Sole traders or those in partnerships – who received support from the UK Government’s Self-Employed Income Support (SEIS) scheme during Covid may need to take particular care when they make their tax return at the end of the month or they could be investigated by HMRC, say tax and advisory firm Blick Rothenberg

Blick Rothenberg tax services director, Robert Saler, said: “Self -employed taxpayers with an established business would typically report their trading income (profits) based on the business accounting year-end which ended between 6th April 2021 – 5th April 2022. If their business has an accounting year end of say 30th June (so 30th June 2021 for the purposes of the 2021/22 UK tax return), the sole trader would report that accounting period’s profit figure on their tax return for the 2021/22 tax year.”

He added: “However, the trap for unwary individuals arises from the fact that SEIS grants are taxable income directly on a ‘tax year’ basis. This means that any SEIS payments received from the Government during the 2021/22 UK tax year need to be fully reported on the 2021/22 UK tax return at the end of the month.”

Saler said: “In many cases, the accounting year for self-employed traders will simply match the UK tax year (or potentially run until 31st March), in which case the self-employed traders will not have a problem as the ‘tax reporting basis’ for their trading profits and their SEIS grants will be covering the same period. 

“However, those self-employed people with an established accounting year end which differs from the standard UK tax year need to ensure that when completing their 2021/22 UK tax returns, they report:

  • The trading profit based on the accounting year end of their business; and
  • SEIS grants actually received during the 2021/22 UK tax year.”

He added: “If they report both the trading profit and the SEIS grants on the same basis, they will – unless they have an accounting year end of 31st March or 5th April – be reporting the wrong amount of income on their self-assessment tax returns. “

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Saler concluded: “This could easily result in them being audited by HMRC for tax return failures and becoming liable to late payment interest, surcharges and tax-related penalties for any underpayment of tax which might have arisen.”