COVID-19 grant warning for new limited companies

To qualify for SEISS¹ you must be a self-employed individual or a member of a partnership. HMRC’s eligibility checker confirms that people may be eligible based on the information HMRC holds from tax returns for 2018/19 or earlier – but it does not check the other qualifying conditions.

Instead, claimants are required to declare they meet three other conditions when they apply through the claim tool – including that they:

• Traded in the tax year 2019 to 2020
• Intend to continue to trade in the tax year 2020 to 2021; and
• Carry on a trade which has been affected adversely by COVID-19

Business owners who were self-employed but have recently incorporated (turned into a limited company) are not still self-employed. As a result, they are unlikely to meet the additional conditions, even if they think of themselves as continuing to trade.

LITRG has been contacted by people confused about this distinction and the tax campaign group is calling on HMRC to clarify what ‘self-employed’ means in their SEISS guidance – and specifically, that if you have your own company, which you work for, you are not self-employed.

LITRG suggests that limited company owners, who are usually employees of their own limited companies, look to the Coronavirus Job Retention Scheme, instead, to the extent that they pay themselves a salary and meet the conditions of that scheme.²

Victoria Todd, Head of LITRG, said:

“We welcome that the Government has worked hard and fast to create a Self-Employment Income Support Scheme that should represent a lifeline for the 3.5 million self-employed people who are expected to qualify and that HMRC have delivered the scheme and payments faster than initially expected.

“HMRC are using information based on 2016/17, 2017/18 and 2018/19 tax returns to identify self-employed individuals who are potentially eligible to claim the SEISS. HMRC have contacted them inviting them to use the eligibility checker³ which will give them a date when they can submit their claim.

“The eligibility checker only covers some of the qualifying conditions. It is possible that people will receive an ‘eligible to claim’ result even though they do not qualify. This is likely to happen where the conditions are met based on information on the 2018/19 (and earlier) tax returns but subsequently there have been changes to their business circumstances which mean that they do not meet the other qualifying conditions in relation to 2019/20 and 2020/21.

“We know that there is a lot of confusion about the set-up of limited companies and what this means for the COVID-19 support schemes. We also know that many limited company owners are only entitled to a small amount from the Coronavirus Job Retention Scheme because of the way they structure their pay. Some may be entitled to nothing if they are paid a salary annually at the end of March or have not set up a PAYE scheme correctly to process their salary through.

“People’s hopes may be pinned on the SEISS scheme but it is extremely important for limited company owners to understand that they are unlikely to meet eligibility because although they may consider themselves to be trading, they are not doing so on a self-employed basis.⁴ We understand that this is a difficult message, but we need to warn people, because claiming incorrectly exposes such people to possible penalties, in addition to having to repay the grant, if claims are audited later.”⁵

LITRG is offering the following pointers to limited company directors who find that they do not qualify for any individual support:

• You may be eligible for welfare benefits. We strongly advise you speak to a welfare rights adviser (https://advicelocal.uk/) who will be able to go through things in detail with you and help you identify your best options.
• Check out other government support available to businesses (see www.gov.uk/coronavirus/business-support) to help you through this difficult time.
• If you need help in regularising your own/your limited company's tax affairs, see our Getting Help page for information on how to find a professional tax adviser www.litrg.org.uk/getting-help.

<sup>Notes for editors
1. https://www.gov.uk/guidance/claim-a-grant-through-the-coronavirus-covid-19-self-employment-income-support-scheme
2. https://www.litrg.org.uk/latest-news/news/200408-im-director-my-own-limited-company-what-support-there-me
3. https://www.tax.service.gov.uk/self-employment-support/enter-unique-taxpayer-reference
4. It is possible for a director of a limited company, with a completely separate self-employment, to be eligible for SEISS in respect of that self-employment, provided that self-employment was ongoing in 2018/19 and the other conditions are met, however this would be rare.
5. It is unclear, as yet, what HMRC's strategy will be around compliance and penalties for SEISS. The current guidance states that HMRC will check claims and take appropriate action to withhold or recover payments found to be dishonest or inaccurate. If company directors have accidentally claimed the grant already, they should contact HMRC.
6. Low Incomes Tax Reform Group
The LITRG is an initiative of the Chartered Institute of Taxation (CIOT) to give a voice to the unrepresented. Since 1998 LITRG has been working to improve the policy and processes of the tax, tax credits and associated welfare systems for the benefit of those on low incomes.

The CIOT is the leading professional body in the United Kingdom concerned solely with taxation. The CIOT is an educational charity, promoting education and study of the administration and practice of taxation. One of our key aims is to work for a better, more efficient, tax system for all affected by it – taxpayers, their advisers and the authorities. The CIOT’s work covers all aspects of taxation, including direct and indirect taxes and duties. The CIOT’s 19,000 members have the practising title of ‘Chartered Tax Adviser’ and the designatory letters ‘CTA’, to represent the leading tax qualification.</sup>

^{Contact CIOT External Relations on 0207 340 2702 / Out of hours contact: George Crozier, 07740 477 374}