SEISS grants three and four: what self-employed freelancers need to know

It might have been updated only this month, but the government website for the Self-Employed Income Support Scheme still leaves self-employed freelancers in the creative industries (and beyond) none the wiser about when they will receive their next SEISS grant to cover November 2020 to January 2021, writes Kevin Humphreys of Integrated Dispute Resolution.

What we do know, is that the scheme was extended by chancellor Rishi Sunak at his Winter Economy Plan to cover this new three-month period, and the three-month period subsequent to that -- February 2021 to April 2021.

Scant detail, and scant profit coverage too

While details from the government pertaining to the latter fourth phase of the scheme are scant, the third grant (November to January) will be available to those same self-employed individuals who are already eligible for the SEISS and are continuing to sole trade, but whose business is adversely affected by Covid-19.

The grant will be worth 20% of your average monthly profits as a self-employed sole trader, but will be capped at £1,875 in total. This is a notable decrease from the 70% of average monthly profits that formed the basis of the grant for the previous three months.

As to the government’s reasoning for this steep plummet from 70% to 20%, frankly it is difficult to fathom.

Costs, compromise and balancing the books

At one point, the government were adamant that they were not going to extend the SEISS grant beyond the second phase. It was repeatedly referred to by officials as the ‘Second and Final’ claim. An increase in coronavirus cases and the instance of a second wave of the pandemic hitting the UK has led to what seems to be a compromise of continued support for the self-employed, albeit at a much lower level of cost to the government.

A look at the impact on the taxpayer of the SEISS seems to explain why freelancers are going to get less of their profits covered in the shape of these (taxable) grants from the government. In particular, the first phase of the scheme cost the government £7.8billion. If the second phase attracts the same level of claims, then we can anticipate that cost rising to over £14.6bn. In addition, the third phase will heap on a further £1.95bn. Some balancing of the books to manage this spiralling debt seems inevitable.

Self-employed aren’t being treated as generously as the directly employed

But with this newest, incoming SEISS grant offering 75% less to the self-employed than the first grant  (which closed back in July), it could be an exceptionally challenging time for freelancers; particularly as it will cover both the Christmas and New Year periods.

On the face of it, Mr Sunak’s offering to the self-employed seems far less favourable than the new model he has made available to the employed, by way of the Job Support Scheme. This scheme (the JSS) also comes into effect at the start of November and runs for the same period of time -- to the end of April 2021. While ultimately down to the employer to implement, it could see employees working 33% of their hours for 77% of their pay, with the government contributing 22% of that 77%.

Sunak is (hopefully) taking stock

Optimists might say that the government has only not yet specified the level of the SEISS grant in phase four, so that it can top-up struggling freelancers, or at least put these self-employed individuals on a par with the employed. Indeed, the level of the fourth phase of SEISS grant not being set in stone indicates that the chancellor wants to take stock of the economic impact that the UK faces in the months ahead, to ensure the financial response to freelancers for the February-April period is commensurate with the need.

This would be entirely consistent with the previous grants which were each set in isolation.

Amid the anticipation, keep the tax reality in mind

Finally, while it is fortunate that no accounting uncertainty arises from the fourth phase of the SEISS being unspecified at the present time, from a tax perspective, it must be borne in mind that all these grant sums will need returning as gross payments on 2020/21 self-assessment tax returns. And with the scheme extending to the end of April 2021, requirements to disclose income from the grants will also extend into the 2021/22 tax year.

Right now, however, freelancers are waiting with bated breath to discover when the third phase of the SEISS grants will be pocketable.

SEISS eligibility refresher

Remember to be eligible, self-employed individuals, including members of partnerships, must meet the following criteria:

• Currently be eligible for SEISS (although they do not have to have claimed the previous grants)
• Declare that they are currently actively trading and intend to continue to trade
• Declare that their business is adversely affected due to Covid-19 in the qualifying period. The qualifying period for this third SEISS grant you’re now waiting on is between November 1^st 2020 and the date of the claim.