In this article we’ll take a look at when an individual might (or might not) need to pay back a SEISS grant, how they go about doing so, and what might happen if they don’t.
Do SEISS grants need to be repaid?
The starting position is that payments under the SEISS scheme are grants, not loans, and are therefore not ordinarily repayable. However, a repayment will be required if an individual has received an amount to which they were not entitled.
There are a number of conditions which need to be met in order to be eligible for a SEISS grant but, surprisingly, not all of these are covered by HMRC’s eligibility checks, which focus on data from submitted tax returns such as the level of trading profits and non-trading income.
It is therefore entirely possible to claim a SEISS grant, yet not actually have been eligible for it. This may be the case if, for example:
- the trade was not adversely affected by coronavirus in the relevant period. (For claims under the first round of the SEISS, this was the period up to and including July 13, 2020. For the second round of SEISS, it is the period on or after July 14, 2020);
- the individual ceased to trade (or incorporated their business) in 2019-20; or
- at the time of making the claim, the individual did not intend to continue to trade.
If an individual has claimed a SEISS grant and any of these apply, they need to notify HMRC and pay back the full amount received. This is necessary even if the claim was made due to an inadvertent error, or innocent misunderstanding of the rules.
However, eligibility for SEISS is based on the facts at the time of claim and receipt of the grant. There is no requirement to apply hindsight. This means, for example, that an individual won’t necessarily need to make a repayment just because they changed their mind about continuing to trade later in the year, provided they did intend to continue to trade at both the time of claim and time of receipt.
Similarly, if the business was genuinely adversely affected at the time of claim and receipt, but recovered later (even in the same period) so that, overall, annual profits are in line with previous years (or even higher), that doesn’t introduce a requirement to make a repayment. Such individuals may, however, choose to make a voluntary repayment of all or some of their grant.
Notifying HMRC – the clock is ticking
If an individual has received an amount under the SEISS scheme to which they are not entitled, they need to tell HMRC by the latest of:
- 20 October 2020; and
- 90 days after receiving the grant.
If the individual doesn’t meet this deadline, they could be charged a failure to notify penalty (see below). On making the notification, the individual will be given details on how to make a repayment of the amount claimed, but to which they were not entitled.
There is a dedicated online system which should be used wherever possible to notify HMRC and make the repayment. Where it is not possible to use this system, individuals should call HMRC, rather than writing to them.
What happens if you don’t repay HMRC?
HMRC have the power to claw back incorrectly claimed amounts by levying a tax charge equal to 100 percent of the amount not repaid, plus interest.
They can also charge failure to notify penalties if an individual doesn’t meet the deadlines set out above.
Finance Act 2020 establishes that, where an individual knew they were not eligible for a grant when they received it, any such failure to notify penalty will automatically be deemed to be deliberate and concealed – resulting in a penalty of up to 100 percent of the amount not repaid at the end of the notification period and without any opportunity to claim reasonable excuse.
Even if an individual was not aware that they were ineligible when they received the grant, HMRC have the power to charge penalties under the general failure to notify rules in Schedule 41 Finance Act 2008. However, they will only charge a penalty in those circumstances if the amount has not been repaid by January 31, 2022.
More information on compliance and penalties can be found in HMRC’s SEISS compliance factsheet.
Next steps
It important that those who have claimed SEISS grants, and their advisers, are aware of the deadline to notify HMRC of incorrectly claimed amounts and make repayment. Even where this a result of inadvertent errors or not understanding the rules correctly, rather than any deliberate intention to abuse the scheme, failure to meet this deadline could result in unexpected tax charges, interest and penalties.
It may therefore be a good idea to review claims already made to ensure that any errors can be identified and notified to HMRC accordingly. For agents, this could be particularly relevant for any new clients or those who made claims without asking for advice. If an agent does become aware that a client needs to make a repayment, but they refuse to do so, the agent will need to consider their obligations under the anti-money laundering and Professional Conduct in Relation to Taxation (PCRT) guidance.
More information on the SEISS scheme can be found on the ATT website, including detailed guidance notes on the SEISS and accompanying FAQs.