Tax Rules For The Self-Employment Income Support Scheme
19th April 2021
The Self-Employment Income Support Scheme (SEISS) is a system designed to help people who work for themselves through the COVID-19 crisis. With the 4th grant coming this month and another final one later in the year, here are the answers to the most common questions we’ve seen coming in about the scheme.
The important thing to remember is that if you are a RIFT customer, your Personal Tax Specialist will take care of these new rules for you.
Do I have to pay my SEISS grants back?
One of the most important things to know about SEISS, particularly if you haven’t claimed it before, is that it’s a grant rather than a loan which means it’s yours to keep. However, if you think you should not have claimed it then you can contact HMRC to pay it back.
The grant counts as “income” that the government awards to help with any drop in earnings you had during the pandemic.
Why do I have to pay tax on my SEISS grant?
As income, the SEISS grant counts towards your “trading profits”. This means it counts toward the Income Tax and National Insurance you owe when you come do your annual Self Assessment tax return.
When the time comes to pay your tax, you’ll be giving the taxman his cut of that money – just the same as you would with any income made by your business.
Many people did not realise that they’d have to pay tax on their SEISS grants and so have been surprised that their 20/21 tax bill has not gone down as a result of reduced earnings from work.
How do I pay tax on my SEISS Grant?
The Self Assessment form has been changed for the 20/21 tax year to allow you/us to include money you received from SEISS.
Money awarded from the grant is declared separately from your normal earnings so you will need to be able to show the total value of the SEISS grant(s) you received.
How much tax will I have to pay on my SEISS Grant?
The amount of tax and National Insurance you’ll have to pay this year depends on how much you earned, including from your SEISS grants. Everyone’s financial situation is different and this affects how your tax bill is calculated.
If the SEISS grant has pushed your taxable income higher than it was in the previous year then your tax and National Insurance will be higher in proportion.
However, many of our customers have found that different expenses, travel, locations, shift patterns and working conditions during 2020 mean that their annual tax refund offsets any difference.
How do I claim my SEISS grant?
If you fit the basic eligibility rules for SEISS, you should be contacted by HMRC with a personal claim date. You can’t put your claim through before that date, and to get the money you’ll have to state that you’ve had your business damaged by COVID-19.
Will I qualify for the 4th SEISS grant?
The SEISS scheme is aimed at self-employed people, including those who are members of a partnership. If over half of your earnings come from self-employment, and you’ve making under £50,000 a year on average over the last 3 years, you should be okay to claim SEISS.
Keep in mind that you might still qualify for a grant if you’ve got both PAYE and self-employment income coming in – even if you’ve been on furlough from your job. You will be able to check if you qualify with HMRC.
On the other hand, if you’re working as a Limited Company and pay yourself in salary and/or dividends then you’re not considered “self-employed” for SEISS and can’t claim the grant.
Finally, in order to qualify for SEISS, you do actually have to have suffered some damage to your business from the pandemic.
I only became self-employed recently. Do I qualify?
For the 4th SEISS grant, the rules on who qualifies have been loosened up slightly. As long as you filed a Self Assessment tax return for 2019-20 by the 2nd of March, you should be eligible. Of course, you still need to fit the other criteria alongside this. Even if you only became self-employed recently, if less than half of your earnings have come from self-employment or you’ve been making over £50,000 on average, you’re out of luck.
Do I have to stop working to claim SEISS?
No. The SEISS grant is designed to top up your self-employment earnings, not to replace them completely. You’re absolutely free to keep working however you should only claim if you are earning less than you normally would.
How does HMRC work out how much I get?
The 4th SEISS grant will pay out 80% of your average profits over 3 months, capped at a maximum of £7,500. The average is worked out using your last 3 years of profits, assuming you’ve been in business for that long. If you’ve only been self-employed for 2 years, for instance, then only those years will be used to make the calculations.
Is there a 5th SEISS grant after this? Do I qualify for it?
The Chancellor has announced that there’ll be a 5th and final SEISS grant later in the year, which eligible self-employed people will be able to claim from around the end of July. Who gets it and how much they receive won’t be decided in quite the same way though.
For this last SEISS grant, only people who’ve seen a 30% drop in their average turnover will get the full 80% pay-out (again, capped at £7,500). If your turnover’s dropped by under 30%, then you’ll get a 30% grant level instead, with a cap of £2,850.
Should I still claim a CIS tax refund if I received an SEISS grant?
Absolutely. If you are on the CIS scheme then you will still have the money you earned taxed at 20% without the full benefit of your Personal Allowance, so you should always make your claim every year.
RIFT’s Personal Tax Specialists are fully up to date on the new rules and regulations. That means you’ll never get tripped up by a confusing rule or find yourself claiming too little, too much or making any other mistakes on your claim.
We’ve been putting rebates back in the pockets of tens of thousands of CIS workers since 1999, with an average yearly refund of over £2,075. 97% of our construction CIS customers say they would definitely recommend us to their friends and family, so rest assured you're in safe hands with us.
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