Overview: SEISS 4As stated in the Treasury Direction, the purpose of SEISS 4 is to provide grants where to persons ‘carrying on a trade the business activity or capacity of which, or demand for which, has been reduced, or cannot be carried on’ because of the pandemic, in the period 1 February 2021 to 30 April 2021.
Grants under SEISS 4 are calculated at 80% of three month’s average trading profits. Like earlier grants, there is a single instalment payment. This is capped at £7,500.
The online claims service is available from late April 2021 to 1 June 2021. HMRC will contact clients it believes are eligible to provide individual claim dates, either by email, letter or within the online service, from mid-April. It will also contact clients who are no longer eligible because the 2019/20 tax return hasn’t been filed by the 2 March 2021 deadline, or where they no longer meet the eligibility criteria when the 2019–20 tax return data has been taken into account.
Overview: SEISS 5SEISS 5 covers the period May to September 2021. The key difference from earlier SEISS grants is that the level of grant is to depend on how much turnover has fallen in the year April 2020 to April 2021. The grant will be:
•80% of three months’ average trading profits, capped at £7,500 for those whose turnover has fallen by 30% or more;
•30% of three months’ average trading profits, capped at £2,850, for those whose turnover has fallen by less than 30%.
Claims should be accepted from late July 2021.
Eligibility: SEISS 4Many of the criteria for SEISS 4 are broadly the same as for SEISS 1 to 3. The main shift relates to the years that HMRC is using to determine eligibility, calculate income and average profits.
Earlier grants were based on 2018–19 profits and non-trading income, and failing that, the average of the three previous years. SEISS 4 uses 2019–20 profits and non-trading income, and failing that, the average of the four years to 2019–20.
Eligibility: 2019–20 tax return submissionCritically, to be eligible for SEISS 4 or 5, the 2019–20 tax return must have been submitted by 23.59 hours on 2 March 2021. Any client who claimed earlier SEISS grants, but didn’t submit the 2019–20 return within this window, is therefore ruled out, unless there are exceptional circumstances.
Tax return amendmentsIf an amendment to the tax return, on or after 3 March 2021, reduces the amount of grant a claimant is eligible for, or renders them ineligible, HMRC should be notified within 90 days. Some or all of the grant may need to be repaid. There are however de minimis rules:
Eligibility: basis of HMRC calculationsHMRC looks at the 2019–20 figures to determine eligibility. After that it turns to the four years 2016–17 to 2019–20. The 80% of trading profits figure thus represents 80% from a different period, meaning calculations for SEISS 4 and 5 are based on different figures.
As the Budget promised, this may all mean that some clients get an opportunity to claim for the first time. It also means that some amended returns for earlier years which had been submitted earlier, but not taken into SEISS calculations, may now come into play. Potentially this could also open the door to claimants who did not qualify for SEISS 1 to 3.
But on the other hand, the outlook also changes for clients who have already used the scheme, and not necessarily to their advantage. Their entitlement is likely to change, in all probability downwards. In some cases, it could be extinguished completely.
SEISS 4 eligibility: other conditionsClients must have traded in the tax years:
•be currently trading but impacted by reduced activity, capacity or demand due to Covid-19; or
•have been trading but be temporarily unable to do so because of Covid-19 (having to quarantine or self-isolate because someone has been abroad does not count for this purpose).
And declare that they:
•intend to continue to trade; and
•reasonably believe there will be a significant reduction in their trading profits due to reduced business activity, capacity, demand or inability to trade due to Covid-19.
•have trading profits of no more than £50,000 and at least equal to their non-trading income, based on their 2019–20 tax return or an average of relevant tax years between 2016–17 and 2019–20.
ComplianceThe detail of the rules has changed significantly over the course of time, and it is important that clients are aware of this. Unlike the furlough scheme, where the most likely risk is from client errors in the calculations, the position for SEISS, where HMRC has done the number-crunching, is different. Here the potential challenge is being able to prove that trade is continuing, and that the business has suffered a direct financial knock as a result of the pandemic.
As the various phases of eligibility have unfolded, the nuance has subtly changed. The emphasis was on being ‘adversely affected’ in SEISS 1 and 2. This phase also saw the permitted inclusion of additional costs, such as installing perspex screens, etc. For SEISS 3 and 4, the emphasis is on a reasonable belief that there will be ‘significant reduction’ in trading profits. Claims based solely on additional costs, such as for face masks and cleaning supplies, are excluded. In due course, there will be details on the turnover test for SEISS 5.
For each of these various phases, clients need supporting evidence. HMRC examples of what reduction in activity etc may look like is here www.gov.uk/guidance/how-your-trading-conditions-affect-your-eligibility-for-the-self-employment-income-support-scheme#impactedbyrd.
Reasonable belief and significant reductionThese are the two key criteria for SEISS 3 and 4. For SEISS 4, Claimants must reasonably believe they will suffer a significant reduction in trading profits due to reduced business activity, capacity, demand or inability to trade due to Covid-19 between 1 February and 30 April 2021. HMRC expects them to make an ‘honest assessment’ here. There is no definition of significant reduction: it’s a judgment call the client needs to make for themselves.
Before making a claim, clients must decide ‘if the impact on your business between 1 February 2021 and 30 April 2021 will cause a significant reduction in your trading profits for the tax year you report them in.’
This essentially means two tests: one looking at impact on demand etc during the three months to 30 April 2021, and the other on reported taxable profits for the accounting period of which these months form a part.
‘HMRC cannot make this decision for you because your individual and wider business circumstances will need to be considered when deciding whether the reduction is significant. You should wait until you have a reasonable belief that your trading profits are going to be significantly reduced before you make your claim.’
On the other hand, if a business recovers after the claim, ‘eligibility will not be affected’ as it is based on the reasonable belief that trading profits would have been significantly reduced at the time the claim was made.
Evidence must be kept to show how the business has been impacted by Covid-19, resulting in less business activity than otherwise expected. HMRC suggests, for example, business accounts showing ‘reduction in activity compared to previous years’, records of reduced or cancelled contracts or appointments, a record of dates where there was reduced demand or capacity due to government restrictions, dates of closure because of government restrictions, and communications from a child’s school with information on closures or reduced hours.
HMRC compliance activity is likely to be a fact of life for some years to come. Clients should be reminded to keep an audit trail to back up their claims even when Covid-19 support schemes are only a distant memory.