More SEISS doubts

leopoldo_2

Hi

As the 3rd SEISS requires you to estimate the year's taxable profits, does this include the money from the 1st two grants or earnings from work only?

As an aside, to show that I have reduced demand it would be enough to show my earnings from the months in question I guess? I am earning around 66% compared to recent years because of a drop in demand from businesses that are closed/cutting back on costs (I am a translator), I've also had to lower my price for some clients on a temporary basis.

Everything is so vague on the HMRC website, I don't want to fall foul of this in the future but the grants have been a huge help.

Jeremy535897

Read https://www.gov.uk/guidance/claim-a-grant-through-the-coronavirus-covid-19-self-employment-income-support-scheme and
https://www.gov.uk/guidance/how-your-trading-conditions-affect-your-eligibility-for-the-self-employment-income-support-scheme 

I suspect it is this paragraph that causes concern:
"Before you make a claim, you must decide if the impact on your business will cause a significant reduction in your trading profits for the tax year you report them in."
It does not say
"Before you make a claim, you must decide if the impact on your business will cause a significant reduction in your trading profits for the tax year you report them in compared with last year."
What I believe it means is
"Before you make a claim, you must decide if the impact on your business for the period 1 November 2020 to 29 January 2021 will cause a significant reduction in your trading profits for the tax year you report them in compared with what you would have expected your trading profits for the tax year you report them in if there had been no coronavirus." The phrase "for the tax year you report them in" is put in because for some people 1 November 2020 to 29 January 2021 will fall in 2020/21, for some people that period will fall in 2021/22, and for others it will fall partly in 2020/21 and partly in 2021/22 (depending when your accounts are made up to).

leopoldo_2

Thanks Jeremy, so if HMRC perform a future check to make sure that I didn't claim when I shouldn't have claimed, they would only look at those 3 months for this grant. The specific amount of the year's taxable income is actually irrelevant, as long as revenues are down 'significantly' (whatever that means) on what they would have been without Covid, in this case for those 3 months. I still worry about I would demonstrate this to be honest, besides showing raw figures.

So previous grants (1 & 2) giving a distored view of the year's taxable income do not matter, as when analysed by HMRC, they would only look at your actual taxable earnings, not total taxable income (which would include the grants). I hope that I'm explaining myself properly, I'm feeling a little dazzled by the vagueness and ambivalence of the guidance.

I have read the info those links and lots of random accounting websites that seem to point towards eligibility being based on the whole year's income, but I think they're just guessing.

Jeremy535897

It would be ridiculous to deny someone SEISS 3 because they had previously received SEISS 1 and 2, when one of the conditions of eligibility for SEISS 3 is that you had to be eligible for SEISS 1 and 2! Most people make their accounts up to 31 March, so by 29 January there are still 2 months to go.

Look at this example:
"A hairdresser was unable to work for 2 days as his hair salon closed to be deep-cleaned due to a positive coronavirus case. He does not believe this will significantly reduce his trading profits. He is not eligible to claim the third grant."

Of course 2 days closing won't significantly reduce his trading profits for the tax year. There is no comparison here with what his overall profits for 2020/21 might be compared with 2019/20.
Or this:
"A plasterer cannot get materials due to supply chain issues due to coronavirus. This has reduced the amount of work he can complete and be paid for. He reasonably believes this will significantly reduce his trading profits. He is eligible to claim the third grant."

His work reduces because he can't get plaster. That significantly reduces his profits in the tax year. He doesn't need to look back at 2019/20 and say "I took six months off that year, so my profits this year will still be more than last year, so I can't claim."

leopoldo_2

Thanks again. I will leave it now anyway and hopefully get some busy weeks under my belt so that I have no need to claim the grant, I would rather earn it myself than claim a handout.

Jeremy535897

leopoldo_2 said:

Thanks again. I will leave it now anyway and hopefully get some busy weeks under my belt so that I have no need to claim the grant, I would rather earn it myself than claim a handout.

Good for you. I think that the additional requirements that are concerning people were introduced to stop large grants being claimed just because traders had to buy a few boxes of face masks, for example.

Jeremy535897

I am wondering whether something Martin said about this subject has caused some concerns. I think he may have said something about comparing the results for 1 November 2020 to 29 January 2021 with the results for 1 November 2019 to 29 January 2020 to see if there had been a "significant reduction".

