There is however a significant change this time in that the value of the grant will be determined by a ‘turnover test’. The purpose being to look at the reduction in total sales between April 2020 and April 2021. 

* The responsibility is therefore now on the applicant to calculate the financial impact the pandemic has had on their business. * 

 

 

Trading profits must not exceed £50,000 and be at least equal to non-trading income. 

• Applicants with a reduced turnover of 30% or more should be entitled to 80% of three months’ average trading profits (maximum grant allowance of £7,500) 

• Applicants with a reduced turnover of less than 30% are entitled to 30% of three months’ average trading profits (maximum grant allowance of £2,850) 

All applicants must provide documentary evidence to demonstrate the financial impact the Covid pandemic has had on their business. 

 

 

The fifth SEISS grant eligibility is based upon turnover reduction as opposed to profits previously. The previous method was a more objective way of determining how businesses have been affected as a 'whole', rather than that of turnover alone. 

 

SEISS grants and earlier calculations were based on historic information, held by HMRC on submitted tax returns, however businesses still did need to declare if they were eligible for each grant. 

 

Calculations needed for the fifth SEISS grant should not prove too difficult for VAT-registered businesses, as turnover would be calculated on the quarterly VAT records. It may however prove more challenging for smaller businesses, those businesses not VAT registered and where accounting records are not kept up to date. 

 

To be eligible for the fifth SEISS grant, a business must have either seen reduced demand or have ceased trading as a result of the virus. Some businesses may have continued to trade but could have experienced reduced demand, and subsequently may have had to increase prices to make up for the lower demand. It is therefore believed that the 'turnover test' is a fairer system, as these businesses should have had time to control their overheads. 

 

The 'turnover test' method however does not suit all businesses, as it completely ignores profits. It is an ineffective method for individuals and businesses who have been unable to control costs and have been adversely affected by increased expenses and those who have seen a rise in the cost of raw materials. 

 

Sole traders are likely to only review their accounts annually when completing their self-assessment and may therefore require assistance in completing their own calculations. 

 

The grant calculated, as based on '80% of three months average profits', has lead to some criticism, that to apply for the fifth SEISS grant, asking individuals to perform turnover calculations to access state aid seems unfair. 

 

It is however imperative that evidence is kept to support your claim, especially in the event of being challenged by HMRC. The Government has invested over £100M in establishing a Covid taskforce of 1,265 HMRC staff to tackle the estimated £3.5bn fraudulent claims of Covid support packages and HMRC will be looking at SEISS claims very closely. 

 

* SEISS grants are subject to tax and National Insurance* 

 

* HMRC have advised they will provide more information and guidance by the end of June in order to help applicants make the necessary calculations.* 

 

We understand that HMRC are and will be recruiting additional staff to combat fraudulent claims and to check compliance of SEISS and other taxes, including VAT returns.