July 15, 2021

Article

HMRC is starting to contact those clients who they believe may be initially eligible to claim the fifth SEISS grant from the tax return information they hold.

The fifth grant, which covers the five month period from May to September 2021, was announced in the Budget back in March 2021 but only limited guidance had previously been available.

The initial eligibility remains the same as the fourth grant so unfortunately if you weren’t eligible to claim the fourth grant, you will not be able to claim under the fifth grant. However, you do not need to have claimed the fourth grant in order to claim the fifth.

To make a claim, you must be currently trading or are temporarily unable to because of government restrictions or other Covid impacts, and your trade must have also suffered by either reduced activity, capacity or demand as a result of Covid-19. You must also reasonably believe that this reduction will mean that you will suffer a significant reduction in trading profits in the annual accounts that the period May to September 2021 falls.

Reduced activity, capacity or demand includes trading with fewer customers or clients due to social distancing requirements, loss of contracts that haven’t been replaced or less work being able to be completed due to supply chain issues. Please note you cannot claim if the only impact on your business is increased costs, for example the purchase of PPE.

Turnover Test

In addition to the above, you will also need to complete a turnover test in order to claim the fifth grant. This involves providing HMRC with details of your turnover for two periods - a reference period (pre pandemic) and during the pandemic. This turnover test will determine the amount of grant you will receive.

Please note, if you commenced self employment during 2019/20 and did not trade in any of the tax years 2016/17, 2017/18 or 2018/19, you will not need to complete the test and instead will automatically receive the higher grant.

You will see by the comments below, that depending on your circumstances the tests are very complex, and the figures are not simple to calculate. You will also need to provide these two figures when making your application, so you will need to have calculated these before making your claim.

Turnover For Reference Period

Providing you are not a partner in a partnership, the reference period relates to the turnover declared in the accounts on your 2019/20 tax return.

If you have multiple businesses, you will need to add all your turnover together.

If 2019/20 was a particularly bad year of trading, you can choose to use 2018/19 figures instead but you need to provide a reason why 2019/20 was not a standard year, for example a large contract was lost.

If you are a partner in a partnership and have no other business interest, you will need to take the whole partnership’s turnover.

If you a partner but had any other businesses, you will need to take a percentage of the partnership’s turnover into your calculations. This percentage is based on the share of the annual profit you received from the partnership.

If your trade commenced during 2019/20, you will need to take the whole turnover declared, even if this was less than 12 months.

If you changed year end during the year you will need to pro-rate your turnover to determine what 12 months turnover would be.

Turnover For Pandemic Period

This is the turnover you took in 12 months from either 1 April 2020 to 31 March 2021 or 6 April 2020 to 5 April 2021, depending on how you account for your income.

This again is your total turnover for the 12 month period from all businesses.

If you are a partner in a partnership, you need to follow the same basis as you did when calculating the reference period. If the partnership share is your only business interest, then you will need to provide the partnership’s total turnover for 12 months.

If you have any other business interests, you will need to include the same percentage of the partnership’s turnover for the 12 months as used in your reference period.

Any SEISS grants or other government Covid support payments, should not be included. This includes Eat Out To Help Out payments and also local authority grants.

Unless your business accounts run to 31 March 2021 or 5 April 2021, you will not have details of the turnover readily available for the 12 month period. You will therefore need to perform separate calculations and may need to use the following to assist –

Bookkeeping software such as Xero, Quickbooks or Sage if these are up to date

VAT returns you have submitted if you are VAT registered

Any spreadsheets, records, invoice books you hold

Bank statements, but particular care needs to be taken to only include business turnover

If your business accounts do have a different year end, there is a mismatch of periods that will be compared, and this could impact the outcome especially if you have say a seasonal business.

The Rate Of Grants To Be Paid

The fifth grant will be based on 3 months of average trading profits, in the same way as the fourth grant. Please note, this remains at 3 months profits even though the period of the grant covers 5 months.

HMRC will then compare the results of the two turnover figures provided and calculate what rate of grant you will receive.

If your turnover decreased by over 30% during the pandemic period, you will receive 80% of 3 months average trading profits, capped at £7,500

If your turnover decreased by less than 30% during the pandemic period, you will receive 30% of 3 months average trading profits, capped at £2,850

In response to HMRC’s guidance being released, various professional bodies have asked for clarification on multiple factors and also requested that the calculations are simplified to make the claims process more straight forward. We will keep you up to date of any changes made.

Applications can be made from the end of this month and HMRC will be contact with a timeslot that you can make your claim from, if you are eligible. Please note claims for the fifth grant must be made before 30 September 2021 when the applications will close.

Due to the complex calculations involved in the turnover test and the impact any errors can cause, we encourage you to get in touch with your usual point of contact at Albert Goodman BEFORE you make any claims.

This article was updated 21/07/2021

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