SEISS grant five and the key changes freelancers should beware

While sole traders must wait until the month-end for HMRC to clear up any ambiguity with the fifth Self-Employment Income Support Scheme, there is plenty to consider from what we already know of changes in eligibility for this final cash injection for covid-hit freelancers, writes forensic tax specialist Kevin Humphreys of Integrated Dispute Resolution.

Delay to lockdown lifting makes SEISS details all the more important

And it is fortunate that we do have such an advance understanding, as in the wake of the government’s further extension to current coronavirus lockdown provisions (or "pause" in the roadmap), it is inevitable that a vast number of self-employed people who were on the verge of a return to business normality will again have no alternative but to seek support from the SEISS.

Unfortunately, claimants for the fifth SEISS grant will not be able to apply until the end of July 2021, even though the funds are meant to cover May 2021 to September 2021.

When can the self-employed apply for SEISS grant five? Post-July 19th

HMRC are yet to confirm the opening date for claims, but it is almost certain to be after the next perceived “terminus” date for lockdown, currently poised for July 19th.

To qualify as a freelancer for SEISS stage five, there are a few basics that we do know that do not differ from the scheme’s prior qualifying criteria.

You must be a self-employed individual or a member of a partnership and traded in the tax years:

2019 to 2020 and submitted your tax return on or before March 2nd 2021.
2020 to 2021

Furthermore, you must either:

be currently trading but are impacted by reduced demand due to coronavirus; or
have been trading but are temporarily unable to do so due to coronavirus.

Where HMRC looks before approving your fifth SEISS grant

To work out your eligibility for the SEISS grant five, HMRC will first look at your 2019 to 2020 Self-Assessment tax return. Your trading profits must be no more than £50,000 and be at least equal to your non-trading income.

If you’re not eligible based on your 2019 to 2020 tax return, HMRC will then look at the tax years 2016 to 2017, 2017 to 2018 and 2018 to 2019.

You must declare that:

you intend to continue to trade.
you reasonably believe there will be a significant reduction in your trading profits due to reduced business activity, capacity, demand or inability to trade due to coronavirus from May 2021 to September 2021.

You must also keep evidence that shows how your business has been impacted by coronavirus, resulting in less business activity than otherwise expected, because HMRC expects you to make an honest assessment about whether you reasonably believe your business will have a significant reduction in profits.

How the fifth stage of SEISS differs

The similarities to prior SEISS criteria end there. While payments will again be calculated on three months’ average trading profits, the first sting is that the grant will cover a five-month period -- to September 30th 2021.

With SEISS grant five, turnover comparisons must also be made for the very first time.

A turnover reduction of 30% pro-rata to annual turnover in the 2019-20 return will qualify for 80% of 3 months’ average trading profits, to a maximum grant of £7,500.

The Second Sting

But here’s the second sting -- a turnover of less than 30% reduction will only pay 30% of 3 months’ average trading profits, to a maximum grant of £2,850.

Freelancers, it is important to note that turnover does not include grants received. This point has created a great deal of confusion ever since the new SEISS criteria was announced at Budget 2021, given that the grants themselves are treated as taxable income.

For the self-employed who plan to apply for SEISS grant five, it will also be prudent to think carefully ahead when making a claim, as early applications made in late July will still be intended to cover the trading period to September 30th 2021, and so require a fair degree of foresight.

The final (final) SEISS grant. Right Rishi?

The finality of this fifth grant should give sole traders pause for thought too.

That said, we have seen numerous SEISS turnarounds by the chancellor Rishi Sunak since the start of the pandemic (it was originally even said by officialdom that the second SEISS grant would be the very last SEISS grant).

So if further uncertainty arises through additional coronavirus variants, higher transmissibility or worse than expected infections and hospitalisations, then stimulus packages for the self-employed and others could well be back on the table.