Claims for Grant 3 open on Monday 30 November 2020. Here is what you need to know.
Government Guidance and Claim Link
Government Guidance on the Scheme and the link to make claims is here
Please be aware of scams. You should never pay a fee to apply for the scheme, and fraudsters will be active with scam emails. There are no arrangements for third parties, including accountants, to apply for you. All applications must be direct.
Basics of the Grant
This is the third of four promised grants:
- Grant 1 – Spring 2020 – 80% average profits, cap £7,500 now closed to new applications
- Grant 2 – Summer 2020 – 70% average profits, cap £6,570, now closed to new applications
- Grant 3 – November 2020 – 80% of average profits, cap £7,500, opens for claims 30 November 2020 closes 29 January 2021
- Grant 4 – dates and amounts not yet known, although Government has committed to paying the grant for the period February to April 2021.
Here are some key features:
- The grant is available to the Self Employed, viz Sole Traders and Business Partners.
- You can claim the grant even if your business is still operating, but you must have been expecting a “significant reduction in profits”
- It is not available to directors or shareholders of companies – there is a big disparity there, with those working via companies not getting any profit related support, just a possibility of furloughing themselves as directors. Government have been lobbied, including by their own MPs, to extend the scheme to Directors, but they have not agreed to do so.
- Each grant is stand alone, depending on whether your business was disrupted by Coronavirus at the time of the grant. It is possible to claim some of the grants and not others.
- These amounts are Grants, not loans. They are not repayable but they count as taxable business income.
- Objective qualifying criteria for all four grants are the same. If your Self Employment history rendered you ineligible for the first two grants, you will not be eligible now.
Calculating the Grant
For all the grants, they are based on average business profits:
- In the first instance over 2016-17, 2017-18 and 2018-19
- or such shorter period that you have been Self Employed
- relaxation in averaging to make sure parents who take time off work are not penalised
The relevant percentage is then applied to the this average, and subject to the cap.
The steps
- Calculate the average profits
- Reduce to 3 months worth for each grant
- Apply the percentage
- Apply the cap if relevant
Calculation examples for Grant 3 at 80%
Eg 1 – average profits £50,000 a year:
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- £50,000 a year over three months is £12,500
- 80% of £12,500 is £10,000
- Cap at £7,500
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Eg 2 – average profits £20,000 a year:
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- £20,000 a year over three months is £5,000
- 80% of £5,000 is £4,000
- Cap doesn’t apply – grant is £4,000
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Objective and Subjective Requirements for Eligibility and Evidencing
There are two steps to considering eligibility:
- Objective Requirements – these relate to your Self Employment and Tax history. HMRC will check these at the time you apply.
- Subjective Requirements – you need to “Self Assess” these.
Objective Requirements for SEISS grant
- These requirements apply to all four grants – if you failed them for grant 1 or 2, then you will fail for 3 and 4.
- You must have been Self Employed in 2018-19. If you started after this, then you are not eligible.
- You must have been Self employed in 2019-20.
- You must be continuing to trade – or be temporarily unable to do so due to Coronavirus, with an intention of restarting.
- You must be intending to continue to trade in 2020-21 after the Coronavirus disruption ends (planning point – if you are closing a business, think about continuing at a low level – it will meet this requirement).
Looking back over 2016-17, 2017-18 and 2018-19 or such shorter period that you have been Self Employed:
- Your business profits must average less than £50k
- Business profits must average at least half your total income from all sources (strictly equal to, or more)
Eg:
- Average business profits £20k, average income from job £15k – you can claim
- Average business profits £15k, average income from job £20k – you cannot claim
- Average business profits £20k, average income from job £20k – you can claim as they are equal
- Average business profits £49k, average income from job £48k – you can claim (lucky you!)
- Average business profits £51k, average income from job £48k – you cannot claim
Subjective Requirements
The grants carry a subjective requirement that your business has been disrupted by Coronavirus.
For the third grant, the guidance says:
Reasonable belief
In order to claim, you must reasonably believe that you will suffer a significant reduction in trading profits due to reduced business activity, capacity or demand, or inability to trade due to coronavirus during the period 1 November 2020 to 29 January 2021. You must keep evidence that shows how your business has been impacted by coronavirus, resulting in less business activity than otherwise expected.
Significant reduction
Before you make a claim, you must decide if the impact on your business will cause a significant reduction in your trading profits for the tax year you report them in.
HMRC cannot make this decision for you, because your individual and wider business circumstances will need to be considered when deciding whether the reduction is significant.
You should wait until you have a reasonable belief that your trading profits are going to be significantly reduced, before you make your claim.
(Check if you can claim a grant through the Self-Employment Income Support Scheme – extracted 27 November 2020)
For the earlier grants the requirement was that your business was “adversely affected” by Coronavirus. Don’t read anything into the change of wording for grant 3; its just an update to language.
In reality the test is going to boil down to a simple “were business profits reduced” test.
- If profits were reduced, then claim can be made
- If income was reduced but costs also reduced, so that your profits were the same, then claim cannot be made
In assessing this profits reduced test, remember to account for Grants 1 and 2 and any other Grants your business has received eg Small Business Grant, Retail and Hospitality Grant, Local Restrictions Grant and Job Retention Scheme.
For this grant there is a new requirement of there being a “significant reduction in trading profits“- we’ve not seen any Government guidance on what would qualify as “significant” but as a rule of thumb if the variation in profits is more than that you might have expected in a normal year without Coronavirus, then its probably significant in this context. So long as you evidence and record your decision process, you are unlikely to face problems.
Evidencing Your Claim
Government guidance says “You must keep evidence that shows how your business has been impacted by coronavirus resulting in less business activity than otherwise expected.”
There is no guidance as to what this means, however a simple year on year turnover and profit analysis showing a reduction compared to the previous 12 months would probably suffice.
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