Losers as well as winners from changes to self-employment support
The Low Incomes Tax Reform Group (LITRG) has welcomed changes to the Self-Employed Income Support Scheme (SEISS) announced today, which will finally provide support to the self-employed and partnerships who began trading during the 2019/20 tax year.1 The change comes into effect for the fourth SEISS grant, which is to cover the three months from February to April 2021. However, as 2019/20 profits are now to be included in the calculation for all future claims, existing claimants might get a higher or lower amount than they previously received.
As well as bringing in newly self-employed claimants, the inclusion of 2019/20 profits will mean that the calculation of the grants for those who have previously claimed will change, as they will be averaged over a longer period. This may benefit some claimants because they may now be entitled to a grant based on a higher amount of profit. However, in other cases, it may mean they receive less than in their earlier grants. Some may no longer qualify for SEISS at all as a result.2
Victoria Todd, Head of LITRG said:
“The Government’s announcement will be a help to many people who first started trading in 2019/20. However, with trading profits for 2019/20 being included in the grant calculation, it could mean that the fourth grant for existing claimants is different from what they might have been expecting. As they are not newly self-employed, they may think the announcement does not affect them; they would be wrong.
“For example, those who began trading in 2018/19 had the first three SEISS grants calculated on the assumption that their 2018/19 profits were for a full year, which distorted the calculation of average monthly profits. As the fourth grant will bring 2019/20 trading profits into the calculation, the effect of that distortion will be reduced and in some cases these individuals should be eligible for a higher grant. On the other hand, if an existing claimant had lower profits in 2019/20 than in previous years, then the inclusion of that year will reduce the average monthly profits used in calculating the grant amount.”
LITRG also points out that not everyone who started their business in the 2019/20 tax year will benefit from this change. If your trading profits are below 50% of your total taxable income for 2019/20 then you will not usually be able to claim the grant. For example, if you left employment part way through 2019/20 to start your own business, then your employment income could exceed your trading profits for that year and the 50% test would not be met.3
LITRG is also concerned that newly self-employed may be expecting a grant based on 80% of their average monthly profits for the months they traded in 2019/20. However, we expect that the grant will be calculated by treating their actual profits as being for a full year, and therefore averaged over 12 months, as it was for the first three SEISS grants.4
Victoria Todd continued:
“As always, the devil is in the detail. Depending on their circumstances, those who started trading in 2019/20 may not be eligible for the grant – or otherwise might not get as much as they were expecting. We also encourage existing claimants to check how the changes affect them to avoid any unexpected surprises when they claim the fourth grant.”
Notes for editors
- The SEISS grants are available to self-employed and partners in trading partnerships whose businesses have been affected by the coronavirus pandemic and meet the various eligibility conditions (see below).
- For example: If you started self-employment in January 2019 and earn profits of £1,000 per month then for the third SEISS grant you would have received £600 (£1000 x 3 months profits for January 2019 to March 2019; £3,000 divided by 12 x 3 x 80%= £600). If you earn £12,000 profit in 2019/20 then we understand your claim for the fourth grant should now be: £1,500 (average profits for the two tax years is (£3,000 + £12,000)/2 = £7,500; the fourth grant would be calculated as £7,500/12 x 3 x 80% = £1,500). This represents an increase of £900. However, if instead your profit for 2019/20 was £2,000 (because you bought additional equipment and coronavirus pandemic affected your profits in Feb and March 2020) then the fourth grant would be calculated as £3,000+£2,000/2= £2,500/12 x 3 x 80% = £500.
- We understand that the eligibility conditions for the fourth grant will be similar to those for the previous SEISS grants. You must have submitted your 2019/20 Self Assessment tax return before 23.59 on 2 March 2021. The eligibility conditions are on GOV.UK: https://www.gov.uk/government/publications/self-employment-income-support-scheme-grant-extension/self-employment-income-support-scheme-grant-extension
- If someone started their self-employment in January 2020 and made profits of £6,000 then for the purposes of the grant the average of three months would be £1,200 (£6,000/12 x 3 months x 80%) and not £4,800 (3 months of trading at 80%).
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.