The SEISS claims portal reopens on Monday 30 November, but taxpayers must declare their trade has been impacted by reduced demand before they claim the third grant.

When claiming the first two self-employed income support (SEISS) grants taxpayers had to confirm that their trade had been adversely affected by the coronavirus pandemic, which was a difficult concept to pin down. For the SEISS.3 this condition has been replaced with a more precise “impact on demand” test.

Where they qualify for the SEISS.3 grant the taxpayer will receive one lump sum payment to cover the three-month period: 1 November 2020 to 31 January 2021. It will be paid at 80% of the taxpayer’s average trading profits for 2016/17 to 2018/19, as calculated for the SEISS.1 grant.

The maximum SEISS.3 grant payable is £7,500, or £2,500 per month, which is also the same cap as applied for the SEISS.1 grant.

Declarations

The HMRC guidance on checking whether the taxpayer can claim the SEISS.3 grant confirms the individual must be:

• currently trading and be “impacted by reduced demand”; or
• has been trading but the business is temporarily closed due to coronavirus.

The trader must also confirm they are:

• intending to continue to trade; and
• they reasonably believe that the impact on their business will cause a significant reduction in their trading profits due to reduced business activity, capacity or demand, or inability to trade due to coronavirus during the period 1 November 2020 to 31 January 2021.

Emphasis on sales not costs

The previous “adversely affected” test was met if the business turnover had decreased, or alternatively if business costs had increased, due to the pandemic. There was no minimum threshold for the adverse effect, so even a small increase in costs or drop in sales meant the business would qualify.

The reduced demand test is set out in a new HMRC Direction for SEISS.3 at para 4.2. It requires the trader to suffer a significant reduction in trading profits for the relevant basis period (see below). “Significant” is not defined, so it must take its normal English definition as having a great effect, or something that affected a situation to a noticeable degree.

The HMRC examples make it clear that an increase in costs alone, resulting in a drop in profits, will not allow the trader to qualify for the grant.

The reduction in sales can be due to a number of factors, but it must also lead to a reduction in profits. If the volume of sales has decreased but the value of each sale has increased so profits are constant, the business does not qualify.

However, if the reduced sales activity is solely due to the business owner having to self-isolate because they, or someone they care for, has travelled into the UK, that business doesn’t qualify for the SEISS.3 grant. Self-isolation due to Covid-19 symptoms, testing or on instruction due to medical vulnerability is accepted as a cause of reduced sales.

Relevant basis period

The new HMRC Direction (legislation for SEISS.3) makes it clear that the significant reduction in trading profits must be measured over the current accounting period as a whole, and that is the period that includes November 2020 to January 2021.

Where the accounting period ends on 31 March or 5 April 2021, it will align to the 2020/21 tax year and be reported on the 2020/21 tax return submitted by 31 January 2022. But many sole traders work to different year end, such as 30 April 2021. This “current period” will be taxed in 2021/22, and reported on the SA return submitted by 31 January 2023.

Other conditions

The other conditions for the SEISS.3 grant are the same conditions as applied for the first two SEISS grants.

The taxpayers who were excluded from those grants are still excluded from the SEISS.3, and this will include those who:

• started their business after 5 April 2019,
• submitted their 2018/19 tax return after 23 April 2020
• had self-employed profits of less than half their average annual income
• had average annual profits for 2016/17 to 2018/19 in excess of £50,000.

How accountants can help

The SEISS grant must be claimed by the individual taxpayer, online through the HMRC portal, by 29 January 2021. Tax agents should not attempt to make the SEISS claim by using their client’s Government Gateway ID and password, as this will trigger a fraud flag.

However, before claiming the taxpayer made need help in forecasting their turnover for the full accounting period that includes the period November 2020 to January 2021.

The Government announced at Spring Budget 2020 a consultation to tackle abuse of the Construction Industry Scheme (CIS). A consultation document was published 19 March 2020 setting out proposals.

HMRC has published a Summary of Responses and the draft legislation which will tackle false claims being made to HMRC. The legislation, and supporting regulations, will give HMRC the power to amend the effect of certain CIS deduction claims on employer returns. Other legislative changes include modifications to the current rules on the cost of materials, deemed contractors and an expansion to the scope of the CIS false registration penalty.

The Government will continue to consider any future supply chain measures in light of the information received from this consultation, as well as other changes to the CIS scheme to protect against fraud and abuse.

The measure is published on GOV.UK alongside details of the draft legislation, and the Summary of Responses. The Government welcomes comments on the draft legislation by 7 January 2021. If you would like to provide a response, please email cisconsultations@hmrc.gov.uk.

The changes to the CIS will be legislated in Finance Bill 2021 and apply from April 2021.

