HMRC has issued an update on just how it intends to calculate your eligibility for the Self-Employment Income Support Scheme (SEISS) grant.

Whilst the claim service is not yet available, HRMC aims to contact you by mid-May 2020 and make payment by early June 2020.

It will be available for three months but may be extended. The scheme will enable you to claim a taxable grant worth 80% of your trading profits, up to a maximum of £2,500 a month.

Remember, this a taxable grant and will be subject to Income Tax and National Insurance contributions but it won’t need to be repaid.

You can claim if you are self-employed or a member of a partnership, and you:

  • have submitted your Self-Assessment tax return for the tax year 2018 to 2019
  • traded in the tax year 2019 to 2020
  • are trading when you apply, or would be except for the Coronavirus
  • intend to continue to trade in the tax year 2020 to 2021
  • have lost trading profits due to the Coronavirus

HMRC has set out how it will examine a person’s eligibility across a range of circumstances. The following link takes you directly to their update page so you can see how they might manage your situation directly. However, we have set out below an overview of how HMRC is addressing SEISS across various scenarios:

  • HMRC’s starting point is the trading results you presented in your 2018/19 Tax Return. If that is your first year of trading, then they will base their assessment of your eligibility on that single year.
  • If you have only traded in the two years to 2018/19, they will take the average of the trading income presented on your 2017/18 and 2018/19 tax returns.
  • If you have traded for more than one year, then they will take an average of your trading results over the last three years to 2018/19.
  • If one of the years being considered was a trading loss, then HMRC will include that loss in the averaging process. The example given by HMRC is:

Trading results from your tax return:

  • £60,000 profit in tax year 2016 to 2017
  • £60,000 profit in tax year 2017 to 2018
  • £30,000 loss in tax year 2018 to 2019

Calculation is £60,000 + £60,000 less the £30,000 loss = £90,000

Average is arrived at by dividing £90,000 by 3 = £30,000 trading income

  • If you didn’t trade in, say, 2016/17 then they will look to see if they can average the two years to 2018/19. If you traded in 2016/17 but didn’t trade in 2017/18, it looks as if HMRC would only consider the results of 2018/19.
  • If you have more than one trade in the same tax year, then HMRC will add together all profits and losses for all these trades to work out your trading profit.

Are you eligible?

Your trading profits must be no more than £50,000 and represent more than half of your total income for either:

  • the tax year 2018 to 2019
  • the average of the tax years 2016 to 2017, 2017 to 2018, and 2018 to 2019

Aside from your trading income, your total income will include income from employment, property income, dividends, savings income, pension income and miscellaneous income (including social security income).

HMRC provide the following example:

  2016 to 2017 2017 to 2018 2018 to 2019 Average for the three tax years
Trading profit £50,000 £50,000 (£10,000) £30,000
Pension income £15,000 £15,000 £15,000 £15,000
Total income £65,000 £65,000 £5,000 £45,000
Trading profits are more than half of total income? Yes Yes No Yes

So even if you made a loss in the tax year 2018 to 2019, you would still be eligible for the grant because your average trading profit for the three tax years:

  • is £30,000 – which is less than £50,000
  • is more than half of your total income of £45,000

Whilst the start date for the scheme is a few weeks away and further guidance is likely to be released, if you have any queries in the mean time please contact your Champion advisor and we will try to help.