Self Employed Income Support Scheme – New Grants

At the Budget it was confirmed that the fourth SEISS grant will be set at 80% of 3 months’ average trading profits, paid out in a single instalment, capped at £7,500. The fourth grant will take into account 2019 to 2020 tax returns and will be open to those who became self-employed in tax year 2019 to 2020. The rest of the eligibility criteria remain unchanged.

Your eligibility for the scheme will now be based on your submitted 2019 to 2020 tax return. This may also affect the amount of the fourth grant which could be higher or lower than previous grants you may have received.

1. Who can claim

To be eligible for the fourth grant you must be a self-employed individual or a member of a partnership.

To work out your eligibility HMRC will first look at your 2019 to 2020 Self Assessment tax return. Your trading profits must be no more than £50,000 and at least equal to your non-trading income.

If you’re not eligible based on your 2019 to 2020 Self Assessment tax return, HMRC will then look at the tax years 2016 to 2017, 2017 to 2018, 2018 to 2019 and 2019 to 2020.

You must also have traded in both tax years:

• 2019 to 2020 and submitted your tax return by 2 March 2021
• 2020 to 2021

You must either:

• be currently trading but are impacted by reduced demand due to coronavirus
• have been trading but are temporarily unable to do so due to coronavirus

You must also declare that:

• you intend to continue to trade
• you reasonably believe there will be a significant reduction in your trading profits due to reduced business activity, capacity, demand or inability to trade due to coronavirus

2. What the fourth grant covers

The fourth grant will provide a taxable grant calculated at 80% of 3 months’ average trading profits. The fourth grant will be paid out in a single instalment and capped at £7,500 in total.

3. How to claim

To allow HMRC to process recently submitted 2019 to 2020 Self Assessment tax returns, the online claims service for the fourth grant will be available from late April 2021 until 31 May 2021.

If you are eligible, HMRC will contact you in mid-April to give you your personal claim date. This will be the date that you can make your claim from.

There will be more guidance about the fourth grant in due course.

4. Further support

The UK government has also announced that there will be a fifth and final grant covering May to September.

You will be able to claim from late July if you are eligible for the fifth grant.

The amount of the fifth grant will be determined by how much your turnover has been reduced in the year April 2020 to April 2021.

The fifth grant will be worth:

• 80% of 3 months’ average trading profits, capped at £7,500, for those with a turnover reduction of 30% or more
• 30% of 3 months’ average trading profits, capped at £2,850, for those with a turnover reduction of less than 30%

Further details will be provided on the fifth grant in due course.

UPDATE- 7th March 2021

Since the above was written the detail has been announced and as usual with these sort of announcements these always include the devil….

As well as bringing in newly self-employed claimants, the inclusion of 2019/20 profits will mean that the calculation of the grants for those who have previously claimed will change, as they will be averaged over a longer period. This may benefit some claimants because they may now be entitled to a grant based on a higher amount of profit. However, in other cases, it may mean they receive less than in their earlier grants and it is possible for some self employed claimants to no longer qualify.

For example, those who began trading in 2018/19 had the first three SEISS grants calculated on the assumption that their 2018/19 profits were for a full year, which distorted the calculation of average monthly profits. As the fourth grant will bring 2019/20 trading profits into the calculation, the effect of that distortion will be reduced and in some cases these individuals should be eligible for a higher grant. On the other hand, if an existing claimant had lower profits in 2019/20 than in previous years, then the inclusion of that year will reduce the average monthly profits used in calculating the grant amount.

Also, not everyone who started their business in the 2019/20 tax year will benefit from this change. If your trading profits are below 50% of your total taxable income for 2019/20 then you will not usually be able to claim the grant. For example, if you left employment part way through 2019/20 to start your own business, then your employment income could exceed your trading profits for that year and the 50% test would not be met.

Here’s a couple of examples:

1. If you started self-employment in January 2019 and earn profits of £1,000 per month then for the third SEISS grant you would have received £600 (£1000 x 3 months profits for January 2019 to March 2019; £3,000 divided by 12 x 3 x 80%= £600). If you earn £12,000 profit in 2019/20 then your claim for the fourth grant should now be: £1,500 (average profits for the two tax years is (£3,000 + £12,000)/2 = £7,500; the fourth grant would be calculated as £7,500/12 x 3 x 80% = £1,500). This represents an increase of £900. However, if instead your profit for 2019/20 was £2,000 (because you bought additional equipment and coronavirus pandemic affected your profits in Feb and March 2020) then the fourth grant would be calculated as £3,000+£2,000/2= £2,500/12 x 3 x 80% = £500.
2. Also I understand that if someone started their self-employment in January 2020 and made profits of £6,000 then for the purposes of the grant the average of three months would be £1,200 (£6,000/12 x 3 months x 80%) and not £4,800 (3 months of trading at 80%).