The already-thorny requirement that freelancers must have been ‘adversely affected’ by coronavirus to qualify for SEISS grants has a whole other catch, advisers warn.
In fact, not only is the requirement one of the key conditions to qualify for the Self-Employed Income Support Scheme, it is also a key constraint on the work freelancers can do during it.
So while sole traders can receive cash under the SEISS and then still work – unlike users of the furlough scheme who must cease work, the traders must remain ‘adversely affected.’
‘May be in breach’
“Proof of adverse impact from COVID-19 is core to the eligibility criteria for claiming the grant,” begins law firm Fieldfisher, in an alert issued exclusively to FreelanceUK readers.
“[So] if a self-employed business does continue to trade during the claimable periods [of SEISS], this may be in breach of the scheme [conditions].”
Outlining what such a breach might look in practical terms, the firm’s Matthew Sharp, a contentious tax lawyer, explained by addressing the self-employed directly:
“If you are offered a grant on the basis of having lost profits due to coronavirus, but end up recording a year with higher profits than previously on your next tax return, this implies that COVID-19 did not impact your profit.”
‘Volunatry work, other employment’
To avoid the prospect of an HMRC investigation then, it may be safer for the self-employed to take on “voluntary work,” or “other employment”, rather than keep trading, the alert adds.
Helpfully, the Revenue guidance does give examples of what constitutes being “adversely affected” by coronavirus, points out Fieldfisher’s employment lawyer David Lorimer.
“If you are unable to work because you are shielding, self-isolating, or are on sick leave because of COVID-19,” he said, citing the online guidance.
“Alternatively, you may be adversely affected because you have had to reduce or stop trading completely, for example, because of lower demand or because your supply chain has been interrupted.”
Tax expert Daniel Mepham agrees, as he says freelancers who have fewer clients, no clients, or had to scale down due to supply chain interruption, are among those ‘adversely affected.’
But if they have proof, freelancers who have “caring responsibilities due to covid-19” are also, technically, ‘adversely affected’ by the pandemic, says Mepham, boss at SG Accounting.
Also approached by FreelanceUK, HMRC confirmed that freelancers can pocket SEISS grants and keep working so long as that work does not stop them being ‘adversely affected.’
‘You don’t have to stop altogether’
“On the SEISS, your understanding is correct,” said a Revenue spokesman when told that there is no requirement to ‘down tools’ for SEISS users, as there is for furlough scheme users.
The HMRC spokesman also said: “You should have been adversely affected by Covid-19 to make a claim but you don’t have to stop [work] altogether.”
The clarification from the tax authority coincides with another warning about the SEISS – that recipients of the grant might not realise that it is taxable.
‘Described by the government as a ‘grant”
“For many, a third of the grant might have to be ‘paid back’, in tax and Class 4 National Insurance,” said the Low Incomes Tax Reform Group, which issued the warning.
“[Both are] due on the grant and payable by January 31st 2022 at the latest. People could instead assume the amount is exempt from tax, particularly as it is described by the government as a ‘grant.’”
The group’s head Victoria Todd said many SEISS claimants “understandably” used the money immediately to pay bills or, as one FreelanceUK reader did, catch up on tax liabilities.
‘Think now about budgeting, ahead of the July 13th deadline’
“Many…[had to] use the money as soon as they got it,” she said, “but they need to think now about budgeting for income tax and National Insurance on it.”
The advice comes ahead of the July 13 deadline for phase one of the SEISS – the date which self-employed people must apply by to get the taxable grant at 80% of their average monthly trading profits.The grant’s maximum value will fall to 70% in phase two.
“If you’re eligible for the second and final grant, and your business has been adversely affected on or after 14 July 2020 you’ll be able to make a claim in August 2020,” HMRC says. “You can claim for the second grant even if you did not make a claim for the first grant.”