07 July 2021

Your Tax Return and SEISS

Services:

Personal Tax Planning

SEISS – What you need to be aware of when doing your tax return for 20-21

Like many accountancy firms, we have started the annual race of getting the 5th April 2021 tax returns completed before the filing deadline of 31 January 2022.

I have some very organised clients who have managed to get their books to me already and I have drafted their returns and submitted them.

Big deal I hear you ask. It’s the same thing every year right? Well not this year!

From the few returns I have already completed my clients are being surprised by rather large tax bills due for payment on the 31 January 2022.

The reason for the large tax bill when we have looked into it is mainly down to the SEISS grants that were offered by the government as a means of support during the most challenging times for many small and large business over the last 18 months.

The first 3 of the grants that were offered by the government are due to be reported on tax returns for 5th April 2021.

What many people have forgotten or didn’t realise is that the grants were paid to the individual gross (if you were eligible to apply) so we now need to pay the tax and national insurance on these amounts.

This will affect everyone who has received these grants but especially for those who have all their taxes stopped at source for example those in the CIS scheme.

You may be used to getting a refund or a small tax bill so you wait until January to get your returns done, but instead you may receive a rather large shock and very little time to sort the funds out.

For example let’s say you receive the maximum grant available for all 3 grants that is £7,500 paid in May for the first grant and £6,570 paid in August for the second grant and £7,500 paid in December for the third grant so that gives a total of £21,570.00.

Now depending on your circumstances as to whether you fall in to the basic rate tax or a higher rate tax payer will depend on the overall tax position so first we will do a basic rate tax payer with the grants:

 

Basic Rate Tax Payer  
Employment income £25,000.00
Tax deducted at source £5,000.00 (20%)
Total Grants £21,570.00
So total Taxable income £46,570.00
Less Personal Allowance £12,500.00
Net Taxable income £34,070.00
Tax at 20% £6,814.00
Class 4 NIC (46,570-9500) *9% £3,336.30
Class 2 NIC Profits over £6,365 £158.60
Less Tax deducted £(5,000.00)
Tax Payable  £5,308.90
Then as the total tax payable is over £1,000 payments on account need to be made which is 50% of the liability £2,654.45
The total Tax payable by 31 January 2022

£7,963.35

 

Higher Rate Tax Payer  
Employment income  £37,622.00
Tax deducted at source  £7,442.00 (20%)
Total Grants  £21,570.00
So total Taxable income  £59,192
Less Personal Allowance  £12,500.00
Net Taxable income  £46,692
Tax at 20% (£44,750.00)  £8,950.00
Tax at 40% (£1,942.00)  £776.80
Class 4 NIC (50,000-9500) *9%  £3,645.00
Class 4 NIC (9,192) *2%  £183.84
Class 2 NIC Profits over £6,365  £158.60
Less Tax deducted  £(7,442.00)
Tax Payable  £6,272.24
Payments on account are needed so 50% of liability. £3,136.12
The total tax payable by 31 January 2022  £9,408.36

As you will see these amounts are rather large and trying to find this sum of money with a tight deadline can be very taxing for some. Many people would not have been able to put aside some of the funds to pay the tax at a later date.

Haines Watts

If this all looks very taxing, excuse the pun, then please give us a call. Avoid the last minute panic of trying to find the funds for a large tax bill or even a small tax bill.

Drop us an email on diss@hwca.com or if you would like to have a chat with one of our tax team then please give us a call on 01379 640 555.

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