The Self-Employment Income Support Scheme (SEISS) is one of the many grants introduced by the UK government in a bid to help struggling business survive the COVID-19 outbreak.
Within days of the scheme opening, the number of applications topped one million. As of 21 June 2020, more than 2.6 million payments worth £7.6 billion have been provided through the scheme. This equates to in excess of half the UK’s entire self-employed population.
With many self-employed workers relieved that financial support is finally available, it’s feared that many don’t realise the grant is taxable.
Anyone who claimed and received funding from the SEISS will need to declare this on their 2020/21 tax return as it’s classed as earnings. This means that recipients will need to pay income tax and National Insurance.
The Low Income Tax Reforms Group (LITRG) has suggested that confusion has arisen because the payments have been labelled ‘grants.’
Those working in the construction industry have been warned to be extra vigilant because of the grants being paid to them without tax automatically being taken off. This is different to other income, which is usually taxed before it’s received. This may mean workers in this industry miss out on their usual refund after submitting their 2020/21 tax return.
Victoria Todd, head of LITRG, commented:
“Many claimants might use the money as soon as they get it. For example, to catch up on liabilities or to meet essential living costs – but they need to think now about budgeting for income tax and NICs on it.”
“The timing of the grants – early in the tax year – means that individuals might have to forecast their total taxable profits for 2020/21, so they can estimate the amount of tax and NICs due on the grant. For many self-employed claimants, this is likely to be 20% income tax and 9% class 4 NICs.”
“HMRC needs to publicise that the grants are chargeable to income tax and NICs, to reduce the risk of people getting higher-than-expected tax bills.”
You can find out more about the SEISS in our previous stories:
- How circumstances affect the Self-Employment Income Support Scheme
- Self-Employed to get second grant from Government
- Self-employed can defer second payment on account
- Updates to the Self-Employed Income Support Scheme (SEISS)
If you have any questions or concerns about the scheme or need help calculating your tax obligations, please don’t hesitate to get in touch with PKB.
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