Coronavirus: SEISS fourth and fifth grants – update 19.4.21
For the first three grants under the scheme, HMRC did not take account of a taxpayer’s sole trader profits, or share of partnership profits, from the 2019/20 tax year in calculating the amount of the grant to which the taxpayer might be entitled.
However, for the fourth grant – covering the period 1 February 2021 to 30 April 2021 and which is able to be claimed from late April 2021 – HMRC are now able to take account of profit figures on 2019/20 tax returns. The 2019/20 tax return must have been submitted by midnight at the end of 2 March 2021.
This means that individuals who started self-employment for the first time in 2019/20, as a sole trader or partner in a partnership, might be eligible for the fourth and fifth grants for the first time.
However, the inclusion of 2019/20 profit figures might mean that claimants of the previous grants receive a different amount from what they are expecting. Some may not qualify at all for the fourth and fifth grants, even if they qualified for previous grants.
⚠️ It is important to note that the changes do not affect eligibility for, or the amount of, the first three SEISS grants. In particular, those who started self-employment for the first time in 2019/20 will not be eligible for the first three grants retrospectively.
Do I qualify for the fourth grant?
You need to check that you meet all of eligibility conditions. Normally, this means all of the following:
- you must carry on a trade which has been adversely affected due to coronavirus;
- you must have submitted your 2019/20 tax return on or before 2 March 2021;
- you must have carried on a trade in 2019/20 and 2020/21;
- you must intend to continue to carry on a trade in 2021/22;
- you must meet the profits condition for the fourth grant (see below)
- your trade must have suffered reduced activity, capacity or demand in the period 1 February 2021 to 30 April 2021;
- you must reasonably believe that you will suffer a significant reduction in trading profits for a ‘relevant basis period’ (see below) compared to what you would have reasonably expected if you had not suffered that reduced activity, capacity or demand.
Profits condition for the fourth grant
In most cases, the profits condition will be met if your trading profits for 2019/20 were:
- more than nil, but less than £50,000; and
- at least equal to your non-trading income in that tax year (in other words, at least half of your income was from self-employment).
You might not meet this condition for the 2019/20 tax year. In this case, you are allowed to consider your average profits for 2019/20 and earlier tax years as follows:
|Traded in the year?
||Years to average for the profits condition
||2016/17, 2017/18, 2018/19 and 2019/20
||2017/18, 2018/19 and 2019/20
||2018/19 and 2019/20
Different rules may apply in the following cases:
- you are non-resident;
- you are subject to the loan charge;
- your trading profits in 2019/20 were affected as a result of either:
- being a military reservist; or
- pregnancy or having a new child.
For further information, see GOV.UK.
Relevant basis period for fourth grant
A relevant basis period for the fourth grant is a basis period which overlaps with the period 1 February 2021 to 30 April 2021. A basis period is usually 12 months.
If your basis period ended in the period 1 February 2021 to 30 April 2021, then you will have two relevant basis periods. For example, your basis period ended on 31 March 2021, your relevant basis periods would be:
- The basis period ending 31 March 2021; and
- The basis period beginning 1 April 2021.
In this case, you only need to have a reasonable belief that you will have a significant reduction of trading profits in one of the two periods.
What if I have amended a tax return after 2 March 2021?
Unlike the first three grants under the scheme, if you claim the fourth grant you may need to pay some or all of it back if you have amended a tax return after 2 March 2021 and the amendment either:
- reduces the amount of the fourth grant you would have been entitled to claim; or
- means you would not have been eligible to claim at all.
However, if the amount that you need to pay back is £100 or less, it is ignored for this purpose.
We understand this can apply even if you made the amendment before making the claim. In this case, you would need to pay back some or all of the grant immediately.
If you make such an amendment after making the claim then you are technically required to pay the amount back immediately – although you are allowed up to 90 days from the date of the amendment (or claim to the grant, if later) to notify HMRC. Penalties can apply if you are late.
For further information, see GOV.UK.
Why is HMRC checking my identity?
- HMRC have been contacting some people who started trading in 2019/20 to perform pre-validation checks before opening the claim process for the fourth grant. The purpose of these checks is to confirm your identity and that you have genuinely been trading in the 2019/20 tax year. These letters have been sent up until mid-April and explain that HMRC will contact you within 10 working days using the phone number you provided on your 2019/20 Self Assessment tax return. Unfortunately, the calls from HMRC will be from an ‘unknown number’ and HMRC will only try to contact you three times. There is information contained in the letter about what you should do if you have changed phone number or did not provide one on your 2019/20 tax return.
The letter from HMRC explains that during the phone call you will be asked to provide certain documents to prove your identity and bank statements showing you were trading during 2019/20 (if you do not have relevant bank statements then HMRC will ask you to provide other proof that you were trading). You will be expected to provide these documents using Dropbox (a secure online sharing service) within 2 days after receiving the Dropbox link. If you are going to struggle to provide these documents using an online service within this tight deadline or you do not have an email address then you then you should explain this to HMRC when they call.
