Self Employed Income Support Scheme (SEISS) – did you get it right?

Self Employed Income Support Scheme (SEISS) – did you get it right?

As we emerge from the pandemic back to ‘normality’, HMRC has been busy processing and reviewing the 2020-21 tax returns. 

Michael Webb, Assistant Tax Manager explains, HMRC appears to be targeting reviewing sole traders, and partners of a partnership, who have claimed one or more SEISS grants, and is consequently issuing amended self-assessment tax calculations.

As a reminder, the grant income is subject to Income Tax, Class 2 and Class 4 National Insurance contributions. 

We have found a number of errors in these HMRC assessments, primarily where HMRC has duplicated SEISS grant income that had already been included in income, however we are also seeing a pattern of errors emerging where SEISS grants have been omitted or miscalculated on tax returns.

As a result, we would strongly recommend that anyone who has made an SEISS claim checks their 2020-21 tax return.

We also recommend that, if you receive an assessment for additional tax, you check that this is correct before paying it.

The key is to check how many claims you made and that you reported these in the correct tax year.

Check how many claims you made

The Government made five SEISS grants available between 13 May 2020 and 30 September 2021 (you may not have claimed them all):

Reporting requirement – separate disclosure

SEISS grant income must be reported separately on the tax return and not amalgamated with other income.  If it is not separately reported, HMRC will assume that it has been omitted and issue an assessment for tax.  In such cases, ultimately no additional tax will be payable, but the return will need to be corrected.

Incorrect amounts

If grants have been completely omitted from income or incorrectly calculated on your tax return, HMRC will issue amended tax calculations which will result in an additional tax liability plus interest and possibly penalties.

Correcting tax returns - general

Currently HMRC appears to be taking a light touch approach to penalties, however there is no guarantee that this will persist.

If you discover an error that HMRC has not yet adjusted, we strongly recommend that this is corrected in advance of HMRC taking any action.

If you have included the grant income on your tax return but not separately disclosed this, an amended return should be submitted to HMRC to include the grant income in box for “Self-Employment Income Support Scheme grants” and removing it from where it was previously reported.  No tax will arise in this respect.

If you have made an error in the amount of grant income reported, you will need to amend your tax return and also pay over the tax immediately in order to mitigate interest charges and, hopefully, mitigate penalty charges.

Correcting tax returns - partners

The rules slightly differ for partners of a partnership.  If a partner claimed the grant which was paid direct into a personal bank account and is therefore not dealt with through the partnership, the treatment of the income matches that of a sole trader (as above).

However, if the grants were treated as partnership income and the funds distributed to the partners in the same way as the trading profits, then the grant income is taxed in line with the partnership accounts.

Tax year 2021-22

The tax returns for 2021-22 are now due for filing.  If the later grants (4 and 5) were claimed, then it is important that they are correctly included on this tax return.

… and finally - eligibility checks

There were specific criteria that must have been satisfied to be eligible for the grant, however it would appear that, for now, HMRC is focusing on the amounts being reported rather than erroneous claims.

We have seen HMRC activity on erroneous grant claims for other grants, therefore it is somewhat inevitable that such reviews will be undertaken by HMRC on the SEISS grants.  If you have any concerns in this respect, we can assist you in reviewing your claims.

How can Haines Watts help?

If you need any assistance with the completion of your 2021-22 tax return, or an amendment is required to your 2020-21 tax return to correct the return or HMRC, please let us know.

If you would like to have a conversation to understand the complexities of the above changes, please get in touch with your usual Haines Watts contact.