The basic requirements are as with previous grants - that a claimant’s income for a reference period should be less than £50,000 and half or more of that income should be from self-employment.
For the fifth grant the reference period is either tax year 2019-20 or an average of the income for the tax years 2016-17 through to 2019-20.
Other eligibility criteria are that a claimant:
- Submitted a 2019-20 tax return by 2 March 2021;
- Traded in 2019-20 and 2020-21;
- Is trading, but has reduced turnover, or has had to temporarily cease trading, due to Covid.
- Continuing trading is intended; and
- There is a reasonable belief that profits will be lower for the 1 May to 30 September 2021 period due to the pandemic.
What has been lacking until recently is an understanding of how much turnover needs to have reduced to enable a claim to be made, but we now have guidance from HMRC. This test looks at the turnover for 2 periods and requires them to be compared.
The earlier period is the reference period, which is either the turnover for the basis period for the 2019-20 tax return, or 2018-19 can be used if 2019-20 was a not a normal year. There are also provisions for adjusting for long or short accounting periods, unless the short period was caused by a start-up or cessation. The latter is slightly counterintuitive, given the continuing trading requirement, but an individual could have more than one self-employed source of income.
Once that’s worked out, the turnover for the affected period needs to be calculated. This is the turnover for any 12 month period starting between 1 and 6 April 2020, so, in essence, the turnover for the 2020-21 tax year. This will be relatively easy to provide for those businesses that make up their accounts to 31 March or 5 April, but less so for those who use other accounting periods. Trading turnover should be used and any Covid support payments received should be excluded.
When those figures are in the bag, then it should be quite simple to work out the extent to which turnover has decreased. If it’s by 30% or more, then there is entitlement to a grant of 80% of 3 months trading profits capped at £7,500. If turnover is down by less than 30% then the grant entitlement will be 30% of 3 months average trading profits capped at £2,850. It should be noted that, although 3 months average profits are used, the grant actually covers 5 months, so it is at a lower level than earlier SEISS grants.
There are various refinements as to how to calculate turnover in the HMRC guidance and, reflecting on the above, there could be some interesting turnover comparisons for those businesses not using a 31 March or 5 April accounting date. For instance, someone using a 30 April year end could be comparing turnover for the 12 months ended 31 March 2021 with the 12 months ended 30 April 2019, or even, 30 April 2018, if 2019-20 was unusual.
There’s no doubt that compiling your 2020-21 tax return figures will help you make a claim and provide a good starting point to manage future tax liabilities .If you need help with this or in understanding your entitlement to the fifth SEISS grant, contact John Sheehan or your usual UHY adviser.