⚠️ We are working hard to ensure this guidance is up to date. However, you should bear in mind that things may change as the government respond to the ongoing situation.

Self-employment support scheme ‘parental’ extension: who does it help?

Updated on 26 July 2021

Coronavirus guidance

The government’s Self-Employment Income Support Scheme (SEISS) has special rules for some self-employed individuals to qualify for the scheme if certain pregnancy or parental responsibilities affected their income.

However, these additional rules do not affect those who already qualify for a grant under the original rules, even if the amount of the grant is reduced because of pregnancy or parental responsibilities. We broadly refer below to this change as applying to ‘parents’ for ease of reading.

Illustration of a woman working at a computer with a baby in her arms

What is SEISS?

The government introduced the Self-Employment Income Support Scheme (SEISS) to help self-employed people (and partners in partnerships) running smaller businesses which have been adversely affected due to the coronavirus.

The qualifying conditions for the scheme are explained in more detail in our main SEISS guidance (and in our pages on the fourth and fifth grants). Broadly SEISS can provide taxable grants to those earning up to £50,000 on average from self-employment and who get the majority of their taxable income from self-employment.

It is no longer possible to make a claim for the first four grants under SEISS. Claims for the fifth grant are possible from late July 2021.

Under the normal scheme rules for the first three grants, the amount of the taxable grant is based upon the person’s total trading income, usually averaged over the three tax years: 2016/17, 2017/18 and 2018/19. For the fourth and fifth grants, a person’s trading income for 2019/20 is also taken into account.

Overall, there are five grants under SEISS:

  • The first, which we refer to as ‘SEISS 1’, is based upon 80% of the average profit figure, up to a maximum of £7,500 and applies to those whose trade has been adversely affected by the coronavirus up to 13 July 2020.
  • The second, which we will call ‘SEISS 2’, is based upon 70% of the average profit figure, up to a maximum of £6,570 and applies to those whose trade is adversely affected by the coronavirus on or after 14 July 2020.
  • The third, which we will call ‘SEISS 3’, is based upon 80% of the average profit figure, up to a maximum of £7,500 and applies to those whose trade is impacted by reduced activity, capacity or demand as a result of coronavirus in the period 1 November 2020 to 29 January 2021 and who expect a significant reduction in their trading profits.
  • The fourth, which we will call ‘SEISS 4’, is based on 80% of a different average profit figure, as 2019/20 profits are taken into account. The maximum fourth grant is also £7,500 and applies to those whose trade is impacted by reduced activity, capacity or demand as a result of coronavirus in the period from 1 February 2021 to 30 April 2021 and who expect a significant reduction in profits.
  • The fifth, which we will call ‘SEISS 5’, applies to those whose trade is impacted by reduced activity, capacity or demand as a result of coronavirus in the period 1 May 2021 to 30 September 2021 and who expect a significant reduction in their trading profits. The level of the grant depends on the extent of the reduction of your turnover (sales) in the period April 2020 to April 2021, compared to the turnover on your 2019/20 (or, in some cases, 2018/19) tax return. If your turnover has reduced by 30% or more, the grant is 80% of your average profit figure (capped at £7,500) – otherwise it is 30% of your average profit figure (capped at £2,850).

Why might new parents not qualify for a grant under SEISS?

If you are self-employed and take time off work when you have children (including adoption), your trading profits are likely to be reduced for that period. For example: you might stop working for a time and then later resume your trade; you might be doing less than you normally would; and/or you might pay extra staff to cover work that you would normally do in the business.

If that happened during one of the tax years which are used for assessing eligibility for the SEISS grants, this may affect whether you qualify for one or more of the grants. This is likely to be the case if you did not file a tax return for 2018/19 (for SEISS 1 to 3) or 2019/20 (for SEISS 4 and 5) because:

  • you had temporarily paused trading while on leave, or
  • your self-employed income did not make up more than 50% of your total taxable income for that year (for example, because your self-employed income was reduced).

What are the additional rules for self-employed parents?

SEISS 1 to 3

⚠️ It is no longer possible to make a claim for SEISS 1 to 3.

On 1 July 2020, SEISS 1 and 2 were extended to allow claims by self-employed people who did not qualify for SEISS at all under the original terms of the scheme, if their 2018/19 trading profits or total income were affected due to one of the following:

a) caring for a child within 12 months of the date of birth of the child (where you have parental responsibility),

b) if you are an adopter, caring for a child within 12 months of the date a child was placed for adoption with you (or if adopting from overseas, the date the child arrives in the UK), or

c) pregnancy, or

d) maternity at any time within the period of 26 weeks from the date of giving birth.

