Self-employed grants ‘are liable for tax and national insurance’

July 2020

Recipients of self-employed income support grants may not realise they are taxable, a tax group has warned.

The grants are worth up to 80% of trading profits, paid in a lump sum to cover three months, and capped at £7,500.

More than 2.6 million lump sums worth £7.6 billion had been provided through the scheme up to 21 June 2020, equating to in excessof half the UK’s entire self-employed population.

Up to a third of those grants may have to be repaid in income tax and class 4 National Insurance contributions (NICs) in a 2020/21 tax return, which is due on or before midnight on 31 January 2022.

The Low Income Tax Reforms Group (LITRG) fears recipients may assume the lump sums are exempt from income tax and NICs as they are labelled ‘grants’.

The LITRG said self-employed subcontractors in the construction industry will need to watch out for the grants being paid without tax taken off.

This is different to their other income, which is usually taxed before they receive it, and may mean they miss out on their usual refund after submitting their 2020/21 tax return.

Victoria Todd, head of LITRG, said:

“Many claimants might 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 NICs on it.

“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 NICs due on the grant.

“For many self-employed claimants, this is likely to be 20% income tax and 9% class 4 NICs.

“HMRC needs to publicise that the grants are chargeable to income tax and NICs, to reduce the risk of people getting higher-than-expected tax bills.”

Get in touch about your 2020/21 tax return.
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Self-employed grants ‘are liable for tax and national insurance’
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