employed Income Support Scheme (SEISS) has been a lifeline to many sole traders during the coronavirus pandemic. Provided they’ve met the necessary criteria, these individuals have been supplemented with up to 80% of their average trading profits.

Rachel Rutherford, Director of Policy and Public Affairs added “Undoubtedly the Self-Employed Income Support Scheme has provided much needed support for businesses paralysed by the ongoing pandemic.

“However, these grants are taxable – meaning that they’re subject to Income Tax and National Insurance contributions in the tax year in which they’re received. As a result, they need to be included in your client’s Self-Assessment tax return.”

So, to make that as easy as possible for you and your client’s, we’ve asked tax return expert. Mike Parkes, Technical Director at GoSimpleTax to set the record straight on SEISS grants and how to record them for HMRC.

Grant 4 now open

If your client had reason to believe that they have suffered a significant reduction in trading profits between 1st February 2021 and 30th April 2021 due to the coronavirus pandemic, and they are eligible, they can now claim support.

To apply, you’ll need your client will need:

  • National Insurance number
  • Government Gateway user ID and password
  • Unique Taxpayer Reference (UTR) number
  • UK bank details, including account number, sort code, and name and address linked to the account

This fourth instalment of SEISS closes on 1st June 2021. To determine your client’s eligibility, HMRC first reviews your clients 2019/20 tax return. Your trading profits must be no more than £50,000 and account for more than 50% of your taxable income.

Changes to grant 5

The eligibility criteria for the fifth grant will be different. As it stands, the amount your client receives will be dependent on your turnover between April 2020 and April 2021.

In effect, this means your client may receive support if your sales have fallen by:

  • 30% or more – In which case, the fifth grant will be 80% of three months’ average profits (up to a maximum claim of £7,500)
  • Less than 30% – In which case, the fifth grant will be 30% of three months’ average profits (up to a maximum claim of £2,850)

This fifth and final instalment of self-employed support is expected to ‘cover’ the period from May 2021 to September 2021.

Declaring grants 1, 2 and 3 on your tax return

Your client won’t need to repay the SEISS grant, but they are subject to Income Tax and Class 4 National Insurance contributions. This means that, if your client claimed grants 1, 2 or 3, they will need to be reported, in full, in their 2020/21 Self Assessment tax return.

HMRC is making this easier for users by including a box on the 2020/21 and 2021/22 tax return forms. You’ll need to include a 4th or 5th grant on the latter tax return should you claim them in 2021.

Alternatively, you can easily declare that you’ve received support through tax return software. Platforms like GoSimpleTax include this as a simple drop-down field.

If your client discovers that they received a SEISS grant that they were not entitled to, or were paid more than they should have been, notify HMRC within 90 days to arrange repayment. Fail to do so, and your client may be charged a penalty.

Provided you have claimed the correct amount and include all grants within your clients Self-Assessment tax return, you should both stay on the right side of the taxman.

Further Advice

If you require further advice on tax related matters go to the AIA Tax Insights Page, or alternatively visit the AIA GoSimpleTax Partner Page.

“Undoubtedly the Self-Employed Income Support Scheme has provided much needed support for businesses paralysed by the ongoing pandemic.

“However, these grants are taxable – meaning that they’re subject to Income Tax and National Insurance contributions in the tax year in which they’re received. As a result, they need to be included in your client’s Self-Assessment tax return.”