Those who have claimed SEISS might not know it’s taxable

The LITRG has raised concerns surrounding the government’s Self-Employed Income Support Scheme, warning that those who have received the grant might not be aware that it’s taxable.

For many, a third of the grant might have to be ‘paid back’ in tax and Class 4 National Insurance Contributions (NIC), which will be payable by 31^st January 2022.

The Low Incomes Tax Reform Group (LITRG) fears that people could instead assume the amount is exempt from tax, particularly as it is described by the Government as a ‘grant’.

The timing of the grants – early in the tax year – means that individuals might have to forecast their total taxable profits for 2020/21, so they can estimate the amount of tax and National Insurance due on the grant. For many, this is likely to be 20% tax and nine per cent Class 4 NIC.

Victoria Todd, Head of LITRG, said, “Many claimants of SEISS grants might, understandably, use the money as soon as they get it, for example, to catch up on liabilities or to meet essential living costs – but they need to think now about budgeting for income tax and National Insurance on it.”

Victoria added, “The Government has announced recently that a second wave of grants will be paid under the scheme in August 2020.⁶ We urge HMRC to do as much as they can to publicise that the grants are chargeable to income tax and National Insurance, to reduce the risk of people being surprised by higher-than-expected 2020/21 tax bills.”

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