'I'm self-employed but confused about whether I can claim the third grant' – Unsure? Here's what you need to know
The Government has just announced a major change to the qualifying criteria for the third Self-Employment Income Support Scheme grant – this time to claim you must believe you'll have a "significant reduction" in profits for one of two reasons. If you're unsure whether or not you'll be able to apply for the third grant (launching Monday 30 November), here's help to work out where you stand, plus some real-life scenarios of what does and doesn't count, so you can apply with added confidence.
In this guide
The third grant opens on 30 Nov with stricter qualifying criteria – what it means for you
Our main Self-Employed guide has all the info on how the latest Self-Employment Income Support Scheme grant works, but in short:
- You can get as much as £7,500. This is made up of 80% of three months' worth of average monthly trading profits capped at £2,500/month. To calculate this, HM Revenue & Customs (HMRC) looks at your tax returns from 2018/19, 2017/18 and 2016/17.
- You must earn at least 50% of your total income from self-employment. To check this, HMRC will first look at your 2018/19 tax return to see if it was the case then. If you don't qualify based on 2018/19 alone, it will then look at the tax years 2016/17, 2017/18 and 2018/19 to see if the average of your trading profits across the three tax years was more than 50% of your total income.
- Your average trading profit must be less than £50,000/year. This is essentially a 'cliff-edge' requirement – so those whose average annual trading profit is more than £50,000 (to be specific, £50,000.01 or above) won't be able to get any support from this scheme.
On Tuesday 24 November HMRC published guidance on who can claim the third grant. There are two new criteria you need to fulfil:
1. You need to declare you expect a 'significant reduction' in trading profits
In a nutshell, this is the guidance:
- You must decide if the impact on your business will cause a "significant reduction" in your trading profits for the current tax year.
- You might not know if this is the case straightaway, so you might need to wait until you have a "reasonable belief" that your trading profits are going to be significantly reduced before you make your claim (eg, after the Christmas period it might be clear that your business has suffered substantially).
- Only you can decide what is a "significant reduction" in your trading profits – it very much depends on your business. HMRC says it "cannot make this decision for you because your individual and wider business circumstances will need to be considered when deciding whether the reduction is significant".
- You must keep evidence that shows how your business has been affected by coronavirus resulting in less business activity than usual.
- Important: While increased costs hit your profits, you CANNOT make a claim if you've only had increased costs and no other impact, eg, if you have had to buy face masks and cleaning supplies, but your demand has been unaffected.
2. You must prove this 'significant reduction' is due to being hit by 'reduced demand, activity or capacity' OR being temporarily unable to trade
To show you've been hit by "reduced demand, activity or capacity" you need to be able to prove:
- You have fewer customers or clients than normal, resulting in reduced activity due to social distancing or Government restrictions.
- You have one or more contracts that have been cancelled and not replaced.
- You have carried out less work due to supply chain disruptions.
To show you've been temporarily unable to trade you need to prove:
- Your business has had to close due to Government restrictions.
- You've been instructed to shield or self-isolate in line with NHS guidelines and are unable to work from home (if you've been abroad and have to self-isolate, this doesn't count).
- You've tested positive for coronavirus and are unable to work.
- You cannot work due to parental caring responsibilities, eg, as a result of school or childcare facility closures.
If you had to close before 1 November 2020 and continued to be closed for a period of time up to 29 January 2021, you can still claim as long as you qualify.
This third grant is stricter than previous grants, so we've got some real-life examples about what counts and what doesn't below.
The following applies to grants one and two, which are now closed. For these, you were only required to have been "adversely affected" by coronavirus. The qualifying criteria for grant three are set to be stricter, and we will update this guide as soon as we can.
In its published guidance, HMRC says the following WOULD constitute being "adversely affected":
If you're unable to work because:
- You're shielding.
- You're self-isolating.
- You're on sick leave because of coronavirus.
- You have caring responsibilities because of coronavirus.
You've had to scale down or temporarily stop trading because:
- Your supply chain has been interrupted.
- You have fewer or no customers or clients.
- Your staff are unable to come in to work.
It's also worth noting that as far as the law is concerned – and this will be hard for all those excluded to read – it doesn't actually matter if you need the money or not. While most people who claim will need it, and need it badly, the Treasury Direction makes no mention of needing the money as a rule for accepting it.
