Jeopardy of double tax risk for SEISS claimants
Many self-employed, and partners in partnerships, claimed the fourth and fifth Self-Employment Income Support Scheme (SEISS) grants during the last tax year.1 LITRG is reminding SEISS claimants that these grant payments are taxable income and need to be included on their 2021/22 Self Assessment tax returns2 and warns of a potentially easy-to-make mistake that can see them take a double tax hit.
The first three SEISS grants should have been included on the 2020/21 tax returns. But the fourth and fifth SEISS grants need declaring on the 2021/22 tax returns which many self-employed individuals and partners in partnerships will complete in the months ahead.
The SEISS grants must be included in a different box to other Coronavirus business support payments on the tax return, but LITRG warns this can confuse people when filling in their form.3
If the SEISS grants are included in the wrong box on the tax return, then HMRC will issue an amended tax calculation once the tax return has been submitted to include the SEISS grants. But it can mean that the grants are double counted in the tax calculation in some circumstances.4
Claire Thackaberry, Technical Officer at LITRG, said:
“We want to raise awareness of this potential pitfall well ahead of the tax return deadline of October for paper tax forms and January for online tax returns.
“Some sole traders and partners are aware that these grants need to be included in the appropriate box on their tax return because they claimed at least one of the first three grants which were taxable in 2020/21. But because the fourth and fifth grants were the first SEISS grants available for new businesses5 some of these claimants might not realise these grants are taxable and need to be included in a specific place on the tax return. If they are not included in the right place then HMRC will amend the tax calculation automatically - and in certain cases the SEISS grants could be taxed twice.
“To avoid overpaying tax it is imperative that taxpayers ensure they include the correct information in the correct place on their tax return. If an error is made, then affected taxpayers should make sure they check any amended calculations to make certain that any SEISS grants are not double-counted we have published guidance to help people understand the HMRC amended calculations6".
Notes for editors
1. The fourth and fifth SEISS grants were available for eligible self-employed individuals and partners in partnerships to claim between 22 April and 1 June 2021 and 29 July and 30 September 2021 respectively. For more information on the SEISS grants see: https://www.litrg.org.uk/tax-guides/coronavirus-guidance/coronavirus-self-employment-income-support-scheme-seiss.
2. The SEISS grants are subject to both income tax and self-employed National Insurance contributions.
3. The fourth and fifth SEISS grants should be included on the 2021/22 Self Assessment tax return in box 27.1 on the SA103S self-employment short supplementary pages and box 70.1 on SA103F self-employment full supplementary pages. In certain circumstances the SEISS grants may be included within a partnership’s sales income instead but that depends on the relevant Partnership Agreement. There is detailed information on the LITRG website: https://www.litrg.org.uk/tax-guides/coronavirus-guidance/self-employment-income-support-scheme/SEISS-grants-tax-return. The SEISS grants may be pre-populated on online returns, but this doesn’t help paper tax returns filers, if you have multiple trades or partners whose grants have been included as partnership income. Taxpayers should still check any pre-populated boxes and ensure that they have not included the SEISS grants in other boxes on their tax return by mistake.
4. HMRC will automatically amend the tax calculation if the SEISS grants are not included in the correct box. If the SEISS grants were not included on the original tax return, then the revised calculation should now show the correct tax position. However, if for example, the SEISS grants were included in sales income then HMRC will not know this so the amended calculation will effectively tax the SEISS grants twice as the sales income will still include the SEISS grants and also the grants within the correct SEISS box. The LITRG website explains in more detail how HMRC amend the tax calculation for SEISS grants and what taxpayers need to check and do if the revised tax calculation is incorrect: https://www.litrg.org.uk/tax-guides/coronavirus-guidance/self-employment-income-support-scheme/SEISS-grants-tax-return#…-
5. The fourth and fifth grants were the first SEISS grants made available for eligible self-employed and partners in partnerships who began trading during the 2019/20 tax year.
6. LITRG website guidance: https://www.litrg.org.uk/tax-guides/coronavirus-guidance/self-employment-income-support-scheme/SEISS-grants-tax-return#toc-i-have-submitted-my-tax-return-but-now-realise-it-is-incorrect-because-of-the-seiss-grants-what-should-i-do-.
7. Low Incomes Tax Reform Group
The LITRG is an initiative of the Chartered Institute of Taxation (CIOT) to give a voice to the unrepresented. Since 1998, LITRG has been working to improve the policy and processes of the tax, tax credits and associated welfare systems for the benefit of those on low incomes.
The CIOT is the leading professional body in the United Kingdom concerned solely with taxation. The CIOT is an educational charity, promoting education and study of the administration and practice of taxation. One of our key aims is to work for a better, more efficient, tax system for all affected by it – taxpayers, their advisers and the authorities. The CIOT’s work covers all aspects of taxation, including direct and indirect taxes and duties. The CIOT’s 19,000 members have the practising title of ‘Chartered Tax Adviser’ and the designatory letters ‘CTA’, to represent the leading tax qualification.
Hamant Verma