HMRC have reported that they are not able to automatically process significant numbers of self-assessment tax returns due to incorrect reporting of grants received. As a result many individuals are receiving incorrect calculations from HMRC which show too high a tax liability.
So, how should you report these grants on your Return?
Please note that this guide is for sole-trader businesses only; if you have any questions relating to partnerships or companies please contact me for information.
Self-employment Income Support Scheme (SEISS)
Which tax year?
The original legislation relating to SEISS grants was that they would all be taxable in the 2020/21 tax year, regardless of when they were actually received.
This has now been amended to ensure that the grants will be taxable in whichever tax year they are received. As a general rule the first three grants will be taxable in 2020/21 with the fourth and fifth grants taxable in 2021/22.
Where does it go on my tax return?
Although the SEISS grants are taxable income, they are not counted as turnover of your business. When completing the self-employment pages of your Return they are not included in the Business income but are instead included in a separate box in the section for calculating your taxable profit or loss:
– For the ‘short’ self-employment pages this is box 27.1
– For the ‘full’ self-employment pages this is box 70.1
You must also tick box 20.1 on page 8 of the main Tax Return as a declaration that coronavirus support payments, including SEISS, have been included as taxable income on the Return.
Coronavirus Job Retention Scheme (CJRS)
Which tax year?
When the CJRS grant is taxed will depend on whether your business accounts are prepared on a cash basis or accruals basis:
– If accounts are prepared on a cash basis, the income will be included in the accounting period they are received and taxed accordingly.
– If accounts are prepared on an accruals (or invoice) basis, the income will be included in the same accounting period as the wages expense that they relate to. For example, if you make a claim in respect of wages paid to employees in March, the CJRS grant received will be included in your income for March, even if it is not actually received until April.
Where does it go on my tax return?
CJRS grants are not included as turnover of the business, nor should they be netted off against wages or other employment costs. Instead, they are included in a separate box for other business income:
– For the ‘short’ self-employment pages this is box 10
– For the ‘full’ self-employment pages this is box 16
You must also tick box 20.1 on page 8 of the main Tax Return as a declaration that coronavirus support payments, including CJRS, have been included as taxable income on the Return.
What happens if I have already submitted my Return?
When HMRC receive your Return, the amounts included in the relevant boxes are automatically checked against HMRC’s records. Where the amounts included do not match the amounts that HMRC expect to see then the Return is rejected.
HMRC will then correct the Return to include the grants received in the appropriate boxes and issue a tax calculation to you (and your agent, if you have one).
What you should do next depends on whether you included the grant income on your Return or not:
– If you did not include the grant income anywhere on your Return then it’s likely that HMRC’s calculation will be correct, although you should of course always check this to make sure
– If you did include the grant received on your Return but in the wrong place – for example in business turnover instead of the separate grant income boxes – then HMRC’s calculation will not be correct as you will have been taxed twice on the grant income.
– In this case you will have to submit an amended Return which correctly shows the grant income in order for HMRC to issue a revised calculation; merely rejecting HMRC’s calculation and advising them that it is incorrect will not be sufficient.
It is worth noting that if you are completing your Tax Return yourself using HMRC’s online software, then this should show you the amount that HMRC are expecting you to report as grant income received so you can check the information that they hold before you submit the Return.
If an authorised agent is preparing your Return then your HMRC record might well not include this information.
If you have any questions regarding your tax return, please not hesitate to get in touch.
