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Many businesses were impacted by the Coronavirus (COVID-19) pandemic and as a result, claimed the Self-employment Income Support Scheme (SEISS) grant offered by the Government. This was available for those with profits of less than £50,000 and whose business suffered a new or continued impact from the Coronavirus, and as a result, believed that they would see a reduction in profits. The grant was equal to 80% of profits up to a maximum of £2,500 per month for 3 months (£7,500 in total for each quarter/claim made).

Where claims have been made, the income received in respect of the grant will form part of taxable income and tax will therefore likely be payable on these amounts for the tax year ended 5 April 2021. SEISS counts as earned income when considering making pension contributions, and if related to a farming business, it counts as farming income when considering the availability of farmer’s averaging relief.

In a partnership, depending on the partners’ other income, some partners may be able to claim whilst others cannot. The accounting and tax treatment of the SEISS grant will need to be considered alongside any written Partnership Agreement.

SEISS and farmer’s averaging relief

Farmer’s averaging averages profits of the last 2 or 5 years, resulting in tax savings and, in some cases, repayments from HMRC for tax paid in earlier years.

We have historically seen farmer’s averaging relief achieve tax savings of anything from a few hundred pounds, up to tens of thousands across a farming family. The largest savings arise when we are able to remove clients from the Higher Rate tax bracket and/or retrieve personal allowance that would have otherwise been lost, for those with total income over £100,000.

Ellacotts review the availability and benefit for making a claim for Farmers Averaging when preparing all non-company farming tax returns, and will automatically calculate and include the tax saving where possible. SEISS will be included in these calculations and potentially impact on tax due.

If you have claimed SEISS in error

You can voluntarily pay back some or all of the grant that has been received and notifies HMRC of this when submitting your 2020/21 tax return. Penalties may arise if HMRC deem the claim to have been made in error and not repaid.

Further information

Further details on the SEISS grant can be found on our website in the dedicated Coronavirus section, which is kept up to date with the latest information regarding support available.

Contact your usual Ellacotts contact or Andrea Thornton on athornton@ellacotts.co.uk or 0125 250401 for more information on this.