SEISS Penalty and Repayment Regime
On 28th July 2020, HMRC announced how they were going to punish wrongdoers who misused the SEISS (Self-Employment Income Support Scheme). On the face of it, it’s not too problematic since all they are asking people to do is take a close look at the claim they made and, with the benefit of hindsight, consider whether the claim was either appropriate or excessive.
Accountants and tax agents are understandably worried that their clients will be vulnerable to significant penalties in respect of a grant application which was, by reason of government edict, an application made without the assistance of their professional advisers.
If clients have received a grant to which they were not entitled, HMRC needs to be notified by the later of:
20 October 2020 90 days after they received the grant
Payment of the outstanding balance of any over claim is to be made in full by:
31 January 2022.
Information on how and where to notify HMRC can be found HERE
It cannot be emphasised enough that the first two dates above are the ones to be observed if clients are to avoid the potential for a severe penalty loading.
Recovery of the amount overpaid may be either by assessment, voluntary repayment or by inclusion on the 2020/21 income tax return.
The new guidance document CC-FS47 firstly, deals with the failure to report the over payment under the Schedule 41 FA 2008 failure to notify regime which is, itself, an oddity since the amount being recovered is not a tax and ultimately, there is, of itself, potentially only a failure to notify the necessity to repay an overpaid grant.
The guidance gives some fairly strong warnings concerning the failure with claimants who knew they were not entitled to the grant, automatically being treated as having deliberately and concealed the failure, giving a starting penalty of 100% of the grant paid out.
Nevertheless, there does look to be an escape route from the potential penalties in the second statement below.
If you knew you were ineligible for the grant when you received it, any penalty will be based on the amount you were not entitled to receive and did not repay by the last day of the notification period.
If you did not know you were ineligible for the grant when you received it, we will only charge you a penalty if you have not repaid the grant by 31 January 2022.
It should be noted that this statement should come with a strong health warning since, if HMRC follows their normal approach concerning the examination of taxpayers subjective knowledge, they will seek evidence that the claimant either reviewed the guidance and can provide a tenable reason for their decision, or they took advice from appropriately qualified advisers. The courts have supported HMRC’s view that, to merely stick your head in the sand and make a claim without taking appropriate advice is tantamount to a deliberate act and they will penalise clients accordingly.
As of week beginning 24 August 2020, Croner Taxwise has received its first claim from a client who has received a letter advising the client to check their Coronavirus Job Retention Scheme claim. It is clear that HMRC believes that they have enough information to indicate that the client has made an incorrect claim and it is also clear that, unless the client responds, there will ensue a compliance check which may result in penalties being charged.
All this being said, attempting to shoehorn a specific failure into a draconian penalty regime will create some interesting tribunal cases with the combination of HMRC’s often extreme scepticism when clients assert they were unaware of certain obligations and the subjective nature of trying to prove a negative i.e. proving you did not know something.
However, it doesn’t end there because partnerships get a special mention. The guidance does make it clear that an individual partner who has received the payment and kept it himself, will be the only party pursued for repayment of the grant, interest, and penalties.
However, If any partner knew that they were not eligible for a grant which was paid into the partnership:
all other partners are taken to have known as well the failure to notify penalty will be calculated using the percentage ranges for deliberate and concealed behaviour
The concept of joint and several liability is an unfortunate by-product of the difficulties of dealing with partnerships where one or more of the partners may have been involved in avoidance or evasion. Outside of Scotland, and the relatively recent addition of Limited Liability Partnerships, there is no legal concept of a partnership as a single entity. HMRC enter into the fiction of the single entity for the purposes of completion of a single partnership return (albeit there is no single partnership liability) but makes it clear that each partner is taxable in their own right. The joint and several liability aspect derives from Section 9 of the Partnership Act 1890. Obviously, this ensures that creditors may pursue all of the partners in situations where indebtedness arises rather than being forced to pursue a partner who possibly behaved fraudulently but no longer has any assets.
This is well-trodden ground for partnerships where one poor or ill-advised decision by a single partner may cause severe financial issues for the rest of the partners.
To conclude, it is of paramount importance that agents are proactive and clients are warned to review their claims and payback within the time limits if they have over claimed. Those that choose to ignore that advice do so at their own peril since the Government is intent on sending out a strong message that their generosity with taxpayers’ money is not to be abused.