Legislation was introduced in Finance Act 2020, setting out the tax treatment of a Self-Employed Income Support Scheme (SEISS) payment.
All SEISS amounts received will be subject to income tax and national insurance contributions. Payments will be taxed within the tax year they were received, with one exception involving partnerships mentioned below.
For sole traders, it will be necessary to add the SEISS payments received in 2020/21 to the trading profits or losses that fall within the assessment year to 5th April 2021.
For example, if a sole trader draws up their accounts to the year to 30th June 2020 and they make a trading profit of £10,000 for that year. Plus, they received SEISS payments totalling £13,070 in the 2020/21 tax year, then the sole trader will be taxed on a total of £23,070 in the 2020/21 tax year.
If the sole trader had made a trading loss in the year to 30th June 2020. The SEISS grants received in 2020/21 would be netted off against the loss. Any unrelieved losses can be utilised, subject to the normal trade loss relief rules.
There can be different rules applying to partners in a partnership depending on whether the SEISS grants are taken by the partner or introduced into the partnership.
Partner Keeping SEISS Payments
Where a partner receives SEISS payments in 2021/21 and keeps them all, the partner will be taxed on the total of their share of the partnership profits plus the SEISS payments received in 2020/21.
Partner Introduced the SEISS Payments to the Partnership
Where the SEISS grants are not taken by the partner but introduced into the partnership, the grant becomes part of the partnership trading income, which is taxed according to the profit-sharing agreement, therefore the grants are not assessed in the tax year in which received.