I don't think this is right (sorry Martin if I am mis-quoting you) for the following reasons:

• many sole traders will not have systems sophisticated enough to establish what their profits are for a particular period within the year
• what if you took a long holiday in this period last year?
• are the "profits" taxable profits or accounts profits? If tax profits, what about if you claimed capital allowances on something bought in the same period last year?
• the guidance does not say this anywhere
• you can claim from 30 November 2020. How can you know whether your profits for the period 1 November 2020 to 29 January 2021 will be less or more than your profits for the equivalent period last year, if you claim on 1 December?

Perhaps what Martin meant is that it would be a good argument, in the fullness of time, to be able to say that you must have qualified for the grant because your profits have significantly reduced compared with the same period last year (even though that is not the right question). Where the relevance of a full year's profits comes into play is in establishing whether the quantum of your reduction in profits due to coronavirus for 1 November to 29 January 2021 is "significant". That is why the hairdresser closed for 2 days only cannot claim, because 2 days' profits is not deemed "significant" in the context of one year's profits.

Jeremy535897

The new Treasury Direction has now been published. See https://www.gov.uk/government/publications/treasury-direction-made-by-the-chancellor-under-sections-71-and-76-of-the-coronavirus-act-2020/further-treasury-direction-made-under-sections-71-and-76-of-the-coronavirus-act-2020
It says:

"4.1. A claim for a payment under SEISS 3 (a “SEISS 3 payment”) must be made in accordance with paragraph 3 of SEISS on or before 29 January 2021.

4.2. Subject to paragraph 4.3, a claim may only be made for a SEISS 3 payment in respect of the period beginning on 1 November 2020 and ending on 29 January 2021 (“the qualifying period”) in relation to a trade—

(a)the business of which has suffered reduced activity, capacity or demand in that period from that which could reasonably have been expected but for the adverse effect on the business of coronavirus or coronavirus disease, and

(b)which the claimant reasonably believes will suffer a significant reduction in trading profits for a relevant basis period from that which would otherwise have reasonably been expected as a result of that reduced activity, capacity or demand."

As I expected, the significant reduction in profits is based on a comparison between the actual expected profits for the period 1 November 2020 to 29 January 2021 and the profits that should have been made for the same period if coronavirus had not affected the business. "Significant" is in the context of overall profits for the basis period(s) in which the period 1 November 2020 to 29 January 2021 falls.

Jeremy535897

In summary, then, where the significant reduction in profits test is relevant for a 31 March year end:

• at the point you claim, you must believe your activity, capacity or demand will be reduced due to coronavirus for the period 1 November 2020 to 29 January 2021
• you must believe that your profits for the year to 31 March 2021 will be significantly reduced as a result

"Significant" is not defined, but probability uses a figure of 5%. Whether that is appropriate to use is not known. It is probably too low, given that if you claim on 1 December:

• you only have about one third of the relevant period's results
• for a 31 March year end, you only have 8 months of the relevant basis period's results

so getting within 5% would be unrealistic.

All evidence available must be kept (for example evidence of lack of childcare, test and trace evidence regarding self isolation, notes of dates government rules required the business to close, number of customers etc)

lisastevo

Hi Jeremy. 

I’m still confused, sorry!

at the point you claim, you must believe your activity, capacity or demand will be reduced due to coronavirus for the period 1 November 2020 to 29 January 2021 

With the regards to the above statement, yes my business has totally been reduced. This period last year, I was working 5 days a week for a particular client. All that work has gone so I’m getting nothing. It was all booked in for this year and has all been pulled.

• you must believe that your profits for the year to 31 March 2021 will be significantly reduced as a result

This is what throws me. My profits from “actually” trading are down by £10k but with the addition of the grants my overall figure will be above my 2019/2020 self assessment so I don’t know what to do?

Grumpy_chap

It is clear, assuming the Client that has given you no work is a change because of coronavirus, that you satisfy the criteria based on activity, capacity, demand.

The anomaly you mention is because the grant is "all-or-nothing".  In your OP, you say that you are at about 66%, so the 33% drop is at the level most people would think is significant.  Now, put some figures for the purpose of example:

• Normal profits £24k on a flat profile through the year
• Monthly profits £2k (normal)
• Profits for Nov - Dec - Jan = £6k (normal)
• Reduced profit for Nov - Dec - Jan at 66% = £4k
• SEISS grant paid at 80% of normal profits for Nov - Dec - Jan = £4.8k
• Sum for this year Nov - Dec - Jan = £8.8k
• Total this year is £2.8k above "normal"

I think all this proves is that the scheme was introduced very quickly and is flawed.  Lots of people have identified where they lose out because of the flaws.  You have understood the flaws meaning you are better off than normal, as you are effectively over-compensated.

Just because the scheme has flaws does not impact your eligibility.