The policy paper that accompanied Chancellor Rishi Sunak’s announcement on 5 November provides us with a little more information, but it promises that more guidance will be produced. A further announcement will detail whether the full 80% employer funding will continue from January to the end of the scheme.

Weekly payrolls

The first weekly payrolls for November have already been run, when there was no indication of what reference pay or usual hours calculation was to be used for employees who had not been furloughed previously. Hopefully the new guidance will allow corrections to be made next week and before the vast majority of monthly payrolls are run.

Pay reference periods

For employees eligible for the previous iterations of the CJRS, the reference pay remains as the calculation for CJRS.2 that ended on 31 October. This is the case even if the employer did not make a claim for the employee.

Other employees may be now eligible for CJRS.3 as they either:

• had earnings for 2019/20 reported on a full payment submission (FPS) from 20 March 2020 to 19 April 2020 (19 April being the deadline for 2019/20 submissions); or
• had earnings for 2020/21 reported on a full payment submission from 6 April 2020 to 30 October 2020

The pay reference period will be:

• for fixed-rate employees the last pay period on or before 30 October 2020.
• for variable pay employees the average over the period from 6 April 2020 to last pay period on, or before, the day before they were furloughed under CJRS.3.

Note: Fixed-rate employees can be treated as variable if they have lots of fluctuating additional pay such as overtime.

Is it fair?

The calculation of reference pay appears more generous for variable-paid than for fixed-rate employees. Any pay rises from 1 November to start of furlough will be ignored for fixed rate employees, but pay will be included in the average for variable pay employees over (potentially) a much longer period if the business doesn’t need to furlough immediately under CJRS.3.

Conversely there doesn’t appear to be the option to use the pay period before the start of furlough if that was higher than the average for a variable pay employee.

There is also a strange outcome where an employee began work in October, as a fixed rate employee on say national minimum wage; they would be furloughed on £8.72 per hour, whereas a colleague employed since February 2020 would only be furloughed based on £8.21 per hour.

Owner managed businesses

Directors who reported their annual payment for 2019/20 to HMRC after 19 March 2020 will now be included in CJRS.3 having been excluded up until 31 October. The rate of earnings reported in the period from 20 March to 30 October 2020 can be claimed, subject to the £2,500 monthly pay cap. Remember this £2,500 cap is pro-rated to the number of furloughed hours as a proportion of usual hours.

With the ability to flexi-furlough being in place from 1 November 2020 this will be more attractive to such directors, but we still face the conundrum of trying to be able to evidence usual hours to support the claim.

Usual hours

For previously eligible employees the usual hours remain as per the calculation for CJRS.2 that ended on 31 October. This is the case even if the employer did not make a claim for the employee.

For newly eligible employees, usual hours will be:

• for fixed rate employees the contracted hours worked in the last pay period ending on or before 30 October 2020.
• for variable pay employees the average hours worked between 6 April 2020 and the day before they were furloughed under CJRS.3

The usual hours are based on calendar days in the claim period.

Claim deadline

One of the most concerning differences from the CJRS.2 is the fact that claims for the prior month have to be made by the 14th day of the following month. Thus, claims up to 30 November have to be claimed by 14 December.

This will put an enormous burden on employers and agents and may prove impossible where payments for the month of November are paid in arrears in December with timesheets having to be collated. We will have to see whether an estimated claim is worth making by the deadline, and whether HMRC will allow corrections after 14th of each month.

Claims will be able to be made in advance (it’s assumed as now 14 days before payday) and will pay out within six days. The new claim portal will open at 8am on 11 November.

Employers are not required to submit their RTI returns before making a claim, so we appear to have returned to the ‘pay now check later’ model. There is also no mention in the policy paper of informing employees that their employer has claimed on their behalf as had been the intention with the JSS, but employers using the scheme will be named.

Rehires

Individuals who had a date of leaving reported after the 23 September 2020 can be reinstated if the employer so chooses.

Contract changes

The government has recognised that it has been impossible to put in place furlough agreements from 1 November, given that employers were not aware what the reference pay period would be. Contract changes can be backdated to 1 November 2020 but must be issued by 13 November 2020, but as the new guidance is promised on 10 November this could be challenging.

Claim periods will cover a minimum of seven days and I assume orphan periods will be a feature of the new scheme, where a week split is over two calendar months, meaning there will be less than seven days in the claims. This should be okay as long as it’s preceded or followed by a seven day period of furlough.

Schemes scrapped

The job support scheme will not be coming into effect this tax year and the job retention bonus has been scrapped.

What hasn’t changed from CJRS.1 and CJRS.2?

