DMS Posts, Tax

SEISS 4

Almost five months after the last round of the Self-Employment Income Support Scheme (SEISS), HMRC is now sending emails, letters or messages within its online service advising those whose tax returns show they may be entitled to claim the fourth SEISS grant when their April when their personal claims window opens.

The window will open in “late April” according to HMRC and will close for all SEISS 4 claims on 1 June 2021.

SEISS has evolved

Coronavirus isn’t alone in having spawned variants. The newest SEISS variant, SEISS 4, covers the period from 1 February 2021 to 30 April 2021 and brings 2019/20 tax returns into account, both for eligibility and in calculation of the amount of the grant. This will open the scheme to some new applicants who started up in 2019/20; it excludes not only those who are no longer trading but also some who had little or no profit relative to other income in 2019/20.

Eligibility is determined by HMRC and only applies to those whose 2019/20 tax returns were submitted before 3 March 2021.

HMRC will test eligibility for 2019/20 in isolation to see if profits are under £50,000 and at least half the relevant income. For those who don’t qualify based on 2019/20 alone, HMRC will then evaluate the four tax years 2016/17, 2017/18, 2018/19 and 2019/20 combined to test if average profits across the four years are under £50,000 and at least half of relevant income.

If trading hasn’t continued through all four tax years, only the most recent continuous two or three tax years with trading income are used in determining both eligibility and amount.

Amount is also determined by HMRC, and SEISS 4 will again be 80% of three months’ average profits, but it is likely to be different to SEISS 3. The amount of SEISS 4 could be higher or lower than SEISS 3 because 2019/20 profits will be included for the first time in working out average profits.

There is no mechanism to claim a smaller amount – the only option would be to make the claim and voluntarily repay part of it.

Entitlement

Just because HMRC’s historical records may show eligibility does not mean that someone is necessarily entitled to claim. There are two important declarations required:

  1. Traded as self-employed in 2020/2021 and intending to continue to trade in 2021/2022
  2. Must have reasonable belief there will be a significant reduction in trading profits due to reduced self-employed income (not just increased costs) because of reduced business activity, capacity, demand or inability to trade due to coronavirus. There are several key terms in this declaration which will be discussed in more detail in a follow-on article next week.

Having a new child affected the 2019/20 tax year?

It may be possible in some limited circumstances for someone to make a claim even if having a new child means they do not meet the eligibility tests based on their 2019/20 tax return. They must have submitted a 2018/19 tax return and meet all other eligibility and entitlement criteria. HMRC advises: “Before making a claim, you must contact us to verify that having a new child has affected your eligibility.”

For these purposes “having a new child” includes being pregnant, giving birth (including a stillbirth after more than 24 weeks of pregnancy) and relates to the six months after giving birth, and caring for a child within 12 months of birth or adoption placement for a claimant who has parental responsibility.

Tax on SEISS payments

All SEISS variants are taxable and class 4 NICable and for SEISS 4 this will be in 2021/22, the year in which the grant is made, even though most of the qualifying three months are not in 2021/22.

SEISS grants received must be declared on self-assessment returns separately from normal business turnover.

Be prepared for HMRC checks

HMRC has repeatedly said all SEISS claims will be checked. The focus of checks will principally be the entitlement declarations claimants make, since HMRC itself is determining eligibility and amount. HMRC can be expected to automate checks to some extent by comparing SEISS claims with turnover and profits on self-assessment tax returns for 2020/21 and eventually with 2021/22 tax returns.

DMS Posts, PAYE, Tax

Tax and National Insurance rates and bands

Here are the changes that will come into effect in April 2021:

National Minimum Wage and National Living Wage

Changes will come into effect on 1st April. Note the different age bands for rates in 2021/22.

2021/222020/21
Employees aged under 18: NMW£4.62£4.55
Employees aged 18-20: NMW£6.56£6.45
Employees aged 23 and over: NLW£8.91N/A
Employees aged 25 and over: NLWN/A£8.72
Employees aged 21-24: NMWN/A£8.20
Employees aged 21-22: NMW£8.36N/A

England, Northern Ireland and Wales

Changes will come into effect on 6th April 2021.

2021/222020/21
Personal allowance£12,570£12,500
Employee’s NI becomes due at£9,568£9,500
Employer’s NI becomes due at£8,840£8,788
Higher rate tax becomes due at£50,270£50,000
Class 2 NI becomes due when profits exceed£6,515£6,475
Class 2 NI per week£3.05£3.05
Class 4 NI becomes due when profits exceed£9,568£9,500

Scottish tax rates and bands

Changes will come into effect on 6th April 2021.

2021/222020/21
Personal allowance£0 – £12,570£0 – £12,500
Starter rate 19%£12,571 – £14,667£12,501 – £14,585
Basic rate 20%£14,668 – £25,296£14,586 – £25,158
Intermediate rate 21%£25,297 – £43,662£25,159 – £43,430
Higher rate 41%£43,663 – £150,000£43,431 – £150,000
Top rate 46%Over £150,000Over £150,000

Student Loan repayment thresholds and new Scottish student loan plan

Changes will come into effect on 6th April 2021.

