Turnover tests and reasonable belief - applying for the fifth SEISS grant
The fifth instalment of the Self-employment Income Support Scheme (SEISS) grant opened for applications in late July. This is scheduled to be the last instalment of the SEISS grants and unlike its predecessors it introduces a turnover test, which will determine the amount of grant awarded to self-employed workers whose businesses have been hit by the coronavirus (COVID-19) pandemic.
As well as meeting the turnover test, applicants will also need to show that they have a reasonable belief that there is a significant reduction in trading. Here, we take a look at the application process for the fifth SEISS grant.
How much is the grant?
Unlike SEISS grants one to four, the amount of the fifth grant available is determined by how much a self-employed individual's turnover is reduced.
The fifth grant is 80% of three months' average trading profits, capped at £7,500 for those self-employed individuals whose turnover has reduced by 30% or more. Those with a turnover reduction of less than 30% will receive a grant based on 30% of three months' average trading profits, capped at £2,850.
HMRC began contacting taxpayers in mid-July and claims opened in late July. Claims must be made by 30 September 2021. It is the taxpayer who must make the claim: an accountant or agent cannot submit the claim on their behalf.
Who is eligible?
Self-employed individuals (and members of a partnership) are potentially eligible for the fifth SEISS grant where the taxpayer:
- submitted their 2019/20 self assessment tax return by 2 March 2021
- traded in the tax years 2019/20 and 2020/21
- is currently trading but is impacted by reduced demand due to COVID-19, or has been trading but is temporarily unable to do so due to coronavirus
- intends to continue to trade; and
- reasonably believes there will be a significant reduction in their trading profits due to the impact of COVID-19 in the period from 1 May 2021 and 30 September 2021. HMRC has not provided a definition of 'significant reduction'.
The taxpayer's trading profits must be no more than £50,000 and at least equal to their non-trading income. If there is no eligibility based on the trading profits for 2019/20, then previous years will be considered.
The turnover test
Before making a claim, taxpayers must:
- work out their turnover for a 12-month period starting from 1 April 2020 to 6 April 2020
- find their turnover from either 2019/20 or 2018/19 to use as a reference year.
HMRC advises taxpayers will need to have both figures ready when they make their claim.
A taxpayer can calculate their turnover for 2020/21 in several ways:
- by referring to their 2020/21 self assessment tax return if this has already been completed
- by checking the figures on their accounting software
- by reviewing their bookkeeping or spreadsheet records that detail their self-employment invoices and payments received
- by checking the bank account they use for their business to account for money coming in from customers
- by asking their accountant or tax adviser for help in calculating the figures. However, accountants and agents are unable to make the claim on the taxpayer's behalf.
HMRC has confirmed that the turnover figure should not include anything reported as any other income on the taxpayer's tax return. Also, do not include any COVID-19 support payments. For example:
- previous SEISS grants
- Eat Out to Help Out payments
- local authority or devolved administration grants.
HMRC's guidance is available at: https://www.gov.uk/guidance/work-out-your-turnover-so-you-can-claim-the-fifth-seiss-grant.
Turnover for the previous year
In most cases, a taxpayer must use the turnover reported in their 2019/20 self assessment tax return as a reference year. The figure needs to be based on a 12-month period and include the total turnover for the taxpayer's businesses.
In certain limited circumstances where 2019/20 was not a normal year for the taxpayer's business, they can use the turnover reported on their 2018/19 tax return. HMRC gives examples of the circumstances where this would apply. For example, if the taxpayer:
- was on carers' leave, long term sick leave or had a new child
- carried out reservist duties
- lost a large contract
- is eligible for the fifth grant but did not submit a 2019/20 return.
For further guidance on how an individual's circumstances can affect eligibility visit: https://www.gov.uk/guidance/how-different-circumstances-affect-the-self-employment-income-support-scheme.
Claiming the fifth SEISS grant is not straightforward. Please contact us for advice on determining your turnover figures or eligibility.