The above also applied to SEISS 3 when it was announced subsequently.

The remainder of this article refers to any of the above periods as a period of ‘parental leave’, and the phrase ‘parent’ should be construed accordingly.

Under the parental extension, those who did not qualify before could consider whether they are eligible for the SEISS grants using either:

  • the average of their trading profits over the two tax years 2016/17 and 2017/18, or
  • if they did not trade in 2016/17, their trading profits for 2017/18.

You must still have met the ‘profits test’ for the earlier years in order to qualify.

It is important to be aware that this change in the rules only affects those who were not able to receive a payment before – it will not help people who did qualify for a payment which was lower than expected due to a period of parental leave. We explain this further below.

SEISS 4 and 5

For SEISS 4 and 5, the extension applies to self-employed people who did not qualify for SEISS at all under the normal terms of the scheme (that is, ignoring the effect of the pregnancy or parental responsibility on their profits), if their 2019/20 trading profits or total income were affected due to one of the above listed events.

These individuals would then be able to consider their eligibility for SEISS 4 and 5 on the basis of one of the following:

  • if they traded in the tax years 2016/17, 2017/18 and 2018/19, the average of their profits in these three years; or
  • if they traded in 2017/18 and 2018/19 but not in 2016/17, the average of their profits in 2017/18 and 2018/19; or
  • if they did not trade in 2017/18, their trading profits in 2018/19.

SEISS 5: Financial Declaration Test

The parental extension rules do not have any impact on the Financial Declaration Test (FID) for SEISS 5.

Under this test, you are required to compare your turnover during the pandemic period (defined as a 12-month period starting between 1 and 6 April 2020) with your turnover from your reference period, which is either:

  • your 2019/20 tax return; or
  • your 2018/19 tax return; if you reasonably believe that this more accurately reflects the usual turnover from the business in a typical 12-month period.

If you qualify under the parental extension rules, it is because your 2019/20 trading profits (or total income) have been affected such that you would not otherwise qualify for SEISS 5. Therefore, we expect that in this situation your 2018/19 turnover is likely to reflect the usual 12-month turnover more accurately.

However, this may not be the case if you only started trading in 2018/19 and therefore your 2018/19 turnover only represents a part-year of trading. In this situation, you do not ‘scale up’ your 2018/19 turnover figure. You need to decide which of the two turnover figures from your 2018/19 and 2019/10 tax returns more accurately (that is, more closely) reflects your usual turnover in a typical 12-month period.

So, who can claim under the parental extension?

⚠️ Please note: although we give some example scenarios below, these are not necessarily the only situations that are covered. You should check the rules carefully and consider them in relation to your own circumstances.

Those who didn’t submit any self-employment or partnership trading income on a 2019/20 tax return

To qualify for SEISS 4 and 5, you must usually have submitted a Self Assessment tax return for the 2019/20 tax year by 2 March 2021. This will apply for most claimants.

One group of individuals the parental extension aims to help out is self-employed parents who did not submit a tax return for 2019/20, or who did not submit one showing any trading income from self-employment or partnerships.


Example

Tiffany, self-employed, was expecting a baby in May 2019. Due to being unwell in the latter part of the pregnancy, she decided to stop work in February 2019. She did a very small amount of self-employed work in 2019/20, generating gross income of £800. She filed a 2018/19 tax return, but asked HMRC to take her out of Self Assessment for 2019/20 as her self-employment income for that year fell within the £1,000 trading allowance. She resumed self-employment fully in 2020/21. Under the normal SEISS rules, Tiffany would not have qualified for a grant under SEISS 4 or 5 as she did not file a Self Assessment tax return for 2019/20.

We think that this scenario is unlikely to apply to very many self-employed people, as it is probable that a small amount of self-employed income (or even a loss) will still have been included on a Self Assessment tax return.

Few parents are likely to have suspended trading altogether such that they filed returns for years to 2018/19 and then resumed trading in 2020/21 and intended to continue for 2021/22 – such that they did not file a return showing any income from self-employment for 2019/20. Similarly, many in Tiffany’s situation as above may have filed a Self Assessment tax return anyway, rather than asking HMRC to take them out of the system.


However, if you are in the above situation, the parental extension could mean you could potentially claim SEISS 5 if you meet the other eligibility criteria.

