What HMRC will do to freelancers who overclaim SEISS grants

Amid yesterday’s very welcome news for some sole traders that chancellor Rishi Sunak is going to extend the Self-Employed Income Support Scheme, it’s high time to look at the thorniest part of the SEISS – what HMRC will do to those freelancers who overclaim, writes Kevin Humphreys of Integrated Dispute Resolution.

These grants? They’re taxable

Before I get to that, let’s start with an important and related reminder about these SEISS grants themselves. Those who receive SEISS grants must remember that these sums are taxable income. As a result, it is widely understood that the format of the Self-Assessment Return for 20/21 will include a separate box (or boxes) to return the sums that the self-employed received this year.

This will certainly assist HMRC with basic compliance risk indicators when comparing overall profits and sums received from grants with prior years returns.

Where HMRC comes in

As an aside, those subcontractors whose income is exclusively received via the Construction Industry Scheme (CIS) will be subject to further compliance tests as HMRC will hold more detailed records of income paid over specific months of SEISS claims in the financial year 20/21 from the contractors themselves.

For all independent and freelance workers, HMRC investigations into ‘excessive’ SEISS grant claims cannot commence until declarations of income have been made on the 20/21 tax return.

These returns will be issued for completion on April 6th 2021 and the deadline for filing those returns will be January 31st 2022. Thereafter, freelancers ought to note that HMRC has a window to raise enquiries into declarations covering 12 months from the date the return was received.

Taxing times ahead for the unentitled

We understand that SEISS claims that the recipient was not entitled to receive (for example because they broke the ‘adversely affected’ eligibility condition), will be subject to recovery by way of an independent, 100% income tax charge. And furthermore, financial penalties will be levied on those HMRC customers whose behaviour in making an excessive claim is deemed ‘deliberate.’

All tax due on the SEISS grants will be payable on January 31st 2022, because it is all to be treated as taxable in the year of receipt i.e. 20/21, and thus there will be no apportionment for the payment covering March 2020 back to the 19/20 financial year.

What about alternatives to the SEISS?

For those small and micro self-employed businesses in England seeking further support during the coronavirus pandemic than just the SEISS, there may be scope to apply for the coronavirus Local Authority Discretionary Grants Fund. You can apply via your local authority for a grant of £25,000, £10,000 or any amount under £10,000 even if you are eligible for SEISS grants. Application criteria requires:

relatively high ongoing fixed property-related costs
Occupation of property with a rateable value or annual mortgage/rent payments below £51,000
Trading to have commenced 11 March 2020 at the latest
Demonstration that the business has suffered a significant fall in income due to coronavirus
The business not to be in insolvent

Please note, your business is unable to apply for this grant if you are already claiming funding under another government grant scheme, such as the:

Small Business Grant Fund
Retail, Hospitality & Leisure Grant
Fisheries Response Fund
Domestic Seafood Supply Scheme
Dairy Hardship Fund

Final thought

But finally freelancers, be aware of the implications of Local Authority Discretionary Grants. As with SEISS grants, any approved sums paid under this fund will be subject to tax and thus declarations will need to be made on tax returns to HMRC, at the appropriate time.