Accountancy firm Brian Alfred is encouraging workers to complete self-assessment forms earlier than usual to prepare for nasty shocks.
If you’ve benefitted from the self-employed income support scheme (SEISS) to get through the Covid crisis, you are liable to be hit with a significant tax bill, it says.
Stephen Chapman, senior tax manager at Brian Alfred, said that people registered with the Construction Industry Scheme (CIS) could generally expect an annual tax rebate. But they may not be due any money back this year if they have accessed SEISS.
The vast majority of self-employed construction workers are CIS registered, which means deductions of withholding tax from their invoices of 20 or 30 percent. This money is then passed onto HMRC to count as payment towards their tax and National Insurance contributions.
Self-employed construction workers then submit an annual self-assessment declaring all earnings and expenses, and this often results in a tax rebate, which can amount to several thousands of pounds.
However, this is unlikely to be the case for this financial year, as any money claimed through SEISS will be included as taxable income when submitting tax returns.
Stephen Chapman said: "We're now more than a year on from the introduction of SEISS, but many self-employed construction workers are yet to fully appreciate the impact that these government grants will have on their tax liabilities.
"For those that have received a SEISS grant in the 2020/2021 tax year, this money will be deemed as taxable income, and this is a crucial factor that all sub-contractors need to be aware of. This may lead to the erosion of any refund – or a larger tax bill than would be expected – compounded by the fact that expenses are also likely to be much lower due to less work taking place through the lockdowns.
For the 2020/21 tax year, self-employed workers that are CIS-registered may have received grants from the SEISS, which has seen up to 80 per cent of monthly profits, capped at £2,500 per month, being paid out. The scheme received huge take-up, with the construction industry contributing the highest number of eligible workers. In total, 884,000 construction workers made claims for SEISS, totalling £3.1bn as of 31st July 2020.
The government has introduced five iterations of the SEISS grant, with the fifth one effective as of 1st May 2021 and covering the period between May and September 2021.
The accountant urged any construction workers that have accessed SEISS to start getting their self-assessment forms together now and submit them as early as possible (ahead of the deadline of 31st January 2022) to fully understand what money they might owe HMRC
“Lots of people have already submitted their self-assessments in April and May in response to the new tax year and are already finding that they are not receiving the rebates which they have become so accustomed to.
“We’re urging those subcontractors not anticipating a rebate (or a tax bill) and looking to leave filing their self-assessment until December or January, to act now to understand their tax situation and allow time for them to plan ahead. Without this, they could find themselves with an unexpected bill to pay before 31st January 2022 and only a four-week turnaround time to pay back any money owed to HMRC.”
Personal tax returns can be submitted from 6th April and must be filed electronically by the following 31st January with HMRC.