Those whose income was affected by parental responsibilities such that they would have failed the profits test

To qualify for SEISS, you have to meet a ‘profits test’. One part of this test is that your self-employment profits have to be equal to, or more than, your other income combined. Or, to put it another way, your self-employment profits have to be at least 50% of your total income.

So, let’s say you have a job as an employee and a self-employment. In 2019/20, you earned £10,000 from your employment and made trading profits of £15,000. Your trading profits are 60% of your total income of £25,000 so you meet the profits test and can claim under SEISS (subject to meeting all other eligibility criteria).

This test can be calculated using an average over the four tax years 2016/17, 2017/18, 2018/19 and 2019/20 if you fail it using just 2019/20 figures.

So how does this help self-employed parents whose income was affected in 2019/20? Let’s consider an example.


Example

Stefan is both employed and self-employed. He and his partner adopt a child in July 2019 and Stefan takes 9 months off both his employment and business. Stefan’s employer has generous terms for parental leave, so Stefan receives 90% of his normal employment income throughout the 9-month period of leave. He receives no trading income for that period. Stefan’s income for SEISS purposes is:

Tax year


Employment
£


Self-employment
(year end 5 April)
£


Totals
£

2016/17

11,000

12,000

23,000

2017/18

11,500

12,200

23,700

2018/19

11,300

12,100

23,400

2019/20

11,100

3,250

14,350

Total of all years

44,900

39,550

84,450


Stefan would not have been entitled to the SEISS grants under the normal rules, because he fails the ‘50% test’. This is because:

  • First, in 2019/20, his self-employment income is less than half of his total income (£3,250 divided by £14,350 times by 100 = 22.65%).
  • Having failed the ‘50% test’ for 2019/20, the normal rules look at whether he passes the test over the four tax years. His self-employed income is only 46.83% (£39,550 divided by £84,450 times by 100) of his total income, so under the normal rules he also fails this second part of the test.

However, under the parental extension, Stefan will qualify because he can leave 2019/20 out of the calculations and use only his income and trading profits for 2016/17 to 2018/19. For those three tax years, it is clear that his total trading income is more than his total other income. This means he can claim SEISS grants under the parental extension criteria, calculated using only those three earlier tax years’ figures.


Note for those making up accounts using a year end other than 31 March or 5 April

As explained above, the parental extension for the fourth grant applies to those whose trading profits or total income for the tax year 2019/20 has been affected by a relevant event such as having a baby. This would seem to have some peculiar implications for those who make up their business accounts to a year end other than one which closely matches the tax year end of 5 April.

For instance, if you use an accounting year end of 30 April, it is your trading profits for the year to 30 April 2019 that would be taxed in the 2019/20 tax year. In this situation, it is likely that the relevant event, such as having a new baby, will need to have occurred much earlier than for someone making up accounts to the tax year end of 5 April in order for it to have affected your 2019/20 taxable profits.

Let’s say for example that Billie had a baby in the summer of 2018. Taking time off her self-employed work around that time would have affected her profits for the year to 30 April 2019, so this would seem to bring her within the scope of the parental extension rules (assuming she could not claim a grant under the normal rules).

However, compare that to Belinda who also had a baby in the summer of 2018 but makes up accounts to 5 April. The impact of Belinda’s time off for maternity would have mainly affected her profits for the year to 5 April 2019 – that is, the 2018/19 tax year. This does not therefore bring Belinda within the scope of the parental extension for the fourth grant, as it is 2019/20 profits that must have been affected by the relevant event.

So even though Billie and Belinda each had a baby around the same time, Billie might be helped by the parental extension whereas Belinda will not be. However, it is important to note that Belinda may already have been entitled to a grant under the normal rules and the purpose of the extension is, we understand, to provide some financial assistance to those not previously entitled to claim.

What if I have received a lower grant due to a period of parental leave?

Some people who took periods of parental leave may always have been eligible for a grant under the normal rules, but the amount of the grant will be lower that it would have been had they not taken leave. This is because the period during which you took time off or reduced your work is not disregarded included in the calculation. The parental extension does not help people in this situation.

How and when can I claim under the parental extension?

We understand that the claims window for SEISS 5 is from late July 2021 to 30 September 2021.

HMRC originally asked new parents to ‘verify’ certain information which demonstrated their eligibility under the parental extension, two weeks prior to the claim deadline. According to guidance on GOV.UK, new parents will again have to verify with HMRC that they qualify for the parental extension before claiming a SEISS grant if they have not already done so.

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