SEISS turnover instructions seem contradictory

DaxKC

There appears to be a MAJOR discrepancy in the instructions just issued via the YouTube video from HMRC this afternoon in the link "new turnover test"

Page 15 confirms exactly what was in the SEISS guidance on the GOV.UK website - turnover for the 12 months starting between 1 April and 6th April 2020 (which will normally straddle two accounting periods - in the case of our business years ending 31 May 2020 and 2021. (I therefore identified April 2020 + May 2020 from the former and June 2020 to March 2021 from the latter)

Page 21 however states "Your turnover figure will be on your Self-assessment tax return for 2020-21 if you have already completed it. No it won't! - that will just show my accounting period ended 31st May 2020 (which frankly was unaffected by Covid)

Can anyone shed any light on this please?

Jeremy535897

The law is contained in the Treasury Direction, which states:

"Financial Impact Declaration Test
6.1 The financial impact declaration test (the “FID test”) is met if the turnover of the trade in the pandemic period is at least 30% less than the turnover of the trade in the reference period.
6.2 For the purposes of this paragraph-
“pandemic period” means a period of 12 months beginning with a date from 1 April to 6 April 2020;
“reference period” means-
 (a) the tax year 2019-20, or
 (b) the tax year 2018-19 if the person-
   (i) reasonably believes that tax year more accurately reflects the usual turnover of the trade in a typical 12 month period, and
   (ii) submitted a tax return for that tax year.
6.3.1 The turnover for the reference period is the turnover of the basis period for that tax year.
6.3.2 Subject to paragraph 6.3.3, the rules in Chapter 15 of Part 2 of ITTOIA 2005 apply to determine turnover for a basis period in the same way as they apply in relation to profits.
6.3.3 Where the basis period for the reference period is longer than 12 months, the turnover for that period must be determined by apportioning the turnover of that basis period on a just and reasonable basis to reflect a period of 12 months ending with the last day of the reference period.
6.4.1 Subject to paragraphs 6.4.2 and 6.4.3, where a person carries on a trade in partnership, the turnover of the trade is the turnover of the partnership.
6.4.2 Where in the reference period a person carries on a trade in partnership and carries on another trade-
(a) in a different partnership, or
(b) alone,
the turnover in relation to the partnership for the reference period and the pandemic period is that person’s share of the partnership turnover to be determined in accordance with the person’s share of profit or loss under the relevant partnership’s profit sharing arrangements for the basis period to which the reference period relates.
6.4.3 Where in the pandemic period a person starts to carry on a new trade in partnership and also carries on another trade-
(a) in a different partnership, or
(b) alone,
the turnover in relation to the new partnership for the pandemic period is the person’s share of the partnership turnover to be determined in accordance with the person’s share of profit or loss under the relevant partnership’s profit sharing arrangements for the basis period or periods to which the pandemic period relates.
6.5 “Turnover” means, subject to paragraph 6.6, the takings, fees, sales and money earned by the business of the trade calculated in accordance with generally accepted accounting practice or, where an election has been made under s25A of ITTOIA 2005, the cash basis.
6.6 For the purposes of the FID test, turnover does not include any coronavirus support payment.
6.7 In this paragraph-
 “coronavirus support payment” has the meaning given by 106(2) of the Finance Act 2020;
 “generally accepted accounting practice” has the meaning given in section 997 of ITA 2007;
 “profit sharing arrangements” means the rights of partners to share in the profits of the trade and the liabilities of the partners to share in the losses of the trade."

See https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/999465/SEISS_5_Direction_signed.pdf

This makes it clear that the turnover for the pandemic period is the turnover for the year commencing anywhere from 1 April 2020 to 6 April 2020. and the turnover for the reference period is the turnover for the basis period for 2019/20, or 2018/19 if 2019/20 is not representative of the normal business.

If your year end is, has been, and remains 31 May, the turnover for the pandemic period is probably going to be the 12 months to 31 March 2022, as most software works to months, and the turnover for the reference period is the year to 31 May 2019, or possibly the year to 31 May 2018.

The turnover shown on the 2020/21 tax return will only be the same as the turnover for the pandemic period if the year end is in the period 31 March to 5 April. This is confirmed in the paragraph numbered 1 in the guidance from ICAEW:

https://www.icaew.com/insights/tax-news/2021/jul-2021/hmrc-publishes-guidance-on-the-fifth-seiss-grant

DaxKC

I'm extremely grateful for the clarification - I still feel that the video issued by HMRC did not clearly distinguish between the basis of calculation for the pandemic period and for the reference period which is absolutely crucial for understanding the two different bases.

Jeremy535897

I did look at the part of the video that referred to the calculation of turnover, and I would agree that it seemed to say that the 2020/21 turnover would be found on the tax return if already submitted, which is not necessarily correct.

There are moves afoot to bring the taxation of self employment on to an actual basis (so your year end of 31 May 2022 for example would fall partly into 2021/22 and partly into 2022/23), but the deadlines for submission could be quite difficult. There is also consideration of whether to change the tax year end to 31 December or 31 March.

DaxKC

I hadn't realised this though adoption of the calendar year as the tax year seems a long overdue simplification. Do your remarks above also mean to imply that adoption of the actual basis for taxation of self-employment could happen as early as 2021/22 or was that just for illustrative purposes?

Jeremy535897

Just for illustrative purposes, although I believe government/HMRC would like to move quite quickly on this.

If you are interested (and who wouldn't be), some further reading is at:

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/972148/The_tax_administration_framework_Supporting_a_21st_century_tax_system_-_call_for_evidence.pdf

https://www.icaew.com/insights/tax-news/2021/jul-2021/tafr-gets-real-with-consultation-on-basis-period-reform