HMRC adds to cost of living woes for the self-employed

31 May 2022

Self-employed individuals and members of partnerships adversely affected by the coronavirus (COVD-19) pandemic were eligible to claim grants under the SEISS. To qualify for the grants the business owners’ taxable profits should not have exceeded £50,000 in 2019/20 or 2020/21 or the calculated average in the years 2016/17 – 2019/20. A turnover test also applied. 

There were five grants starting from July 2020 and a final one ending on 30 September 2021. The maximum instalment was £7,500, except for the second grant which was capped at £6,750. The grants are taxable in the years of receipt (2020/21 or 2021/22) and subject to National Insurance contributions too. 

Business owners whose entitlement to the fourth and fifth grant has reduced by more than £100 have started receiving assessments to collect the overpaid amounts. Such repayments should be made within 30 days of the assessment date. A late payment penalty of 5 per cent of the overpaid amount applies. Further late payment penalties will be levied for amounts unpaid 6 months and 12 months after the due date. This is unfortunate timing for those already facing inflationary pressures.

Amounts may be excessive because either; the claimant amended one of their tax returns for the years from 6 April 2016 to 5 April 2020 on or after March 2021; or estimated turnover figures for the fifth claim were lower than the actual amount reported on the claimant’s tax return. 

However, in challenging times businesses may have incurred trading losses. For unincorporated businesses, subject to meeting the qualifying conditions, these can be used to generate cash savings in various ways:

  • Offset against the individual’s total income in the current tax year. 
  • Carried back to utilise against total income of the previous tax year.
  • Carried forward to use against profits of the same trade in future years.
  • If the business ceases, any terminal losses can be used against profits of the year of cessation and the three preceding tax years.

Where appropriate, a change of accounting date could accelerate the use of the current year’s losses.  

Annual investment allowances (AIA), a type of capital allowances, can be claimed for qualifying plant and machinery.  

Most taxpayers would have made a SEISS claim in good faith, based on the information available to them at the time. Extending the repayment deadline to coincide with the 31 January 2023 tax return filing date would be a welcome reprieve from rising costs. However, claiming available tax reliefs can help too.