People who enrolled in the Self-Employment Income Support Scheme (SEISS) have been reminded that they must include income from their grants on tax returns to HM Revenue & Customs (HMRC), as it is subject to Income Tax and National Insurance.
They should liaise with their accountants so an accurate return can be sent to HMRC, covering the various periods of the scheme to avoid any penalties.
This scheme was set up by the Government to provide support during the Coronavirus pandemic for those who are self-employed, either as a sole trader or a partner in a partnership.
It was originally announced on 26 March 2020 and provided an initial grant for self-employed individuals whose businesses were adversely affected on or before 13 July 2020.
A second grant was then made available for individuals who were ‘adversely affected’ on or after 14 July 2020.
Subsequently, on 1 July 2020, the scheme was extended to provide payments to certain self-employed individuals (or partners in partnerships) who did not originally qualify.
On 24 September 2020, a further extension to the SEISS scheme was announced under which a third and fourth grant would be provided.
The third grant notionally covered the three months from 1 November 2020 to 29 January 2021.
On 3 March 2021, it was announced that the fourth grant would take account of 2019/20 trading profits on tax returns submitted by midnight at the end of 2 March 2021.
A fifth grant was also announced when Chancellor Rishi Sunak presented his 2021 Budget on 3 March, he announced a further extension which will now run until the end of September this year. It was welcome news for many self-employed people throughout the UK.
The fifth and final SEISS grant will cover lost earnings from May onwards, and self-employed individuals and partners can claim it from late July 2021 (the exact date is to be confirmed).
It covers 80 per cent of average self-employed profits if your turnover has fallen by more than 30 per cent; those who haven’t been as badly affected can still get a 30 per cent SEISS grant.
You don’t need to repay a SEISS grant – it is not a loan. However, SEISS grant awards are subject to Income Tax and Class 4 National Insurance contributions and your accountant can advise on this.
The SEISS grants are taxable in the tax year in which they are received. So, the first three SEISS grants are taxable in the 2020/21 tax year and they should be reported in full in your 2020/21 Self-Assessment tax return.
If you’re self-employed and your sole trader business receives a SEISS grant in the fourth or fifth rounds, they’re taxable in the 2021/22 tax year and should be reported on your 2021/22 Self-Assessment return.
To make it easier for self-employed people to enter money received from SEISS grants, HMRC will include a box on the 2020/21 and 2021/22 Self-Assessment tax return forms.