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Repay SEISS when turnover is up?

Increased turnover is a red flag that SEISS grants may need to be repaid, but it isn’t conclusive. A much more granular approach is needed, for example to establish whether a new contract arose providing a late boost to profits unforeseen at the time a claim was made.

Each SEISS claim required a series of declarations and the qualifying conditions have evolved during the pandemic. The onus is on the claimant to be able to prove that they were eligible and entitled to the grant at the time they made the claim. If they should not have claimed they must notify HMRC and repay the grant to HMRC who have been provided with substantial resources to recover wrongly claimed coronavirus support payments; this work is underway for SEISS.

Evidence required to substantiate SEISS claims

Ideally, alongside accounting records, there will be contemporaneous notes collating adequate evidence at the time each claim was made showing the effect of the pandemic on the business, based on factors then known. In the real world, it may be necessary to roll-back to March 2020 at the earliest opportunity completing a business diary of significant dates, including relevant school and childcare closures, but also when new contracts became probable. It may be relevant to ensure that not only paperwork but emails and even social media exchanges are securely saved.

Notifying HMRC about incorrectly claimed SEISS grants, including tax return treatment

The taxpayer should notify HMRC of any necessary repayments of SEISS grants as soon as they become aware of not meeting eligibility criteria (see table below for notification deadlines). There are two alternative notification mechanisms, each with its own tax return treatment to follow so that a double charge to tax does not arise.

1. Stand-alone

The taxpayer themselves can notify using the link telling HMRC and paying back SEISS grants to establish standard penalty mitigations early for unprompted, quality disclosure and will be provided with bank details for HMRC SEISS Receipts. Grants which have already been repaid (or assessed) are not subject to tax or NIC and should be deducted from the amount received shown on the self-employment or partnership pages so that only the net amount retained is included on those pages; any amount already notified should not be re-notified on page 5 of the main return.

2. Tax return

Only if HMRC has not already been notified of incorrectly claimed SEISS, there is an opportunity to do this on the tax return and repayment will be made through self-assessment. The amount incorrectly claimed must be declared as indicated on page 5 of the main return pages, but not included on the self-employment or partnership pages.

It seems likely that in cases of financial hardship it will be possible to request a Time to Pay arrangement.

Repaying SEISS grants and penalties for late notification

HMRC can raise assessments to recover SEISS, payable within 30 days of the assessment. Otherwise SEISS repayment deadlines are 31st January 2022 (SEISS 1 to 3) and 31st January 2023 (SEISS 4 and 5). Late payment interest and penalties apply to SEISS repayments as normal.

If the taxpayer knew they were not entitled and did not tell HMRC within the 90-day notification period, the failure will be treated as ‘deliberate and concealed’; ignorance of the rules is not generally successful in reasonable excuse appeals. Penalties can be up to 100% of the incorrectly claimed grant.

If the taxpayer did not know they were not entitled to a grant when they received it, HMRC will only charge ‘failure to notify’ penalties if repayment relating to SEISS 1 to 3 has not been made by 31st January 2022 and by 31st January 2023 for SEISS 4 and 5. 

Take care

Agents were expressly debarred from making clients’ SEISS claims but need to engage with SEISS grants in preparing self-assessment returns for both 2020/2021 and 2021/2022.  As the recovery of incorrectly paid SEISS grants is by way of a tax charge, PCRT applies necessitating care to avoid presenting information that is known or believed to be incorrect or misleading relating to one or more SEISS grants.  The conditions for claiming SEISS grants have evolved during the pandemic creating five versions; these are set out in the table below. Each SEISS grant received must have met all conditions relevant at that time.

 

 

Tax year SEISS grants are to be reported  2020/2021 2021/22
  SEISS 1  SEISS 2 SEISS 3 SEISS 4 SEISS 5
 The qualifying period Up to 13 July 2020
From 14 July to 19 Oct 2020 1 Nov 2020 to 29 Jan 2021 1 Feb to 30 April 2021 1 May to 30 Sept 2021
Still trading as a sole trader at date of claim and intention to continue to trade in in the tax year 2020/2021  in the tax year 2021/2022
Business has been adversely affected by coronavirus This includes being unable to work because shielding, self-isolating, on sick leave or having care responsibilities because of coronavirus. It also includes scaling down or temporarily stopping trading due to interrupted supply chains, fewer or no customers, staff unable to work or one or more contracts have been cancelled and the business tried to replace the lost work. Excludes isolation or caring responsibilities due to arrival in the UK.
Reduced activity, capacity or demand or temporarily unable to trade in qualifying period, compared with what could reasonably have been expected but for the adverse effect of coronavirus No link between the amount of the grant and the financial loss

Reduction in sales compared to forecast.
HMRC examples:
Accounts show reduction in activity compared to previous years. Fewer invoices.
• Fewer customers or clients than normally expect resulting in reduced activity due to social distancing or government restrictions.
• Contracts that have been cancelled and not replaced.
• Carried out less work due to supply chain disruptions

Reasonable belief that the business will suffer a significant reduction in trading profits over at least one whole basis period in which the qualifying period falls because of reduced activity, capacity or demand due to coronavirus  N/A Not eligible to claim if:
• the only impact is increased costs;
• profit maintained by charging fewer customers more (working smarter not harder);
• chose not to replace lost contracts.
 Deadline for notification of non-entitlement (or reduced entitlement for SEISS 5) 20/10/2020  90 days from grant payment 90 days from grant payment (or tax return amendment if later and the amendment lowers the grant amount by over £100)
Deadline for repayment if not entitled
31st January 2022  31st January 2023

August 2021

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