The Fizz! Blog

Do I qualify for the fifth Self Employed Income Support Scheme grant? And how does the turnover test work?

We’re almost at the point where sole traders and members of partnerships can apply for the fifth (and final) grant under the Self Employed Income Support Scheme.  So, who qualifies and how much do they get?

The big picture remains pretty similar to before, this time for those who were self-employed (but not those who work via a limited company) in both 2020-21 and 2019-20.  The grant is for those whose income comes wholly or mainly from self-employed profits of less than £50,000 a year.  You must have submitted your 2019-20 tax return by 3 March 2021, and you must continue to operate your business and intend to do so beyond the point of making the claim.

This final grant covers the period 1 May 2021 to 30 September 2021, and when making a claim you declare that you believe your profits will be significantly down for that specific five-month period, because of the impact of COVID-19 - the grant is only for those still struggling.  If you’re doing OK now, you can’t apply.

So far, so good.

When it comes to the amount payable for those who qualify, though, there’s a twist.  For grants 1 to 4 you either qualified or you didn’t - the amount you were paid was then just mechanical and based on a percentage of average profits.  For grant 5, there’s an extra stage, though, designed to try and distinguish between different levels of distress.  You might get 80% of your average quarterly profits, capped at £7,500 (the same as grant 1).  But you might get just 30%!  There’s a sudden and serious cliff-edge.

Which category you fall into depends upon how much your turnover (revenue from customers) fell in 2020-21 compared (usually) to 2019-20.  If it didn't fall at all, you’ll get nothing.  If it fell by less than 30%, you’ll get the 30% grant (well done to HM Treasury for using the exact same percentage for two wholly different purposes, which is not at all confusing), capped at £2,850.  If it fell by more than 30%, you’ll get the 80% grant, capped at £7,500.  (By the way, if you started in self-employment during 2019-20 and weren’t self-employed at all in the previous three years, you’ll also get the 80% grant, and don’t even have to tell HMRC about your turnover).

If 2019-20 was atypical for some reason, then you can use 2018-19 for the comparison, though you need to be able to justify why 2019-20 was unusually low and thus an unreasonable starting point for the comparison.  Examples HMRC give in their guidance include being on long term sick leave or parental leave, or losing a large contract.

There are some traps you could fall into if you’re not careful.  If you’ve more than one self-employed business, you have to look at the turnover of them all put together, not just the “main” one.  And if one of your tax returns had turnover for a period other than 12 months because of a change of accounting period, you have to annualise it before doing the comparison.   Members of partnerships must use the turnover for the whole partnership, not just their share of it.

Importantly, you should NOT include previous SEISS grants in your turnover (which is logical, nobody would have imagined you should), and you should NOT include money received under the Eat Out To Help Out scheme (which is not quite so logical, as that’s money that was actually reflected in till receipts and VAT returns and so someone might reasonably consider it to be part of the revenue of their business).

HMRC have uploaded a video to YouTube with some guidance about how to work out your turnover but it’s not necessarily very good.  They accurately say if a tax return has been completed (many applicants have already submitted their 2020-21 return, of course) then you can just take the number from the return.  But they suggest that if you haven’t yet done the return, you could look at your bank statements and add up the money coming in.  That’s no good for a typical business that doesn’t use the cash basis, though, because it doesn’t take into account opening and closing debtors, for example.  Some of our 2020-21 turnover didn’t turn up in our bank account until invoices were paid after the end of the year.

In any case, you’ve until 30 September to claim (if you qualify).  So, if you haven’t done it, perhaps you should get your tax return done first!

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Bounce Back Loans – what are your options under Pay As You Grow?

Last month was the first big month for businesses to begin paying back Bounce Back Loans.  There were a few really early applicants who started repayments in May 2021, but June 2021 was when repayments started in earnest as it’s month 13 for the bulk of early borrowers.

Plenty of businesses find themselves in a position to repay the loans as originally scheduled (for the first year, there were no capital repayments and the government paid the interest; the capital and interest then get repaid over five years).  Many have actually already repaid their loans – it was quite common to take the loan just in case it was needed, with the intention to repay it before the borrower had to start paying the interest, and we’ve seen plenty of businesses doing that.

But there are some businesses that are still struggling.  Some of them would have been struggling anyway, but many are obviously struggling specifically because of the ongoing impact of the pandemic.  The good thing is that for those businesses there are some new, more generous repayment options, collectively known as Pay As You Grow (clever in that it rhymes with Pay As You Go, but stupid in that one might be confused by what PAYG refers to in some contexts).  The bad thing is that the Bounce Back Loan regime, which was lovely and simple, has been transformed into being rather messy.

Under PAYG you’ve three options:

1. You can extend the repayment term.  Rather than the initial six year loan, with repayments over years two to six, you can extend it to 10 years instead, with repayments over years two to ten.
2. You can take up to three six-month interest-only periods, at any point you choose.  You’ll still owe the capital amount, but you can have a breather from repaying it.  Each time you do that, you can also ask to extend the loan term by six months, UNLESS you’ve already extended it to 10 years anyway.
3. You can have one six-month capital AND interest holiday where you make no payments at all (you can’t split this holiday – or the previous three – into a greater number of smaller breaks.  It’s six months or nothing).  Again, when you do this you can ask to extend the loan term by six months if you’ve not already extended it to 10 years.

All three of those options are going to increase the cost of the loan to you in the end, because interest is always going to be based on how much you owe to the bank at any given moment.  The longer you owe money to them for, the more it’ll cost you.  So, although taking a loan “just in case” was more or less a no-brainer for many businesses, PAYG isn’t.

You don’t have to choose one of those options; you can mix and match them all and do the lot if you like.  The actual mechanism for applying is going to vary from lender to lender, but it’s likely you’ll just do it via their online banking platform.  You don’t need to get approved or credit checked – it’s your right to just tell the bank what you want.  Borrowers are assured that taking advantage of PAYG will not have an impact in itself on their credit rating – though of course it you’re having to take a payment holiday or extension because of some kind of financial distress, it’s likely that whatever is leading to that is going to be having some impact on that rating anyway.

There’s a good amount of kicking cans down roads in all this.  The initial BBL scheme meant that there was absolutely no incentive for banks to credit check applicants in any meaningful way at all (when the government has guaranteed the whole thing, why on earth would a bank spend even ten seconds contemplating the borrower’s ability to repay?).  That means that the borrowers (if we put the fraudsters to one side) are a mix of businesses with real prospects where making a loan to them is genuinely economically productive, and a bunch of hopeless cases where they didn’t have a viable proposition in the first place.  But perhaps these options will move a few businesses from the second camp to the first, and also help some businesses already in the first camp to recover and grow in a more secure way along a slightly less perilous path.

www.fizzhq.com