More SEISS doubts

Jeremy535897

lisastevo said:

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?

Forget last year. The point you make is that "it was all booked in for this year and has all been pulled". If that applies to the period 1 November 2020 to 29 January 2021, you have seen a reduction in activity due to coronavirus.

The next question is whether the reduction is significant. In HMRC's examples, a hairdresser losing 2 days of trade out of 365 was regarded as not significant, but if for example you have lost most of your expected income for the period 1 November 2020 to 29 January 2021 due to coronavirus, that is significant (3 months out of 12 months). The past grants don't come into it. They can't. To claim SEISS 3, you had to be eligible to claim SEISS 1 and 2. For most people, that means they actually claimed SEISS 1 and 2. It would be absurd to say you had to be able to claim SEISS 1 and 2 to get SEISS 3, but if you did claim SEISS 1 and 2 you can't claim SEISS 3.

justwhat

Jeremy535897 said:

The next question is whether the reduction is significant. In HMRC's examples, a hairdresser losing 2 days of trade out of 365 was regarded as not significant, but if for example you have lost most of your expected income for the period 1 November 2020 to 29 January 2021 due to coronavirus, that is significant (3 months out of 12 months). The past grants don't come into it. They can't. To claim SEISS 3, you had to be eligible to claim SEISS 1 and 2. For most people, that means they actually claimed SEISS 1 and 2. It would be absurd to say you had to be able to claim SEISS 1 and 2 to get SEISS 3, but if you did claim SEISS 1 and 2 you can't claim SEISS 3.

i am still a little confused lol  You mention a year again "The next question is whether the reduction is significant. In HMRC's examples, a hairdresser losing 2 days of trade out of 365 was regarded as not significant"
2 days wages over year . ok not so significant. 2 days wages over 3 month eg nov-jan may be significant to some. 

if past grants do not come into it and it is only purely trading profits over dec-jan then my trading profit is down around 10-20%. And i should be able to claim. However that percentage over a year is allot less(or possibly no loss of trading profits) and may be seen as "not significant"

Grumpy_chap

The impact has to be ongoing or new during the period Nov - Jan.

The assessment of "significant" impact needs to be taken across the whole year (April to March for most sole-traders).  This has been indicated by Jeremy (who, in turn quoted Institute of Taxation) and is also confirmed by ICAEW (institute of Chartered Accountants in England and Wales):
https://www.icaew.com/insights/tax-news/2020/nov-2020/new-significantly-reduced-profits-test-for-third-seiss-grant which includes:

• The significant reduction in trading profits test applies to the tax year as a whole, which means that claimants will have to forecast their results to establish eligibility.

Jeremy535897

justwhat said:

Jeremy535897 said:

The next question is whether the reduction is significant. In HMRC's examples, a hairdresser losing 2 days of trade out of 365 was regarded as not significant, but if for example you have lost most of your expected income for the period 1 November 2020 to 29 January 2021 due to coronavirus, that is significant (3 months out of 12 months). The past grants don't come into it. They can't. To claim SEISS 3, you had to be eligible to claim SEISS 1 and 2. For most people, that means they actually claimed SEISS 1 and 2. It would be absurd to say you had to be able to claim SEISS 1 and 2 to get SEISS 3, but if you did claim SEISS 1 and 2 you can't claim SEISS 3.

i am still a little confused lol  You mention a year again "The next question is whether the reduction is significant. In HMRC's examples, a hairdresser losing 2 days of trade out of 365 was regarded as not significant"
2 days wages over year . ok not so significant. 2 days wages over 3 month eg nov-jan may be significant to some. 

if past grants do not come into it and it is only purely trading profits over dec-jan then my trading profit is down around 10-20%. And i should be able to claim. However that percentage over a year is allot less(or possibly no loss of trading profits) and may be seen as "not significant"

At the risk of oversimplifying, this is the point for someone with a year end of 31 March, so the current year is the year to 31 March 2021.

First, you have to predict a reduction in demand for the period 1 November 2020 to 29 January 2021:

"This applies to your business if it has been impacted by reduced demand, activity or capacity due to coronavirus.

