New guidance on the U.K. government’s self-employment income support scheme (SEISS), requiring that a claimant’s business has been adversely affected by circumstances resulting from COVID-19, replaces earlier guidance stating that a claimant must have lost profits.
HM Treasury published late on May 1 a direction made by Chancellor of the Exchequer Rishi Sunak under the Coronavirus Act 2020, setting out the legal framework for the SEISS.
HM Revenue & Customs published updated guidance on the scheme’s conditions and the calculation of trading and non-trading income, and published new guidance on “how different circumstances affect” support under the SEISS.
Business groups, tax professionals, and members of Parliament have raised concerns about the scope of the SEISS, which Sunak announced on March 26. But the Institute for Fiscal Studies pointed out that many self-employed workers eligible for the scheme will be better off financially than if the COVID-19 crisis had not happened.
The purpose of the SEISS is to provide for payments to be made “to persons carrying on a trade the business of which has been adversely affected by the health, social, and economic emergency” resulting from the coronavirus outbreak, according to the Treasury direction. A claim may only be made “in relation to a trade the business of which has been adversely affected,” and no claim may be made “if it is abusive or is otherwise contrary to the exceptional purpose of SEISS,” it adds.
The direction provides that the claimant must carry on a trade “the business of which has been adversely affected by reason of circumstances arising as a result of coronavirus or coronavirus disease.” The claimant must have filed a tax return for a relevant tax year on or before April 23, must have carried on a trade in the 2018-2019 and 2019-2020 tax years, and must intend to carry on a trade in the 2020-2021 year. The direction sets out “the profits condition” and the calculation of the SEISS payment.
HMRC’s updated guidance states that the business “could be adversely affected” by coronavirus if “you’re unable to work because you are shielding, are self-isolating, are on sick leave because of coronavirus, [or] have caring responsibilities because of coronavirus; [or] you’ve had to scale down or temporarily stop trading because your supply chain has been interrupted, you have fewer or no customers or clients, [or] your staff are unable to come in to work.”
Earlier versions of HMRC’s guidance stated that the claimant must have “lost trading profits” because of the coronavirus outbreak.
“Your trading profits must be no more than £50,000 and at least equal to your non-trading income,” the latest guidance says in relation to the profits condition. Labour MP Rushanara Ali questioned HMRC Chief Executive Jim Harra regarding the limit during a House of Commons Treasury Committee hearing on April 8.
“The government decided to put a threshold of £50,000 profit on the people who would qualify for this scheme, on the basis that it is targeted at the people in greatest need,” Harra said.
MPs had received many representations regarding the limit, Ali said. “There are two households: one with two incomes of less than £50,000; one with a single income slightly over £50,000, which gets nothing. How does that figure? How is that fair?” she asked.
“I appreciate that. If we had a lot of time, we could work on developing the policy,” Harra replied. “You could take account of households, which is extremely difficult, operationally, for us to do. You could do a range of things, if you had more time,” he said, adding that HMRC estimates that 95 percent of people for whom self-employment is the main source of income will qualify for the SEISS.
Asked about the merits of including self-employed graduates’ 2019-2020 tax returns in the SEISS, Financial Secretary to the Treasury Jesse Norman said in an April 29 written answer that “it has not been possible” to include in the SEISS those who began trading after the 2018-2019 tax year.
“This was a very difficult decision and it was taken for practical reasons. It is correct that individuals can now submit income tax self-assessment returns for 2019-2020, but there would be significant risks for the public purse if the government relied on these returns for the scheme,” Norman said. "HMRC would not be able to distinguish genuine self-employed individuals who started trading in 2019-2020 from fake applications by fraudulent operators and organized criminal gangs seeking to exploit SEISS. The government cannot expose the tax system to these risks."