Unsurprisingly, HMRC has announced how they will be cracking down on incorrect self-employed Covid grant claims. Due to the speed and urgency that claims were made and issued, there are likely to be a number of innocently miscalculated grants. Claims were made by individuals, often without any involvement from their accountants, or with little up to date financial information.
HMRC is requesting that businesses double-check their calculations and repay HMRC within 90 days of receiving any grants if they were claimed in error. Keeping a grant that you knew at the time you should not have had, could result in a 100% penalty (ie repaying the full grant – and the same again in fines!) However, if when you do your 20-21 tax return you then determine that you were not eligible for a grant, as long as the amount is repaid by 31 Jan 2022, no penalty should be due.
If you are self employed, then by now you could potentially have claimed 4 SEISS grants. The amounts you received have to be separately identified on your tax return, and are included in the tax year in which the grant was received.
To claim the first 2 grants your business had to have been “adversely affected” by Covid in the relevant period.
It may be the case that your business was adversely affected earlier on, but then your trading patterns resumed as normal, so although you claimed the first or second grant you might not have been eligible for the third or fourth grant.
The third grant covered the period 1 November 2020 to 29 January 2021 and for this grant the conditions were different.
To qualify, your business had to have suffered reduced activity, capacity or demand AND as a result, you must have reasonably believed that you would have suffered a “significant reduction” in trading profits for the relevant basis period (this is generally your full financial year, not just this 3 month period.)
There was no requirement for trading profits to be reduced by a certain fixed amount or percentage, but the reduction must be ‘significant’. HMRC say you need to consider your individual and wider business circumstances to determine what is significant!
The conditions for the fourth grant are the same, but cover the period 1 February to 30 April 2021.
So if claimed a grant and then on review, you don’t think you should have – what should you do?
You need to let HMRC know and repay the grant within 90 days of receiving it. You can do this online.
If you do not do this and you knew that you should have not received the grant at the time of receipt, then HMRC may charge you a penalty, potentially of 100% of the grant received. However, if you did not realise until later that you should not have received the grant, as long as the grant is repaid by 31 Jan 2022, there should be no additionally penalty incurred.
In any situation it is always better to tell HMRC that you have made an error and the grant needs to be repaid, than let HMRC discover that you were not eligible and raise the assessment themselves. In this situation, penalties will almost certainly be higher. Find out more about potential penalties here.
For more information, please contact Rosie Forsyth at Wilkins & Co.