If you miss HMRC’s calls then they will write to you once more. If you have changed address since you submitted your 2019/20 tax return and have not notified HMRC then you should contact them as soon as possible. You can use your Personal Tax Account to inform HMRC of a change of address.
It can be difficult to know if letters like this are genuine. This one is included on the GOV.UK webpage: Check a list of genuine HMRC contacts. It is important that you do not ignore this letter as you will be blocked from claiming the fourth grant if you do not provide the evidence HMRC has requested. If you are concerned about whether the contact is genuine, then you may wish contact HMRC yourself and check with them before providing any personal information online.
Please note that not all newly self-employed people will be contacted for these checks, so if you are not contacted you can still make a claim for the fourth grant provided you are eligible.
How much will my grant be?
If you started self-employment for the first time in 2019/20, then your trading profits will be divided by 12 (irrespective of when you started trading) and then multiplied by 3 and then 80%. The figure is capped at £7,500.
⚠️ Because your profits are divided by 12 and not the number of months you had traded in the year, the amount of the grant may be less than you might be expecting.
Ian started self-employment for the first time in September 2019. His trading profits for 2019/20 were £9,000. He did not have any other income in 2019/20.
In order to calculate the grant he is potentially eligible for, the profits for the year are divided by 12, giving £750. This is then multiplied by 3, giving £2,250, and then 80%, giving £1,800.
Provided Ian meets the other conditions relating to the impact of coronavirus on his business and his intention to continue to trade, Ian should be eligible for a grant of £1,800. This is paid out in a single instalment.
⚠️ The grant will be liable to tax and Class 4 National Insurance contributions in the tax year in which it is received (for the fourth and fifth grants, this should be 2021/22).
I have claimed previous SEISS grants. How do the changes for the fourth grant affect me?
Even though the Budget announcement was aimed at those who are newly self-employed, the inclusion of 2019/20 profits in the calculation will affect existing claimants as well. So, if you have claimed one or more of the first three SEISS grants, the amount of the fourth grant might be more or less than you previously received.
Anita started self-employment in January 2019 and earned profits of £1,000 a month. She made a claim for the third grant under SEISS and received £600. This is calculated as follows:
|Total profits for 2018/19 (3 x £1,000)
|Average monthly profits for SEISS purposes (£3,000 divided by 12)
|Amount of third SEISS grant (£250 x 3 x 80%)
Anita submitted her 2019/20 tax return on 15 February 2021 and it shows profits of £12,000. The calculation of her fourth grant would be:
|Total profits for 2019/20
|Average annual profit for years in which traded (£12,000 + £3,000) divided by 2
|Average monthly profits for SEISS purposes (£7,500 divided by 12)
|Amount of fourth SEISS grant (£625 x 3 x 80%)
However, if Anita’s profits were lower in 2019/20 than in 2018/19, then the amount of the fourth grant would be less than the third grant. Suppose her profits were £2,000 instead of £12,000. The calculation of the fourth grant would then be:
|Total profits for 2019/20
|Average annual profit for years in which traded (£2,000 + £3,000) divided by 2
|Average monthly profits for SEISS purposes (£2,500 divided by 12)
|Amount of fourth SEISS grant (£208 x 3 x 80%)
Geoff started trading in January 2018 and his self-employed profits are as follows:
In 2017/18 to 2018/19, Geoff did not have any other income other than from self-employment. However, late in 2019/20, Geoff turned 55 and decided to take a flexi-access drawdown from his pension scheme. The taxable amount was £40,000.
This mean that Geoff did not have at least half of his income from self-employment in 2019/20. Geoff would be able to look back to see if the test is met over all the years he traded – but he fails this test as well because his total trading profits over the three years was only £39,000. Geoff is therefore not able to claim the fourth (or fifth) grant.
What if I did not submit my 2019/20 return on or before2 March 2021?
Unless you fall into a limited number of exceptions – under which your 2019/20 trading profits are ignored for the purposes of the fourth grant – we understand that if you did not submit your 2019/20 tax return on or before 2 March 2021 you will not be eligible for the fourth or fifth grants.
This is the case even if you were eligible for previous grants based on prior year returns.
How and when can I claim the fourth grant?
We understand potential claimants will be able to make a claim for the fourth grant from late April 2021 and will be able to make a claim until 1 June 2021. Check on GOV.UK for the latest information.
What about the fifth grant?
The eligibility conditions for the fifth grant will be different. According to GOV.UK (though the policy paper has now been withdrawn), the amount of the fifth grant, which can be claimed from late July 2021, will depend on the extent of the reduction of your turnover (sales) between April 2020 and April 2021. There are few details available yet but if your sales have fallen by:
- 30% or more, then the fifth grant will be 80% of three months’ average profits (up to a maximum claim of £7,500);
- less than 30%, then the fifth grant will be 30% of three months’ average profits (up to a maximum claim of £2,850).
The fifth grant is intended to ‘cover’ the period from May 2021 to September 2021, but the grant will only be calculated based on 80% of three months’ average trading profits. This has led some to comment that the fifth grant has two ‘missing months’.
We will update our guidance when further details are announced.
Where can I find more information?
There is further information available on GOV.UK.