New SEISS conditions

The SEISS claims portal reopened on Monday 30 November, but the new SEISS conditions mean that taxpayers must declare their trade has been impacted by reduced demand before they claim the third grant. In order to claim 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 has now been replaced with a more precise ‘impact on demand’ test.

Where they qualify for the SEISS3 grant the taxpayer will receive one lump sum payment to cover the three-month period from 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 SEISS1 grant.

The maximum SEISS3 grant payable is £7,500, or £2,500 per month, which is also the same as previously.

SEISS Conditions

The HMRC guidance on checking whether the taxpayer can claim the SEISS3 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.

Profits not costs

The previous ‘adversely affected’ test meant that business turnover had to decrease or business costs increase, due to the pandemic. There was no minimum decline specified, so even a small increase in costs or drop in sales meant the business would qualify The reduced demand test requires the trader to suffer a significant reduction in trading profits for the relevant basis period (see below). ‘Significant’ is not defined, but the dictionary definition indicates a significant effect.

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. The guidance has a series of examples that are worth reading through.

Basis period

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 SEISS conditions

The other conditions for the SEISS3 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 SEISS3, 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.

The SEISS grant must be claimed by the taxpayer online through the HMRC portal, by 29 January 2021. Tax agents attempting to make the SEISS claim by using their client’s Government Gateway ID and password will trigger a fraud flag but we are always available to talk through the  SEISS Conditions.