Adversely affected business by coronavirus

Self-Employment Income Support Scheme

What is an Adversely Affected Business?

A taxable grant was payable to eligible self-employed individuals (and partners) in the course of the COVID-19 crisis.

HMRC will and have already started policing claims to ensure that only those eligible were in receipt of the grant. Many of the qualifying criteria are factual. However, one aspect that is open to interpretation is the question of what constitutes and adversely affected business.

HMRC have issued guidance, as such, by means of examples to amplify the comments.

Within this part of the guidance, again, some of the criteria are clear.

Generally a business will have been adversely affected where it has experienced lower income or higher costs due to coronavirus.

That, in itself, is somewhat broad as there are many other factors which can affect income and costs. What is important here is that the changes are as a result of the pandemic and restrictions placed upon traders.

So it is important that the traders analyses the cause of the downturn. In the vast majority of cases this is most likely the COVD-19 situation.

Some obvious causes are if the trader:

1. Is or was shielding
2. Is or was self-isolating
3. Is or was sick because of COVID-19
4. Has or had caring responsibilities because of COVID-19

That being said, these criteria must have had an adverse impact on the business. It is conceivable that, given the nature of the business, work could continue as normal in the above circumstances. So fitting the above criteria is not an automatic passport to the grant.

HMRC also consider other factors over and above the preceding points.

These are where the business has scale down, temporarily stop trading or incurred additional costs because:

1. The supply chain has been interrupted
2. There have been fewer or no customers or clients
3. The staff have been unable to come in to work, or work at home
4. Contracts have been cancelled
5. The business had to purchase PPE in order to follow social distancing rules

It is important that records are kept of all aspects under consideration as HMRC may well call for such evidence at a later date.

Examples would be:

1. Business accounts showing a reduction in turnover or increase in expenditure. It may be advisable to prepare a statement for the various periods during the crisis. Total lockdown, relaxation of lockdown on a partial basis. Regional lockdown (e.g. Leicester)
2. Confirmation of any coronavirus-related business loans you have received
3. Dates your business had to close due to lockdown restrictions
4. Dates you or your staff were unable to work due to coronavirus symptoms, shielding or caring responsibilities, or what considerations were made to staff working from home
5. Details of expenditure on PPE and what measures were taken by the business in order to comply with social distancing rules (signage, screens, contactless payment equipment for example)
6. Records of contract cancellations

There is no de minimis associated with these rules. What is necessary is to prove that there has been a downturn.

However, it is interesting to note that, in the more detailed commentary from HMRC, the word “substantial” has been used without explanation.

It is difficult to know exactly what is meant here and the use of the word is somewhat contradictory to the main guidance. Time will tell if HMRC will adopt the usual stance on “substantial” being greater than 20%. However, provided the above criteria are met, it would be possible to argue that the guidelines were followed as published at the time. To introduce a quantative test after the event would be somewhat disingenuous.

As with all of the Government help during the crisis, issues and anomalies will continue to develop.