• All employment rights continue during furlough, eg accrual of holiday pay and leave.
• Employees can be included in a CJRS claim when they are off sick, and must be paid at least the level of SSP. Employers can choose to either pay SSP only or furlough pay, and clearly the latter is more beneficial to the employee and employer.
• Employers can top up furlough pay but aren’t obliged to.
• Employers will still be liable for employer’s NIC and pension contributions for any unworked hours
• Employees can train, volunteer, or work for another employer whilst furloughed.

During the Downing Street press briefing on Saturday, October 31, the Prime Minister declared the furlough scheme would be extended throughout the national lockdown. Boris Johnson’s announcement prompted many to wonder whether support for the self-employed would be increased to reflect the lockdown as well.

The Treasury has announced businesses which borrowed less than the maximum £50,000 or 25 percent of their turnover, can top up their Bounce Back Loans.

The law will change for VAT on imported goods from 1 January 2021, but to help businesses postponed accounting will be introduced on the same date.

How it works

Postponed accounting will be introduced on 1 January 2021. This will mean that a VAT registered business will not pay VAT on imported goods when they arrive in the UK. The VAT payment will be postponed and instead declared in Box 1 and Box 4 of the next VAT return submitted by the business. The net payment for the goods and any duty will be included in the Box 7 inputs box.

Cash flow boost for business

I have worked in VAT long enough to remember when we last had postponed accounting in the UK before it was abolished in 1984 by Chancellor Nigel Lawson. The abolition produced a one-off cash flow boost of £1bn for the government because it resulted in a time delay between paying VAT at the border and then claiming input tax. The opposite now applies and there will be negative cash flow outcome for the government. An importer that is not VAT registered will still pay VAT when the goods arrive in the UK.

VAT returns

HMRC has made it very clear that trading in goods with EU countries will be the same as for non-EU countries. References to goods sold into the EU as ‘dispatches’ will end, as will the description of ‘arrivals’ for goods coming into the UK.

Does that mean that Boxes 2, 8 and 9 of our nine-box VAT return can be removed after 1 January 2021, because they only relate to EU sales and purchases of goods, which will no longer get special treatment?

Example

Janet is VAT registered and imported £50,000 of women’s clothing and £5,000 of children’s clothing on 31 January 2021. She will resell the goods in the UK. Janet will declare £10,000 (20% x £50,000) in Box 1 of her VAT return that includes January 2021, and claim the same amount as input tax in Box 4 because the goods are being used for a taxable business purpose. The net expense of £55,000 is included in Box 7. No VAT is payable on the children’s clothing because they are zero-rated.

Key issues

It is important to be clear on three issues:

• Postponed accounting will apply to all imports of goods from 1 January 2021 ie EU and non-EU imports.
• Customs declarations on imports of non-controlled goods can be deferred by up to six months until 1 July 2021. But the postponed accounting entries on VAT returns must still be made according to the date of the import, even if this involves an estimation of the figures.
• The Box 4 entry on VAT returns must go through the same input tax tests as a purchase invoice from a UK supplier, ie adjusted for any exempt, non-business or private use. This claim will be supported by C79 documents issued by HMRC.

People who received the self employed income support scheme (SEISS) grant are being asked to confirm if they stopped trading, so HMRC can check if they were eligible in the first place. 

The SEISS eligibility review is the first step in HMRC’s clamp down on people who should not have received the grant. HMRC has already sent 24,000 emails to SEISS claimants on its database to ask if they’ve ceased trading.

When the SEISS grant was announced, HMRC only had information from 2018/19 tax returns. This meant claimants were able to receive the grant without HMRC knowing for the most part if they continued to trade beyond 5 April 2019.

Speed was the priority when the scheme was announced, which meant tax agents were locked out of the process due to time constraints. Taxpayers were left to make the claim themselves without assistance. In many cases ineligible claimants overlooked the requirement to trade in the 2018/19 and 2019/20 tax years and beyond.

Confirming status

The HMRC email directs these businesses to a form asking them to confirm whether they’ve ceased trading, which they can complete this by signing into the government gateway.

Many businesses have not survived the pandemic, leaving a grey area around the intention to trade condition of the grant.

HMRC will contact the businesses found not eligible and will arrange for them to pay back the SEISS grant. If the businesses don’t confirm before the deadline given by HMRC, they may face a penalty.

Deadline

Self-employed businesses that claimed the SEISS grant before 22 July have until 20 November 2020 to confirm their trading status to HMRC, while those that claimed on or after 22 July 2020 have 90 days from the date their received the grant.

HMRC will then respond to the business within 60 days with either a request for information or they will be asked to pay any amount due if they have ceased trading.

Penalties

Businesses that fail to contact HMRC before the deadlines may have to pay a penalty. The accompanying SEISS penalty factsheet explains that HMRC will treat failure of a business to notify the department about a grant to which it was not entitled as if it were deliberate and concealed.