Freelancers, don’t join the 6,000-plus SEISS investigations by HMRC
As freelance sole traders reluctantly focus on Omicron and the prospect of festive restrictions, they should also force themselves to confront any pandemic grants they claimed to avoid joining the already 6,000-plus probes by HMRC into incorrect usage of the Self-Employment Income Support Scheme, writes Gareth Wilcox, partner of Opus Restricting & Insolvency.
Reminder for freelancers: what was the SEISS?
As FreelanceUK readers will no doubt recall, SEISS was a scheme designed by HM Treasury to support self-employed workers whose trade was impacted by the (original) coronavirus pandemic and associated restrictions.
The scheme allowed those individuals who had traded for at least the two tax years prior to the pandemic and expected to continue trading, but expected to suffer a significant reduction in turnover, to claim grants to cover their lost income.
The scheme closed on September 30th 2021, and the government is not currently anticipating any further grants being made. Even business-support outfits seem accepting that SEISS has had its time.
How much was paid out under the scheme?
The SEISS was released in five separate grants and allowed eligible individuals to claim up to 80% of three months’ average trading profits for the relevant period (capped at £7,500).
While the criteria for each grant was slightly different (the second was capped at 70% of trading profits or £6,570) being arguably reflective of the stage of pandemic at the time, a self-employed person who claimed the maximum under the SEISS would have received £36,570.
That amount helps explain why, according to a government report released in September 2021, as of June 6th 2021, a hefty £25.2 billion had been paid across four of the SEISS grants (released up to that time), with a total of 9.1 million grants being paid to 2.9 million claiming individuals.
Since there is a further grant to add to the above statistics (albeit one which was in a period of relatively greater freedom for self-employed people to trade), this represents a significant outlay for the government.
What SEISS problems look like
As is inevitable -- given both the number of claims and indeed the speed at which the relevant legislation was implemented, there will be instances where SEISS claims have been made which ought not to have been.
Many of these will be innocent omissions or oversights by individuals who may have overestimated either their pre-pandemic turnover, or the impact that covid-19 would have.
Similarly, it was always foreseeable that inadvertent errors would be made on new and unfamiliar HMRC forms for taxpayers to apply for SEISS.
In addition to these areas where HMRC will hopefully be more understanding, some SEISS claims will be fraudulent in their entirety.
Interestingly, HMRC has published details of its intentions for dealing with errors and fraud in covid-support schemes, with over £100 million being invested in a Taxpayer Protection Taskforce of 1,265 HMRC staff to combat associated fraud. HMRC expect the taskforce to allow them to increase one-to-one enquiries to 30,000 cases in total, across three years, up to 2022 to 2023. The Revenue further anticipates recovering between £800m and £1 billion between 2021 and 2023, in addition to the £536m reported as having been collected in 2020 to 2021.
While this amount covers support other than the SEISS (including Bounce Back Loans and grants from the furlough scheme), it is clear that compliance is a matter which HMRC is taking very seriously. And the public appear on side – the grants were for those in unprecedented difficulty due to unprecedented circumstances.
What should sole traders do if sitting on SEISS irregularities?
HMRC’s guidance provides a number of examples where SEISS ought to be paid back. Including:
- If your business was not adversely affected (in the case of the first and second grants);
- If your business had not been impacted by reduced activity, capacity or demand or inability to trade in the relevant periods (for the third SEISS grant onwards);
- If you did not, in fact, intend to continue to trade;
- If you’ve incorporated your business (i.e. you have complete the move from sole trader to limited company).
Unsurprisingly, HMRC also states that individuals must let HMRC know if they:
- Received more than HMRC said they were entitled to
- Have amended any of their tax returns on or after March 3rd 2021 in a way which affects eligibility or lowers the entitlement to the fourth or fifth grant beyond what was received;
- Made a mistake reporting turnover in the claim for the fifth grant, resulting in a lower entitlement that the amount received.
