Self-employed income support comes with new conditions

Tighter rules are in place for paying the third grant under the Self-Employed Income Support Scheme (SEISS).

The third SEISS grant covering November to January will be calculated at 80% of average trading profits, up to a maximum of £7,500.

The window for claiming a grant will open on 30 November, two weeks earlier than previously announced, allowing claims to be made on or before 29 January 2021..

Unlike the first two grants that were paid earlier this year, the third grant comes with two extra conditions that have to be met.

To be able to claim for the third grant, 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

You must also:

• intend to continue to trade
• reasonably believe there will be a significant reduction in your trading profits due to reduced demand or your inability to trade

You must also meet all other eligibility criteria to make a claim. We have covered this in a previous article.

HMRC says it expects claimants to make an honest assessment about whether they reasonably believe their business will have a significant reduction in profits.

Problem ahead

A key sticking point for some potential claimants of the third grant is that the "significant reduction in trading profits" criteria applies to the whole accounting period.

So if you have a 31 March or 5 April year end, the reduced trading profits will be reflected in the results contained in the 2020/21 tax return. But where, say, your year end is 30 April, the results will not be declared until the 2021/22 tax return. That means claimants will have to forecast their results in order to claim.

Which means it is open to question as to how HMRC could enforce the new requirements when many 2021/22 tax returns may not be filed until January 2023.

Impacted by reduced demand

What this condition means is that you have to show that your business has been impacted by reduced demand, activity or capacity due to coronavirus.

HMRC provides the following examples. You:

• have fewer customers or clients than you would normally expect, resulting in reduced activity due to social distancing or government restrictions
• have one or more contracts that have been cancelled and not replaced
• carried out less work due to supply chain disruptions

HMRC says a claim should not be made if the only impact on the business is increased costs. For example, if you have had to purchase face masks and cleaning supplies. HMRC says this would not be considered as reduced demand.

Previously trading but you are temporarily unable to do so

This condition means that you are temporarily unable to carry out your business activities due to coronavirus, because for example:

• your business has had to close due to government restrictions
• you’ve been instructed to shield or self-isolate in-line with NHS guidelines and are unable to work from home (if you’ve been abroad and have to self-isolate, this does not count)
• you’ve tested positive for coronavirus and are unable to work
• you cannot work due to parental caring responsibilities, for example as a result of school or childcare facility closures

If you had to close before 1 November 2020 and continued to be closed for a period of time up to 29 January 2021, you can still claim as long as you are eligible.

Examples of reduced demand or unable to trade

HMRC has provided a number of examples of people who have been impacted by coronavirus between 1 November 2020 and 29 January 2021.

Reduced demand and reasonable belief

A cafe owner has fewer customers due to government restrictions on households mixing, which reduces her takings. She reasonably believes this will significantly reduce her trading profits. She is eligible to claim.

A plasterer cannot get materials due to supply chain issues due to coronavirus. This has reduced the amount of work he can complete and be paid for. He reasonably believes this will significantly reduce his trading profits. He is eligible to claim the third grant.

A part-time personal trainer works in a gym that has closed due to government restrictions. This reduces her business activity on the days that she works. She reasonably believes this will have a significant reduction on her trading profits. She is eligible for third grant.

Reduced demand and no reasonable belief

A cafe owner has fewer customers due to government restrictions on households mixing, which initially reduces her takings. She increases her prices and believes her trading profits will not reduce significantly, so she is not eligible to claim the third grant.

A plasterer cannot get materials due to supply chain issues due to coronavirus. This has reduced the amount of work he can complete and be paid for, but he manages to quickly find a new supplier. He does not believe that the reduced demand will cause a significant reduction in his trading profits. He is not eligible to claim the third grant.

Unable to trade and reasonable belief

A hairdresser has had to shut his shop due to government restrictions. He will not have any income due to the closure and reasonably believes the reduction in his trading profits will be significant. He is eligible to claim the third grant.

A builder has received a letter from the NHS identifying him as clinically extremely vulnerable and it asks him to stay at home. As he is unable to work from home he has a reasonable belief that there will be a significant reduction in his trading profits. He is eligible to claim the third grant.

Unable to trade and no reasonable belief

A hairdresser was unable to work for 2 days as his hair salon closed to be deep-cleaned due to a positive coronavirus case. He does not believe this will significantly reduce his trading profits. He is not eligible to claim the third grant.

A builder has developed coronavirus symptoms and self isolates for 5 days before receiving a negative test result. During those 5 days he was unable to work from home but was able to rearrange his contracts. He does not believe there will be a significant reduction in his trading profits. He is not eligible to claim the third grant.

Other examples

An electrician is still trading but has had increased costs due to buying masks, cleaning supplies and screens. She is not eligible for the third grant because increased costs were the only impact on her business and she has not lost customers.

A dentist returns from a holiday abroad and has to self-isolate for 14 days due to quarantine rules. As this is the only impact on her business, she is not eligible to claim the third grant. This is because reduced demand due to self-isolation after foreign travel is not included in the eligibility criteria.

An accountant reduces his business activity because he wants to partially retire. He reasonably believes this will have a significant reduction on his trading profits. He is not eligible for third grant because the reduced business activity was not caused by coronavirus.

The client of a dog walker cancels a contract due to coronavirus. The dog walker could but chooses not to look for additional work to replace the contract. This means her business activity and her trading profits are reduced because she chooses not to replace the contract and not because of coronavirus. She is not eligible for the third grant.

A IT consultant has other income from renting property. He has made losses on renting due to renovation costs. This is not related to his trading profits from his IT consultancy service. As his consultancy business has not been affected due to coronavirus, he is not eligible for the third grant.

Other government measures already in place to support businesses and workers during the coronavirus emergency can be found in our Business after COVID-19: Transition Knowledge Hub.