Do not be caught by SEISS grant myths, warns LITRG

LITRG has monitored the rollout of SEISS grants since their launch and is keen to address the following common, but incorrect, myths about them:

• MYTH 1: SEISS grants are not taxable
• MYTH 2: My circumstances changed after I claimed the SEISS grant, so I will have to pay it back
• MYTH 3: My grant claim was correct, so I can ignore any letters from HMRC about the grants
• MYTH 4: HMRC haven’t written to me about my grant, so I know I won’t need to pay any of it back
• MYTH 5: I don’t need to declare my SEISS grant for tax credits or universal credit

Claire Thackaberry, LITRG Technical Officer, said:

“There is an urgent need to challenge some common myths about SEISS grants especially with the 31 January tax return deadline fast approaching and HMRC now carrying out checks to make sure grants were claimed correctly. SEISS grants are taxable and the first three SEISS grants need to be included on 2020/21 tax returns. People should also check whether they need to declare any other coronavirus support payments on their tax returns.

“We worry about how engaged taxpayers are with SEISS because the first three grants were applied for a long time ago and often by people in a stressful financial situation. There is a lot of misinformation regarding the SEISS grants and whether people may now need to repay them – we are trying to help people understand their correct tax position if they received any of these grants.”

MYTH 1: SEISS grants are not taxable

This is false. The SEISS grants are taxable income. Most people will need to report the first three SEISS grants, if claimed, on their 2020/21 Self Assessment tax return.³

You will owe income tax on these grants if, together with your other taxable income, you exceed the personal tax allowance (£12,500 for 2020/21). You will also owe Class 4 National Insurance contributions on the grants if your trading income, including the grants, exceeds the Lower Profits Limit (£9,500 for 2020/21). As the grants are included in working out your taxable income, it may mean that you need to pay Class 2 National Insurance contributions for the year if you did not already. All this may mean you have a higher tax bill than you were anticipating.

You cannot use the £1,000 trading allowance against the SEISS grants.

If you claimed the fourth and/or fifth SEISS grants, then these will need to be included on your 2021/22 tax return.⁴

If you were entitled to receive the grants, you do not need to repay them to HMRC. They are not loans. However, if you were not entitled to receive the grants, you will need to pay them back. You can also voluntarily repay some or all of the grants.

If you were not eligible for the grant – for example, you incorporated your self-employment business and are now trading though a company instead – then HMRC may have already contacted you about your SEISS grants.

If you have not been contacted by HMRC but realise that you have incorrectly claimed the grants then you will still need to repay any overpaid grants. LITRG guidance explains what you need to do, how you repay the grants and potential penalties for not notifying HMRC in time.

MYTH 2: My circumstances changed after I claimed the SEISS grant, so I will have to pay it back

This is false. The important thing to remember is that you needed to have met the eligibility conditions AT THE TIME you made the claim. So provided you were eligible for the grant when you claimed it, this is false for grants paid in 2020/21 (that is, the first three grants). There is a separate rule for the fourth and fifth grants, paid in 2021/22 (see LITRG guidance).

The rules or eligibility criteria were different for the different SEISS grants.⁵

MYTH 3: My grant claim was correct, so I can ignore any letters from HMRC about the grants

This is false. HMRC are contacting some SEISS grant claimants to check their eligibility to one or more grants. If you have been contacted by HMRC then you should firstly check that the correspondence is genuine. Unfortunately, there are several sophisticated scams which try to impersonate HMRC. GOV.UK lists genuine HMRC contacts and you should check there or contact HMRC if you are unsure.

You should not put off replying to HMRC about your SEISS grants. It could be that your claims were valid but based on other information, such as details on your tax return, HMRC have decided they need to check the facts surrounding your claim.

You should provide information that HMRC ask to verify your grant claims but do not hesitate to ask for extra help if you need it. This could be from HMRC’s Extra Support Team, or if you are on a low income, TaxAid.

If you realise that you were not eligible for one or more of the SEISS grants then you should contact HMRC as instructed in their correspondence. You will need to repay the grant income you should not have received and you may have to pay a penalty.⁶

MYTH 4: HMRC haven’t written to me about my grant, so I know I won’t need to pay any of it back

This is false. HMRC have already contacted some people about their SEISS grant claims, but they will continue to check claims. Just because you have not received a letter so far does not mean HMRC agree that you were eligible for your SEISS grants. HMRC are carrying out several different checks in relation to the SEISS grants so even if you have not been contacted about your grants yet that does not mean you will not be asked for more information in the future.

Even if HMRC never contact you about your claim(s), this does not mean that HMRC have decided you were definitely eligible for the grants. The law requires you to disclose incorrectly claimed grants to HMRC (usually on your Self Assessment tax return). If you do not do so, particularly if you do not do so knowingly, then you may face penalties in addition to having to pay back the grant. Interest would also be payable.

As explained, for most people the first three SEISS grants need to be included on their 2020/21 Self Assessment tax return and the fourth and fifth grants on their 2021/22 tax return. HMRC can ask questions regarding eligibility for the grant(s), as well as the grant amount (in particular for the fifth grant), under the ‘usual’ Self Assessment enquiry rules.

It is therefore important to keep any business records which back up your SEISS claims.⁷

MYTH 5: I don’t need to declare my SEISS grant for tax credits or universal credit

This is false. SEISS grants count as income for both tax credits and universal credit (UC).

If you claim tax credits then we understand that the first three SEISS grants should be included as part of your trading income figure for your 2020/21 tax credit claim. The fourth and fifth SEISS grants should be included as part of trading income for your 2021/22 tax credits claim. LITRG explains more in its SEISS guidance and at SEISS: where do I include the grants on my tax return?

If you claim UC then we understand there was a separate SEISS grant box to include the grants on your monthly online form.  By including the grants here, this would mean that the grants are treated as part of your self-employed earnings when calculating your monthly UC payment.⁸