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HMRC release details of penalty system used for workers claiming SEISS funds they aren’t entitled to

Updated: May 9, 2021

HMRC image credit: HMRC

Thousands of self-employed workers continue to claim their fourth crucial Self-Employment Income Support Scheme (SEISS) grant which went live on 22 April.

In detailed guidance issued by HMRC, the factsheet contains information about the recovery of overclaimed SEISS grants. It also tells workers about the penalties HMRC can charge which could be as high a 100% of the payment claimed.

An overclaimed SEISS grant includes any grant which a self-employed worker was not entitled to receive or a grant that was more than the amount HMRC said they were entitled to when they made the claim.

If a worker has over-claimed a SEISS grant and has not repaid it yet, they are being asked to tell HMRC within a set notification period. The notification period ends on the latest of:

  • 20 October 2020

  • 90 days after workers receive the SEISS grant they are not entitled to.

In the HMRC guidance it says: “We understand that mistakes can happen, particularly in the present circumstances. We’ve made it as easy as possible to pay back any amounts of SEISS grants you’ve received that you were not entitled to. If you received too much because you made an error in a claim, you must pay this back to us.”

It goes on to add: “Our priorities are supporting our customers and tackling deliberate non-compliance and criminal attacks. We will not be actively looking for innocent errors in our compliance approach. We’ll assess overpayments and charge penalties to support these priorities.

“To recover the full amount of an overpaid grant, we can make a tax assessment. We’ll assess for the amount that you were not entitled to and have not repaid. If we make an assessment, we’ll write to you about it.”

Workers must pay any amount scrutinised by HMRC within 30 days of the assessment. HMRC will charge interest on any late payments and may also charge late payment penalties if the amount remains unpaid 31 days after the due date.

HMRC may charge a penalty if the self-employed worker does not tell them within the notification period that they are chargeable to Income Tax on an overclaimed SEISS grant.

When deciding the amount of any penalty, HMRC will take into account whether the claimant knew they were entitled to the SEISS grant, when they received it and when it became repayable or chargeable to tax because the worker's circumstances changed.

If a worker knew they were not entitled to the grant and did not tell HMRC in the notification period, the law treats the failure as deliberate and concealed. This means HMRC can charge a penalty of up to 100% on the amount of the SEISS grant that the claimant was not entitled to receive or keep.

If the self-employed worker did not know they were not entitled to the grant when they received it, HMRC will only charge them a penalty if they have not repaid the grant by 31 January 2022.

The fourth grant is calculated much like previous SEISS grants at 80% of 3 months’ average trading profits. It is being paid out in a single instalment and capped at £7,500 in total. How much a worker receives will depend on their average trading profits.

HMRC will work out your average trading profits using up to 4 years’ of submitted tax returns. This may affect the amount claimants get which could be higher or lower than previous grants.

HMRC takes into account trading profits from the 2016 to 2017, 2017 to 2018, 2018 to 2019 and 2019 to 2020 tax years. For those with a gap in the years they have traded, HMRC will only use the most recent returns after the gap to work out the grant.

There is also a fifth and final SEISS payment in the pipe-line. The fifth SEISS grant will provide support between May and September with the value of the grant based on the claimant's turnover. Despite the support running for a total of five months, only three months of trading profit support will be offered.

The value of the grant will be determined by a turnover test, to ensure that support is targeted at those who need it the most as the economy reopens.

People whose turnover has fallen by 30% or more will continue to receive the full grant worth 80% of three months’ average trading profits, capped at £7,500. People whose turnover has fallen by less than 30% will receive a 30% grant, capped at £2,850.

The fifth and final grant can be claimed from late July. Further details will be published in due course by HM Treasury and HMRC.

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