Guidance on the COVID-19 Self-Employment Income Support Scheme

Page updated 26 November 2020

In October 2020 Chancellor Rishi Sunak announced a six month extension to the Self-Employment Income Support Scheme (SEISS) beginning in November and payable in two further instalments. The third grant is set at 80% of average trading profits, up to a maximum of £7,500. The level of the fourth grant has yet to be determined.

On 24 November further details of the third instalment were published which contain some crucial differences around eligibility compared to the first two grants.

As before, to be eligible you will have to declare that you intend to continue trading but have either seen your income reduce or be unable to trade due to coronavirus. You do not have to have claimed a grant previously. In addition, you must also declare that 'you reasonably believe there will be a significant reduction in your trading profits'.

HMRC has provided the following definitions and advice:

Reasonable belief

'In order to claim, you must reasonably believe that you will suffer a significant reduction in trading profits due to reduced business activity, capacity or demand or inability to trade due to coronavirus during the period 1 November to 29 January 2021. You must keep evidence that shows how your business has been impacted by coronavirus resulting in less business activity than otherwise expected.'

Significant reduction

'Before you make a claim, you must decide if the impact on your business will cause a significant reduction in your trading profits for the tax year you report them in. HMRC cannot make this decision for you because your individual and wider business circumstances will need to be considered when deciding whether the reduction is significant. You should wait until you have a reasonable belief that your trading profits are going to be significantly reduced, before you make your claim.'

Furthermore, the definition of ‘impacted’ is now given as a downturn in business/clients/income because you have fewer clients than you’d normally expect due to social distancing or government restrictions. It also includes having contracts cancelled and not replaced or carrying out less work than usual due to supply chain disruptions. Increased costs, from purchasing masks or cleaning products to make your work environment COVID secure for example, is not sufficient grounds to make a claim and you must not claim if the only impact on your business is increased costs.

There is also a specific exclusion due to ‘loss of income’ as a result of having to self-isolate after returning from being abroad. Our interpretation is that this is intended to exclude those are unable to work after returning from a holiday abroad and does not take into account musicians’ regularly work abroad. We continue to lobby for musicians to be exempt from quarantine to overcome this issue but for the time being it is an important point to note when considering whether to make a claim.

The simplest way to determine whether you have experienced ‘significant reduction’ would be to compare your trading income between 2019-20 and 2020-21, unless there are obvious mitigating reasons why this would not be appropriate, such as having time off to have a baby. Comparing your income levels with 'what they should have been without COVID' will give you a clearer indication of the level of loss you have experienced because, as noted above, having additional costs (thereby reducing your trading profit) is not sufficient grounds to make a claim. Remember too that it is likely you will need to include any income received from the first two SEISS grants in your income calculations as they were intended to replace lost income. If the amount received from the first two grants has put you in a position where you are now overall averaging your usual (or higher) income/profit levels, we recommend that you seek advice before submitting a claim. ISM members can contact the daytime tax helpline or contact one of our accountancy partners for further advice.

In summary, if your income, activity, capacity or demand is normal, you are excluded from the third SEISS grant.

Additionally, it is worth noting that the government is looking to exclude claimants that have not sought to replace or find alternative work. This example illustrates the point:

The client of a dog walker cancels a contract due to coronavirus. The dog walker could but chooses not to look for additional work to replace the contract. This means her business activity and her trading profits are reduced because she chooses not to replace the contract and not because of coronavirus. She is not eligible for the third grant.'

On that basis, if you have sought alternative work, including in a different industry, then providing your original work remains unavailable, you should still be eligible to claim. Again, we recommend you seek advice on the matter if you are unsure.

As before, grants are classed as taxable income and will also be subject to National Insurance contributions. Although the HMRC factsheet misleadingly refers to the grants as covering from November 2020 to January 2021 and February to April 2021, HMRC has confirmed to accountancy bodies that none of the SEISS grants relate to any particular periods or seek to replace lost income over a particular period and it is not intended to provide a month by month replacement of income. The dates refer to periods during which the eligibility criteria need to be met. HMRC will start accepting claims for the third grant from 30 November 2020. You have until 29 January 2021, when claims close, to determine whether you should claim or not.

HMRC has updated its guidance page which includes examples of situations that do and don’t qualify for the third SEISS grant.

This page is intended for information only and should not be considered as a substitute for financial advice.

Complied with information from Dr Jane MacArthur FCA DipABRSM of Amati UK Ltd.

ISM members get access to a tax and legal helpline to help you with any questions that arise from your work. You can also contact our in-house lawyers for help with contracts and advice on your rights at work.