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Reporting SEISS grants

The SEISS grants are taxable in the year they are received. This means the tax year, not your accounting year or the basis period. The whole of the amount is to be treated as a receipt of a revenue nature of the tax year in which it is received (irrespective of its treatment for accounting purposes).

The first three SEISS grants will be taxed in 2020/21 and must be reported on the 2020/21 tax return. The fourth and fifth SEISS grants will be taxed in 2021/22 and must be reported on the 2021/22 tax return.  

Any repayments should be deducted from the initial amounts received, and only the net amount reported on the tax return.  

The SEISS grants must be reported on the self-employed section of the tax return, but the box number will vary according to the type of return.

It is important that HMRC’s computer can match the total of SEISS grants paid out in 2020/21 to the total grants declared on your return. If the amounts don’t match, there will be a delay in processing the tax return and could spark an enquiry.

The SEISS grants are subject to tax as well as class 2 and class 4 NIC, as if they were part of trading profits reported for the tax year. In addition to the tax, you need to budget for a class 4 NIC labiality of 9% of the SEISS grants where the total profits assessable for the year plus grants received, lie in the band: £9,500 to £50,000.

The SEISS grants are also treated as trading income for pension contributions and for loss relief.

Where a partnership agreement has stipulated that the SEISS grants should be treated as part of the partnership income, and distributed to all of the partners the SEISS grants should have been paid directly into the partnership business bank account and not to the individual partners. The SEISS grants need to be reported as part of the partnership turnover, and the tax treatment will follow the normal accounting treatment.

However, most partnerships will treat the SEISS grants as income of the individual partners that claimed those grants, in which case the SEISS grant is excluded from the partnership turnover.

Fifth SEISS Grant

A fifth self-employment income support scheme (SEISS) will be available from the end of July covering the period May to September 2021 for those affected by the pandemic.

Further HMRC guidance will be available by the end of June 2021.

To be eligible for the grant you must be a self-employed individual or a member of a partnership. Applicants must have traded in tax year 2019-20 and submitted your tax return on or before 2 March 2021, or in tax year 2020-21.

You must either be currently trading, but are impacted by reduced demand due to coronavirus, or have been trading but are temporarily unable to do so due to coronavirus.

The amount of the fifth grant will be determined by how much turnover has been reduced in the year April 2020 to April 2021.

Turnover reductionHow much will be paidMaximum grant
30% or more80% of 3 months’ average trading profits£7,500
Less than 30%30% of 3 months’ average trading profits£2,850

The online claims service for the fifth grant will be available from late July 2021.

If you’re eligible based on your tax returns, HMRC will contact you in mid-July 2021 to give you a date from which you can make your claim.

Survey of Owner Managed Businesses

A survey recently published showed the following:

15% of owner managed businesses are still in ‘survival mode’.

45% reported that their turnover had reduced since the third lockdown was introduced in January, against 21% who had seen an increase over this period.

11% of businesses reported that it is likely they will have to make redundancies in the next three to six months.

53% of respondents identified uncertain trading conditions as their biggest challenge followed by Brexit supply chain issues at 15%, hybrid working at 9%, and lack of capacity to get back up and running at 9%.

24%, reported negative impacts on their businesses after the UK left the EU

46% feel less positive about their economic prospects outside the EU

54% were more positive about their economic prospects outside the EU

I will leave you to draw your own conclusions.

Charging Electric Vehicles –recovering input vat

Whether a business can recover the VAT on the cost of electricity to charge cars used for business purposes is complex.

HMRC has issued guidance to explain its policy concerning the VAT treatment on the cost of charging of electric vehicles when using charging points situated in various public places.

Public charging facilities

The standard rate of VAT applies to supplies of electric vehicle charging through charging points in public places.

There has been some discussion as to whether the supplies of electricity for vehicle charging might be subject to the de minimis rules. HMRC’s view is that this is not the case. This is because these supplies are made at various places, such as car parks, petrol stations and on-street parking, not to a person’s house or building. In addition, these supplies are not usually an ongoing supply to one person where the rate of supply can be calculated.

Sole traders

You can recover the input tax for charging your electric vehicle if:

  • you are a sole proprietor,
  • you charge your electric vehicle at home, and
  • you charge your electric vehicle for business purposes.

You should work out what proportion of the cost of charging the electric vehicle is for business use and how much is for private use. VAT can only be recovered on the business use amount. The usual input tax rules apply.

Sole proprietors can also recover the input tax for charging their electric vehicle for business use at other places. The usual input tax rules apply.

The rate for recovering input tax when charging electric vehicles is the same as the VAT rate charged on the supply of electricity. This could be VAT at 5% or 20%, depending upon the nature of the premises where the vehicle was charged.

Employees charging at home.

Employers cannot recover the VAT for charging an electric vehicle at an employee’s home. This is because the supply is made to the employee and not to the business.

There is an apparent inconsistency of input tax treatment between petrol, diesel and electricity being purchased by employees for business use of motor vehicles.

Employees charging at Employer’s premises

Employees need to keep a record of their business and private mileage so their employers can work out the amounts of business use and private use for the vehicle.

Employers can recover the full amount of VAT for the supply of electricity used to charge the electric vehicle. This includes the electricity for private use. However, employers will be liable for an output tax charge on the amount for private use. Alternatively, VAT can be recovered on only the business element. The usual input tax rules apply.

This has been a new issue for the taxing authorities and so the treatment is likely to develop over time.

Questions?

If you have any questions about any of these, you know where to find us. If you prefer, just give me a ring on 07770 738770 or email me at alan.long@thelongpartnership.co.uk.

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