Coronavirus grants handed out this year have the potential to confuse taxpayers as the 2019/20 self-assessment deadline edges closer.
More than half the UK’s self-employed population, which passed 5m earlier this year, accessed self-employed income support grants (SEISS).
While the grants do not need to be repaid to Westminster, they are liable for income tax and national insurance contributions in 2020/21.
As such, you will need to report how much you received from the SEISS – and your obligations start in January 2021.
The SEISS remains in place until 30 April 2021.
In his winter economy update on 24 September 2020, Rishi Sunak announced two further rounds of SEISS grants.
The next taxable grant will cover 20% of average monthly profits, capped at £1,875, covering the period between 1 November 2020 and 31 January 2021.
The Government will set the cap for the fourth grant, which will cover the period from 1 February 2021 to 30 April 2021, “in due course”.
Whether you are filing self-assessment alone or sharing your records with us, make sure you report any grants you received this year.
Why do I need to think about this now?
The first payment on account for 2020/21 is due on or before midnight on 31 January 2021 and this figure will be based on your estimated earnings.
It was possible to claim up to £7,500 in tranche one, and is possible to claim up to £6,570 in tranche two until 19 October 2020.
For self-employed individuals who fully claimed the first two SEISS grants, that’s taxable income of £14,070 on top of any earnings from 2020/21.
What SEISS records should I keep?
It is imperative to retain any records of SEISS grants you have claimed since March 2020 to ensure you pay the right amount of tax.
In line with normal self-assessment recordkeeping requirements, you should record the amount claimed and the claim reference number.
We also recommend you keep any records of your business or trade being adversely affected by the coronavirus this year.
This could be business accounts showing lower turnover, evidence of any COVID-19 business loans, or dates your business closed due to lockdown.
What about the July payment on account?
Those who found it difficult to make their second payment on account by 31 July 2020 due to COVID-19 could defer it, initially for up to six months.
This relates to the 2019/20 tax year and was due on or before 31 January 2021, until Sunak moved the goalposts. This is no longer the case.
If you deferred your payment on account in July 2020, you will not need to settle your bill in full until on or before 31 January 2022.
However, it would be wise to settle those liabilities before the deadline as the potential for multiple payments mounting up is there.
Who must submit a tax return?
If you joined the ranks of self-employment in 2019/20 and earned more than £1,000 as a sole trader, you need to file a tax return.
The same applies if you are in a business partnership or you have untaxed income from other sources of taxable income.
You must register for self-assessment before 5 October in order to submit a tax return before 31 January, if you have not already done so.
We can handle your tax return
There is no doubt this year has been more challenging than any other, which is why our personal tax planning service is invaluable.
To find out more about what our expert team can offer, email us at contact@thomasbarrie.co.uk or call us on 0141 221 257.