Further, HMRC advises that in most cases, grants which are identified as not being due, should be repaid within 90 days of receipt of the funds.
How HMRC should be advised of requirements to repay depends on the nature of the error, and guidance is available here. In certain circumstances, it will just be a case of reporting the error on your next self-assessment tax return.
Here’s what happens if freelancers fail to report SEISS errors
Putting to one side the possibility (or indeed likelihood) that errors are not picked up due to a lack of resources with HMRC, an individual who has overclaimed on SEISS should expect the tax authority to launch a compliance intervention.
This may be as straightforward as entering into a series of letters with HMRC. Or it may involve an onsite visit by an HMRC official.
In either scenario, individuals would be well-served to ensure that their papers are very much in order, and for further help in defending against HMRC, may wish to engage a professional adviser. Clearly, the Revenue will seek to recover any amounts which are deemed to be overpaid as they would any other debt, along with any relevant penalty charges and interest.
FreelanceUK readers ought to be aware -- this could lead to the debt increasing significantly, and ultimately result in bankruptcy proceedings being brought against the individual concerned, (in addition to potential criminal charges if conduct is of a sufficient standard to justify them). And if a self-employed individual is made bankrupt, it could lead to significant restraints on their ability to trade.
Don’t become part of the 6,000-plus SEISS interventions
Also significant is research by BLM showing that in the period to June 30th 2021, there were 6,351 compliance interventions arising from SEISS claims.
Notably, however, no arrests have been recorded in relation to SEISS (whereas there have been 5 arrests in arising out of 7,632 furlough scheme interventions).
While the above clearly represents a tiny proportion against the claims made, it relates to a period prior to the above-mentioned announcement of the HMRC taskforce. As such, all the above figures are expected to increase dramatically, as time goes on.
What should I do if I can’t afford to pay back an overclaimed grant?
If an innocent overclaim of SEISS has been made by a self-employed HMRC customer, it should be treated like any other tax debt. As such, there are several possibilities open to an individual, including:
1. Seeking a ‘Time to Pay’ agreement with HMRC
This is likely to be appropriate if the only ‘problem’ debt an individual has is with HMRC, provided they have sufficient income to make a meaningful offer of repayment over a reasonable period of time.
Since the pandemic, HMRC has (in my experience) been more amenable to extending such agreements for periods well in excess of 12 months. However, Time to Pay agreements will be dealt with on a case-by-case basis, and it is possible that a harsher line may be taken with SEISS overpayments than with other ordinary debts;
2. Proposing an Individual Voluntary Arrangement
This is likely to be appropriate if a person has a number of different creditors, but has sufficient income or assets to make a meaningful offer to their creditors to pay a sum (usually over a period of five years if based on income), sufficient to allow a better return that would be achieved if the individual was to be made bankrupt.
But be aware, the IVA route requires the engagement of an Insolvency Practitioner, or ‘IP’ for short (who will act as Nominee and Supervisor, if accepted) and must be supported by a majority of 75% of creditors entitled to vote.
3. Exploring Last Resorts
Either of these options would have significant implications for a self-employed individual and should only be treated as a ‘last resort’ -- i.e. if there is no possibility of a recovery of the position.
Finally, don’t delay telling HMRC if something SEISS-related looks off
Abuse of the Self-Employment Income Support Scheme is clearly something that the government is looking to crack down on and, let’s face it, the intention is that the taskforce will be self-funding, recovering significant sums into the exchequer at a time when it is badly needed.
It may be tempting for individuals who suspect that they may have overclaimed SEISS to take a ‘bury your head in the sand’ approach -- and focus on other things, such as preparing their business for this new concerning strain of the coronavirus. But the inescapable fact is that acting quickly AS SOON AS the issue is identified will enable a better, more financially-palatable outcome, than if HMRC is forced to knock on your door and take recovery action itself. Any individuals who are concerned about their SEISS usage, and their financial position as a result, should consult a qualified professional such as their accountant, a solicitor, or a licensed IP.
7th December 2021