Self-assessment season is back upon us once again, this time for 2020/21 – the year of COVID-19 and government support measures.
Like us, you’re probably sick of hearing or talking about the pandemic after it has dominated our lives for the last 17 months.
But you made it – your business has survived the pandemic and there’s an extra incentive to start your 2020/21 tax return earlier than usual.
Any grants you claimed via the self-employed income support scheme (SEISS) in 2020/21 are subject to income tax and National Insurance.
You must report these in your 2020/21 tax return, along with any other income from the tax year, on or before midnight on 31 January 2023.
Reporting the SEISS grants
If your self-employed business was adversely affected by the pandemic and had annual trading profits of £50,000 or less, you would’ve been eligible to receive the first three taxable grants via the SEISS in 2020/21.
These will be included in your ‘profits from self-employment’ for 2020/21, and will be subject to income tax and Class 4 NICs. The grants also form part of the small profits threshold for Class 2 NICs.
Assuming you claimed the maximum amounts (£21,570) on the first three SEISS grants you received in 2020/21, you will be assessed for income tax on the excess above the £12,500 personal allowance.
The fourth and fifth grants will also be taxable for income tax and NICs purposes, but not until you submit your 2021/22 tax return as you will have received these payments in this tax year if you were eligible for them.
Records you need
We bang on about the importance of keeping business records for the purpose of self-assessment and to head off potential tax investigations. This year, it’s more important than ever.
You need to have records of the amounts you claimed from any or all of the three grants paid out in 2020/21, along with the claim reference number.
For the first two grants, you should disclose evidence of how the pandemic adversely affected your trading profits. This could include:
- business accounts showing a reduction in turnover
- confirmation of any COVID-19 business loans you have received
- dates your business has to close due to lockdown restrictions
- dates your staff were unable to work due to COVID-19 symptoms, shielding or caring responsibilities due to school closures.
For the third taxable grant, having records of fewer invoices, contract or appointment cancellations, test-and-trace communications, and positive COVID-19 tests can demonstrate to HMRC how your business was hit.
And finally…
Unbelievably, more than 400,000 entrepreneurs started their own business in 2020 and will be going through self-assessment for the first time. If you’re in this boat, you have until 5 October to register. This enables you to file your 2020/21 tax return. Failure to do so will see you penalised.
At Dunkley’s, we offer a personal tax returns service for the very purpose of assessing you for income tax and NICs before digitally filing your tax return in plenty of time before the 31 January deadline. Email advice@dunkleys.accountants or call 01454 619900 to find out what we can do for you.