BIM40458 - Specific receipts: Coronavirus Support Payments - Self Employment Income Support Scheme

SEISS means the Self Employment Income Support Scheme, including any extensions to this scheme.

The tax treatment of SEISS overrides GAAP (or the Cash Basis) rules referred to in BIM40456.

Except where the payment forms part of partnership income, the SEISS payment falls to be taxable in the tax year of receipt. The amount received should be added to the trading profits (or losses) of the basis period of the tax year of receipt. If there is an overall loss for the year, the normal loss relief rules then apply.

Where a SEISS payment is received by a partner in a trading partnership, it is added to the partner’s trading profit share of the tax year of receipt unless the partner pays the amount into the partnership and it is not retained by the partner. Where the payment is transferred to the partnership it is treated as the partnership’s trading income in the same way as any other trading income received by the partnership and the amount will be taxable income of the accounting period of the partnership.

The trading allowance (see BIM86000) cannot be claimed against the SEISS receipt, but if an individual has other trading income, they may claim the trading allowance against their other trading income.

Example 1: Sole trader with profits and an accounting year end of 30 April

A sole trader uses the Cash Basis and draws up accounts to 30 April 2020 in which a profit of £25,000 arises. In June 2020, the sole trader receives a first SEISS payment of £7,500, with a second SEISS payment of £6,570 received in August 2020. No further SEISS payments are received.

The sole trader will be taxable on trading profits of £39,070 for 2020/21. This is the sum of the profits of £25,000 in the accounts and the two SEISS payments received during the tax year.

For the year ended 30 April 2021, the sole trader draws up accounts which record a profit (including the SEISS receipts) of £30,000. The sole trader will not be taxable on the SEISS payments in the 2021/22 tax year as they were taxed in 2020/21. The sole trader will be taxable on trading profits of £15,930 in 2021/22.

Example 2: Sole trader with a loss and an accounting year end of 31 March

A sole trader draws up accounts to 31 March. Excluding SEISS receipts of £13,500, the sole trader makes a trading loss of £15,000 in the year ended 31 March 2021. The SEISS income is netted off against the trading loss, resulting in an overall trade loss of £1,500 for 2020/21. This loss can be relieved subject to the normal trade loss relief rules.

Example 3: Partner retaining SEISS payments

A partner in a firm receives total SEISS payments of £12,500 in 2020/21 and retains the entirety of them. The partner’s share of the partnership profits is £20,000 for the year ending 30 April 2020. The partner is taxable on £32,500 in 2020/21, the sum of their share of the partnership profits and the SEISS payments.

Example 4: Partner paying SEISS into partnership

A partner in a firm receives a SEISS payment of £7,500 in July 2020. This is the only amount of SEISS claimed and received. The partner does not retain the SEISS payment as it is handed over to the partnership. The partnership has an accounting period ending on 30 April. The partnership’s total profits therefore include income from the partnership’s business and the SEISS payment. Each individual partner will return their allocated share of the partnership’s profit and the normal rules on profit allocations and basis periods (including the commencement and cessation provisions) apply in order to determine the tax years in which the profits are taxable.

Example 5: Sole trader claiming Trading Income Allowance

A sole trader prepares their accounts to 31 July. The accounts for the year 31 July 2020 show a turnover of £800. As their turnover is less than £1,000, they claim the Trading Income Allowance instead of actual expenses. The sole trader receives a SEISS payment of £2,500 in May 2020. They cannot offset any amount of the SEISS payment against the remaining £200 of the trading income allowance available and will be taxable on the entire SEISS payment in the 2020/21 tax year.

Example 6: Farmer making averaging election

SEISS should be included in the profit figure for averaging purposes (see BIM84000).

A farmer makes a taxable profit of £29,000 in 2019/20 and a profit (before including SEISS) of £12,000 in 2020/21. The farmer receives £10,000 of SEISS in 2020/21, resulting in taxable profits for 2020/21 of £22,000. No two-year averaging of the 2019/20 and 2020/21 profits is permissible as the 75% condition is not met (see BIM84130).

In 2021/22, the farmer makes a loss (and no SEISS was received in 2021/22). A two-year averaging election can be made with 2020/21, resulting in averaged profits of £11,000 for each year.