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Press release: Concern at tax return confusion for recipients of COVID-19 self-employment grants
The Low Incomes Tax Reform Group (LITRG) is warning people who have claimed Self-Employment Income Support Scheme (SEISS) grants that this income is taxable and that they must make sure they complete their tax returns accurately by including the grants in the correct place.
The first three SEISS grants should be included in 2020/21 self-assessment tax returns,1 which many self-employed and partnerships are currently completing. But LITRG is concerned that some SEISS grant claimants are unaware that these grants are taxable income and subject to income tax and self-employment National Insurance contributions.2 This means that some people may exclude SEISS grant income from their tax return altogether and thereby submit an incorrect return to HMRC and not pay all of the tax they owe.
LITRG is receiving messages from confused taxpayers asking where to include the SEISS grants on the tax return form and this has led LITRG to publish new guidance on its website about SEISS: Self-Employment Income Support Scheme: where do I include the grants on my tax return?.
Head of LITRG Victoria Todd said:
“We are concerned that some SEISS claimants are confused about what to do with their SEISS grant income when completing their tax returns and this may result in inaccurate tax returns being filed with HMRC and the wrong amount of tax and National Insurance being calculated.
“Self-employed taxpayers are contacting us asking what they need to do with their SEISS grants because they have not seen or understood HMRC’s guidance. As this is the first time the SEISS grants have had to be included in a tax return it is understandable that some errors may be made.
“Unfortunately, the situation is compounded as HMRC cannot pre-populate the SEISS grants on the tax return, so it is up to the claimant to decide which of the SEISS grants should be included on a particular tax return3 and ensure that it is included in the correct box. There are additional complexities for taxpayers who have multiple trades4 or are in a partnership.”5
LITRG understands that this is a confusing area for taxpayers, especially given the fact that the treatment of SEISS grants is unique and different from other coronavirus business support grants and that many people are experiencing ongoing disruption and stress because of the pandemic.
LITRG has published new guidance to explain which SEISS grants should be included on the 2020/21 tax returns and which tax return boxes are the correct ones to fill out.6
Notes for editors
1. The first three SEISS grants must be included as taxable income in the 2020/21 tax year regardless of the accounting period for the self-employed business or partnership. The only exception is for partners whose SEISS grants have been paid into their business partnership and then distributed as per the Partnership Agreement.
2. Class 2 NIC must be paid when profits are above the Small Profit Threshold which is £6,475 and £3.05 per week. Class 4 NIC is calculated at 9% for profits between £9,500 and £50,000 and 2% on profits above £50,000.
3. For most SEISS claimants the first three grants must be included on their 2020/21 tax returns and the fourth and fifth grants should be included on their 2021/22 tax return.
4. If you have more than one self-employment trade and have claimed the SEISS grants you need to apportion the grants between the different trades in a reasonable way. We cover this in the LITRG guidance: https://www.litrg.org.uk/tax-guides/coronavirus-guidance/self-employment-income-support-scheme/SEISS-grants-tax-return.
5. As explained in Note 1, if a partner’s SEISS grants are distributed amongst the partners as per the Partnership Agreement then the way the SEISS grants are included on the tax returns will be different to other claimants. We cover this in the LITRG guidance: https://www.litrg.org.uk/tax-guides/coronavirus-guidance/self-employment-income-support-scheme/SEISS-grants-tax-return.
7. 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.
Contact Hamant Verma, External Relations Officer, 0207 340 2702 HVerma@ciot.org.uk