Budget 2021 – Self-Employment Income Support Scheme Grants

4th and 5th round of SEISS Grants to help Self-Employed Contractors

Budget 2021 – Do SEISS Grants Four and Five Offer More for Sole Traders?

Depending on how long you have been in business, the three government SEISS (Self-Employment Income Support Scheme) grants that were paid through the first year of Coronavirus disruption provided some small support during a turbulent time.

Much, however, was made of the problems surrounding the eligibility for the grants, with many traders left unable to claim any sort of substantial financial help due to a lack of established years in business.

Are these new grants, announced this week, any better?

Calculating the first three SEISS grants

When looked at simply, HMRC had nothing to go on but tax returns for 2018/19 when calculating the SEISS grants for sole traders. This presented a number of problems:

Newer traders

Anyone who started their business after April 2019 simply wouldn’t have ever filed a tax return. For those people, records simply didn’t exist for HMRC to value them, and they were left horribly out in the cold.

This was worse than it might first appear, because, of course, those whose businesses were younger were also likely to have less financial support to fall back on. Having invested what capital was available into the business to kickstart it, a lot of self-employed sole traders simply didn’t have the savings or assets to easily get through the storm and (as we sadly know) many didn’t make it as a consequence.

Young traders

In a similar situation to the new traders, those who had a tax return for the 18/19 year might have had one that was very weak.

Let’s face it – during your first year of trading, there’s a lot of expense and often far less turnover than you’d have like. On paper, many businesses in their first year struggle to post a profit, and any profit that they do make is minimal.

With the SEISS grant calculated based on that tax return, there was a large chance that the money on offer was low. Almost laughingly so in places. Companies that due to circumstance had to close entirely were being offered sums such as £1500 to cover them for a three-month period. Great if you live mortgage-free and only like to eat pasta, but pretty tough for most.

Accountants and tax

You employ an accountant not only to keep all your records straight, but also to do the best job they can at limiting your tax liability. In a typical world, you are looking to post realistic, but minimal, profits. In some cases, your accountant may have advised a structure for your tax return that brought the amount down even further.

Wonderful when facing a tax bill in January 2020 (for the tax year 2018/19).

Absolutely horrible when hoping for a sizeable and helpful SEISS grant.

By minimising your tax payment, your accountant has inadvertently informed HMRC that your business is just getting through, surviving on a minimal amount of profit. Consequently, when they calculate your grant, it’s pretty minimal, too.

Limited companies

Another substantial problem occurred because so many sole traders have adapted a business model of being a limited company, often a little too early. There are a lot of reasons why forming a limited company is a sensible move; the lower rate of corporation tax (at the time) and the limited liability for debt are two of the strongest; an increased sense of legitimacy is a third.
Sadly, due to the way company directors draw money from their limited companies, people with small limited companies (often with only themselves as a director and no other employees) found themselves outside the criteria for the SEISS scheme. By doing something that was eminently sensible at any other financial time, they lined themselves up for a significant hit from the COVID-19 outbreak and subsequent lockdown.

Many business owners lost out on thousands of pounds of grant money due to this business model difference, and for many it was enough to bring disaster. No wonder that the lack of support for limited company directors caused such an uproar throughout last year.

Rather than a grant, limited companies have had to fight through taking out loans to see themselves through this difficult period, but there’s a limit on every business as to how much it can borrow (even interest-free) before it simply collapses under the weight.

Spring Budget 2021 and how the new SEISS grants may help more

The announcement by the chancellor that there will be two more SEISS grants this year is of huge relief to many. The news is better than simply two more grants, however, because by now everyone has submitted their 2019/20 tax returns and those grants are going to become a lot more helpful.

New businesses

Let’s be honest, if you have jumped into self-employment after April 2020, then you are both brave, but also have done so with a plan that takes coronavirus and lockdowns into account. Businesses this young still won’t be eligible for grants in this latest round, but they went into it with eyes open, not expecting anything.

To all of you who have done this, we wish you the best of luck!

Young businesses

The new businesses of last year become the young ones of this, and the young ones of last year are the growing and established sole traders in 2021. In both cases, stepping up a category can only help, with those previously ineligible now afforded a grant based on their first year’s returns, and those who had smaller grants in stages one to three are potentially looking at significantly more impressive grants for numbers four and five.

Really, it’s good news all round.

Criteria for the new SEISS grants

Remember, however, that these grants aren’t just handouts to everyone who is a sole trader. It’s important that your business has been negatively affected by coronavirus and the repeated lockdowns.

It’s somewhat depressing but true, however, that all of us in the construction industry can legitimately say that we’ve had our work affected significantly by COVID – being unable to get out and do what it is we do best, at the rate that we once did, has been a huge impact in construction. Thankfully, this does mean that the chances are high that sole traders in our sector are fully qualified to receive the most from the government grants.

Grant number four (available from late April), will be calculated as 80% of three months’ average trading profits, and paid up to £7,500.

Full details of the fourth SEISS grant and the eligibility criteria are available on the government website.

Grant number five (late July 2021) has somewhat more stringent criteria and will be calculated based on how much your turnover has been affected between April 2020 and April 2021.

If your turnover has reduced by 30% or more, then grant five will be similar to grant four, capped at £7,500 and representing 80% of your three-month average trading profits.

If your turnover has reduced by less than 30%, then grant five is capped at £2,850.

Further details regarding the fifth grant are still awaited and will be provided ‘in due course’.

And the fate of limited companies..?

Sadly, nothing has changed in any substantial way for limited companies. The furlough scheme extension does provide support for employees, but those directors who faced a great struggle through 2020 are looking at similar problems for the coming year.

Again, there are loans on offer, and a few small extras including the £5,000 grant ‘Help to Grow’ scheme, but the general feeling from worried SME owners is yet again that the government is not doing enough to help.

Ensign and sole traders

With our business model long established as a SaaS (Software as a Service) model, with monthly subscription rather than a large outgoing payment, Ensign are already placed to help you manage your finances and spread the cost of using our take-off and quantity surveying packages, however if you are facing financial difficulties and rely on our software, do get in touch and we will help in any way we can.

For more information on Ensign and how our software raises your professionalism, try out a free demo today!

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