If you are running a small businesses and have been a recipient of the self-employed income support scheme (SEISS) you may not realise the money is taxable. The grants are worth up to 80% of trading profits, paid in a lump sum to cover three months, and capped at £7,500 – and more than 2.6 million lump sums worth £7.5 billion had been provided through the scheme up to 7 June 2020.
Afford Bond Director, Paul Edwards, said: “Up to a third of those grants may have to be repaid in tax and class 4 National Insurance contributions (NICs) on a 2020/21 tax return, but many of those who received the grant do not realise this. Many recipients have needed to use the money to pay immediate bills or essential living costs – but they also need to consider how they will budget for their income tax and NIC obligations. This has not yet been made clear by HMRC.”
In addition, the low incomes tax reforms group (LITRG) fears recipients may assume the lump sums are exempt from tax and NICs as they are labelled ‘grants’. The LITRG said self-employed subcontractors in the construction industry in particular, will need to watch out for the grants being paid without tax taken off. This is different to their other, usually taxed, income and may mean they miss out on their usual refund after submitting their 2020/21 tax return.
We hope that HMRC will, at some point, widely publicise that the grants are chargeable to income tax and NICs, to reduce the risk of people getting higher-than-expected tax bills. If you need expert tax advice or help with your businesses’ finances, please contact Afford Bond Chartered Accountants at Nantwich office T: 01270 623731 or our Wilmslow office on T: 01625 416380