Specialist construction accountants at tax refund firm, Brian Alfred, warn that construction workers could be facing a high tax bill if they have claimed government support due to the Coronavirus pandemic
Data issued in early July from HMRC shows that construction industry workers have claimed more than £10.3bn from the government’s Self Employed Income Support Scheme (SEISS) since the grant was introduced in March 2020.
SEISS claims could result in significant tax bills
Many self-employed construction workers have a deadline of 31 January 2022 to submit their next self-assessment tax forms, which will confirm any money owed to HMRC for the 2020/21 tax year.
The majority of these workers are CIS registered, meaning that they would incur deductions of 20% to 30% at source by the contractors they are working for. This money is then passed onto HMRC to count as payment towards tax and National Insurance contributions.
Typically, once all earnings and expenses have been declared on the self-assessment form, HMRC often issues a tax rebate, often amounting to thousands of pounds – a welcome injection of cash for many workers.
However, this year, any money claimed through SEISS or other government support grants will be included as taxable income when workers submit their tax returns. For many, this will likely see the usual rebate replaced with the possibility of an unexpected tax bill.
Accountants urge CIS workers to submit tax returns as soon as possible
After a turbulent financial year for many working in the industry, self-employed construction workers must have a clear overview of their financial position for 2022 and beyond.
SEISS grants saw many construction workers receiving grants equalling 80% of monthly profits, capped at £2,500. While these grants were undoubtedly a vital lifeline for many self-employed business owners, they may bring unplanned tax liabilities that could have a significant impact on an individual’s financial plans.
In light of this, we want to make it clear that all subcontractors understand that any government-claimed grants from the past eighteen months will be classed as taxable income and will likely impact your tax bill.
Consequently, we would urge anyone who has benefitted from a SEISS grant since it first became available in the past year and a half to submit their self-assessment tax form as soon as possible to gain an understanding of their financial standing.
If any construction workers are banking on their usual tax rebate, they should begin planning for an alternative outcome.
The reduction in work due to the lockdowns of the past year also means that company expenses are also likely to be considerably lower than usual – further increasing the likelihood of the erosion of any potential tax refund.
Fifth SEISS grant due to go live at the end of July
The fifth and final installment of SEISS government-backed grants is due to be made available at the end of July.
Eligibility criteria for this iteration of the grant is the same as that of the previous version and will hinge on an individual believing that their business profit will likely be impacted by the Coronavirus pandemic between 1 May and 30 September 2021.
However, the most discerning feature of the fifth SEISS grant is that the government has now introduced different levels of the grant depending on your turnover.
When applying for this version of SEISS, the online service will ask for your turnover figures and automatically compare them for you. From here, the claims service will inform you as to whether you are eligible to claim the higher or lower grant amount.
There are two levels of grant available which are dependent on how your turnover has been impacted by the pandemic:
If your turnover is down by 30% or more, your grant will be:
- Worked out at 80% of three months average trading profits
- Grants will be capped at a maximum of £7,500
If your turnover is down by less than 30%, your grant will be:
- Worked out at 30% of three months average trading profits
- Grants will be capped at a maximum of £2,850
Without a doubt, the past 18 months have posed considerable challenges across all industries. It’s more important than ever to have a keen understanding of your financial position to allow for careful and considered future planning.
Anyone requiring additional support on calculating their current tax bill or forecast for the future should seek professional support and guidance to help ensure they are in the best possible position.
Senior tax manager