2021/222020/21
Undergraduate loan: plan 1£19,895£19,390
Undergraduate loan: plan 2£27,295£26,575
Scottish student loan: plan 4£25,000N/A
Postgraduate loan£21,000£21,000
DMS Posts, Tax

What is IR35?

Definition of IR35

IR35 is a piece of legislation that allows HMRC to collect additional payment where a contractor is an employee in all but name.

If a contractor is operating through an intermediary, such as a limited company, and, but for that intermediary, they would be an employee of their client, IR35 kicks in.

If the contractor’s contract is in the public sector, it’s up to the engager (the contractor’s client) to determine whether IR35 applies. If it does, the engager will place the contractor onto their payroll and will deduct income tax and National Insurance before paying the contractor.

If the contractor’s contract is in the private sector, IR35 requires the intermediary to make an extra payment to compensate for the additional tax and NI that HMRC would have received on an equivalent employee’s wages.

From April 2021, the rules are due to change for contractors working with medium to large sized clients in the private sector. Like the public sector, these clients will have to determine whether the contractor falls inside or outside IR35.

When IR35 legislation applies, a contract may be described as ‘within IR35’ or ‘caught by IR35’.

Determining IR35

Whether a contractor is an employee in all but name may vary from client to client and from project to project. When determining this HMRC will look at the whole picture, but key factors are:

  • Does the contractor have to carry out the work personally, rather than being able to send a substitute?
  • Does the client have to provide the contractor with work, and/or does the contractor have to carry out any work that the client requests?
  • Does the client have control over how, when and where the contractor carries out the work?

Answers of yes to these questions will indicate a quasi-employment relationship. You can also use CEST, which is HMRC’s online tool to help determine IR35.

Note that HMRC will look at what actually happens (or would happen) in practice, rather than the terms of the contract. HMRC will also look at other factors, such as whether the contractor has an office at the client’s site, an email address and/or job title indicating that they are part of the client’s business, and so forth.

DMS Posts, PAYE

What is CEST?

Definition of CEST

CEST is short for Check Employment Status for Tax. It’s a digital tool designed by HMRC to help public authorities decide if a worker falls inside or outside the scope of IR35.

The tool comes in a quiz-like format and can be accessed here.

Why was CEST introduced?

When off-payroll working rules were introduced to the public sector in 2017, the onus to certify whether a worker fell inside or outside IR35 shifted from the worker to the public sector authority.

HMRC produced the CEST tool to help public sector authorities make these decisions quickly and cheaply.

An updated version of the CEST tool was released in November 2019.

Does CEST only apply to the public sector?

CEST can be used in both the private sector and the public sector but it’s important to note that the private sector is assessed differently under the off-payroll regulations. In the private sector, the onus is on contractors to declare whether they fall inside or outside IR35, rather than their clients.

From April 2021, the rules on off-payroll working in the private sector are set to change, bringing it in line with the rules that apply to the public sector for contractors working with large and medium-sized business clients.

DMS Posts, Other, PAYE, Tax

Inside and outside IR35: What you need to know

With rules set to change in the private sector from 6 April 2021, it’s important to understand what implications this might have on your contracts and tax bills.

The responsibility for determining your status in the private sector will shift to your client, if they are eligible. If you believe you are outside IR35, you’ll need to ensure your freelance contract and working practices clearly demonstrate your relationship as a contractor.

What’s the difference between inside IR35 and outside IR35?

Your status impacts the employment taxes you will pay.


Inside IR35
  • You pay the same tax and National Insurance as you would if you were an employee. 
  • You are only an employee for tax purposes, you have no employment rights.
  • Your client will be required to pay the necessary tax and NIC, which includes Employers’ NIC and the apprenticeship Levy where applicable.
Outside IR35
  • Nothing changes. You are paid a flat fee as normal and are responsible for managing your own taxes.

How and who pays the appropriate taxes largely depends upon a number of key factors: control over how the work is done, whether your personal service is required and mutuality of obligation. However, how you are set up in business can also be an influencing factor.

Not sure whether your contract is inside or outside?

You can check your employment status for tax using this tool from HMRC

Having a tax specialist review your contract can give you peace of mind. FSB members have access to a contract review service, for an additional fixed fee.

My last contract was outside IR35, but this one is inside?

IR35 applies on a contract by contract basis, so your status may differ depending on the contract agreed.

To remain compliant, you’ll want to brush up on your understanding of the new rules in the private sector.

If you don’t agree with your client’s decision about your employment status the legislation gives you the right to submit a written challenge to the Status Determination Statement and requires the end client to respond within 45 days to further explain their reasoning.