In a time of great uncertainty, with many people applying for Government assistance for the first time in their working lives, it's understandable that some may feel nervous about what does and doesn't count as a legitimate claim. That's why we're listing real-life examples. If there is a particular scenario you'd like us to look into, do let us know via email.
Here's what is and isn't accepted as being a reason to claim for the third grant:
|A cafe owner has fewer customers due to Government restrictions on households mixing, which reduces her takings. She reasonably believes this will significantly reduce her trading profits.||Yes|
|A plasterer cannot get materials due to supply chain issues because of coronavirus. This has reduced the amount of work he can complete and be paid for. He reasonably believes this will significantly reduce his trading profits.||Yes|
|A part-time personal trainer works in a gym that has closed due to Government restrictions. This reduces her business activity on the days that she works. She reasonably believes this will cause a significant reduction in her trading profits.||Yes|
|A cafe owner has fewer customers due to Government restrictions on households mixing, which initially reduces her takings. She increases her prices and believes her trading profits will not reduce significantly.||No|
|A plasterer cannot get materials due to supply chain issues because of coronavirus. This has reduced the amount of work he can complete and be paid for, but he manages to find a new supplier. He doesn't believe that the reduced demand will cause a significant reduction in his trading profits.||No|
|A hairdresser has had to shut his shop due to Government restrictions. He won't have any income due to the closure and reasonably believes the reduction in his trading profits will be significant.||Yes|
|A builder has received a letter from the NHS identifying him as 'clinically extremely vulnerable' and it asks him to stay at home. As he is unable to work from home he has a reasonable belief that there will be a significant reduction in his trading profits.||Yes|
|A hairdresser was unable to work for two days as his hair salon closed to be deep-cleaned due to a positive coronavirus case. He doesn't believe this will significantly reduce his trading profits.||No|
|A builder has developed coronavirus symptoms and self-isolates for five days before receiving a negative test result. During those five days he was unable to work from home but was able to rearrange his contracts. He doesn't believe there'll be a significant reduction in his trading profits.||No|
|An electrician is still trading but has had increased costs due to buying masks, cleaning supplies and screens.||No|
|A dentist returns from a holiday abroad and has to self-isolate for 14 days due to quarantine rules.||No|
|An accountant reduces his business activity because he wants to retire partially. He reasonably believes this will result in a significant reduction in his trading profits.||No|
|The client of a dog walker cancels a contract due to coronavirus. The dog walker could but chooses not to look for additional work to replace the contract.||No|
|An IT consultant has other income from renting property. He has made losses on renting due to renovation costs.||No|
For the third Self-Employment Income Support Scheme grant you are expected to keep any evidence that your business has been hit by reduced demand or has been temporarily unable to trade. This means you must have kept a copy of all records in line with normal self-employment record-keeping requirements, including:
- Business accounts showing a reduction in turnover.
- Dates your business had to close due to lockdown restrictions.
- Shielding or caring responsibilities due to school closures.
- Records of reduced or cancelled contracts or appointments.
- Fewer invoices.
- A record of dates where you had reduced demand or capacity due to Government restrictions.
- NHS Test and Trace communications (if you've been abroad and have to self-isolate, this doesn't count).
- Test results if you've been diagnosed with coronavirus.
HMRC's on the lookout for fraudulent claims
Let's make it clear here: HMRC has told us it's "not looking to trip people up", so any "eligible people who believe they are affected should claim with confidence".
However, HMRC will come down hard on fraudulent claims. It says it will check claims using a "risk-based" approach and take "appropriate action" to withhold or recover payments found to be dishonest or inaccurate. It says there is "no doubt" it will take action in cases of suspected fraud or an organised criminal attack.
The guidance says: "If you know you've been overpaid or are not eligible for the grant and do not tell us, you may have to pay a penalty."
The draft Treasury legislation provides HMRC with compliance and enforcement powers in relation to the SEISS. These include powers to check and recover any amount of a grant payment that the recipient is not entitled to. Recovery would apply in all cases where the grant has been overpaid, whether the error was fraudulent, careless or a mistake. In cases where HMRC can demonstrate there has been deliberate non-compliance, HMRC may issue a penalty.
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