For example, you:

• have fewer customers or clients than you’d normally expect, resulting in reduced activity due to social distancing or government restrictions
• have one or more contracts that have been cancelled and not replaced
• carried out less work due to supply chain disruptions

You must not claim if the only impact on your business is increased costs. For example, if you have had to purchase face masks and cleaning supplies. This would not be considered as reduced demand."

Second, that reduction in demand has to be significant. Whether a reduction in demand is significant or not depends on whether it means that your trading profits for the year to 31 March 2021 will be significantly reduced as a result of the reduction in demand due to coronavirus over the period 1 November 2020 to 29 January 2021. It does not mean significant compared with what you expected your trading profits to be for the period 1 November 2020 to 29 January 2021.

"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.

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."

As the last date for claims is 29 January 2021, even if your numbers were completely up to date, you couldn't know what your trading profits for the year to 31 March 2021 will be until at least 2 months after you make your claim, so you have to guess.

To illustrate the point, if you take significant to mean a 5% reduction in yearly trading profits, you would have to see a reduction of about 20% in the period 1 November 2020 to 29 January 2021, assuming your trading profits accrue equally over the year. If you normally do most of your business at Christmas, a smaller reduction in the period 1 November 2020 to 29 January 2021 would be more significant. If you close for 4 weeks over Christmas, the reverse would apply.

justwhat

ok i think i get it.
My expected trading profit needs to be down nov to jan AND that needs  have caused a significant.reduction in the trading profits for the year.(not including previous grants)

Jeremy535897

justwhat said:

ok i think i get it.
My expected trading profit needs to be down nov to jan AND that needs  have caused a significant.reduction in the trading profits for the year.(not including previous grants)

Near enough.

justwhat

Jeremy535897 said:

justwhat said:

ok i think i get it.
My expected trading profit needs to be down nov to jan AND that needs  have caused a significant.reduction in the trading profits for the year.(not including previous grants)

Near enough.

lol
That means some people will have to work out the yearly trading profit so far for this year. This grants a nightmare lol 

justwhat

Also if bob the builder got his 10k business property grant for having a commercial property.and bought 10k of new tools  , that will technically effect his trading profit?

Jeremy535897

justwhat said:

Also if bob the builder got his 10k business property grant for having a commercial property.and bought 10k of new tools  , that will technically effect his trading profit?

Your point is an interesting one, because according to the draft legislation on coronavirus support payments, SEISS and the business property based grants are treated as part of trading profits. This throws up two problems:

• the receipts of grants to date increase your basis period trading profits (if your year end is 31 March), raising the bar on what is "significant"
• presumably you also have to factor in the receipt of SEISS 3 in your estimate of the year's trading profit

At least the claim for SEISS 3 does not have to be taken into account in looking at the first test (reduction in demand etc for the period 1 November 2020 to 29 January 2021), because it does not negate a reduction in demand. Otherwise you get a circular argument.

I do not think that any of these issues have been properly thought through by government, not least because if your year end is, say 30 September, you don't have to bring in SEISS 1 or 2 or the property based grants in looking at the trading profits for your current basis period, but you are supposed to guess what your profits are for the year to 30 September 2021.

Jeremy535897

It may be that you and I are over thinking this. Looking at the examples HMRC give of cases where the reduction in profit is not significant:

"Unable to trade and no reasonable belief

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.

A builder has developed coronavirus symptoms and self isolates for 5 days before receiving a negative test result. During those 5 days he was unable to work from home but was able to rearrange his contracts. He does not believe there will be a significant reduction in his trading profits. He is not eligible to claim the third grant."

So 2 days was not significant (hardly surprising), but 5 days might have been if he was unable to rearrange his contracts (otherwise why say it)? Assuming a 5 day week and 28 days holiday, 5 days out of 233 could be significant (2.1%). Elsewhere in tax legislation, "substantial" can be 10%, and in probability, 5% is "significant".

The guidance does not focus on how to calculate trading profits (include or exclude grants), or what "significant" might be.