The U.K. government's costly coronavirus payments miscalculation

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At the start of August, Kevin Humphreys was perplexed. A specialist in forensic investigation and tax disputes at the litigation firm Integrated Dispute Resolutions, he had happened across a series of puzzling anomalies in the U.K. government’s Self-Employment Income Support Scheme (SEISS).

Launched in May 2020, the aim of SEISS was to provide two waves of support grants to help self-employed individuals in the U.K. who had been affected by the coronavirus pandemic, and had trading profits of less than £50,000.

The first wave of grants — paid by HM Revenue & Customs (HMRC), which runs the scheme, between May and July 2020 — was intended to provide payments equating to 80% of average trading profits over the course of three months. However, Humphreys was informed by a series of self-employed clients that they had received sums which, in some cases, far exceeded this amount.

“I had a very small tax portfolio of 20 self-employed clients who claimed the first SEISS grant,” he said. “Two of my clients reported that they were to receive amounts in excess of what I had told them to expect. One I had calculated at £2,000 and he duly received £2,369 and the other £3,243 when I calculated the grant at £2,907. Both cases were very straightforward to calculate, so I found the anomaly a little odd.”

A brief Google search revealed that Humphreys’ clients were far from the only self-employed individuals receiving mysterious excess payments.

“Some accountancy websites had identified other cases and seemed equally stumped as to the cause,” he said. “I started to review social media, and Twitter in particular, where I found a number of tweets from self-employed people who had received HMRC apology letters. Many people seemed to think they were fraudulent, and presumably had no idea upon receipt of their grant that there was anything untoward with the amount. One disturbing example was tweeted by one woman who had received £1,228 but had been told by HMRC there had been an error and that she was only entitled to £67.”

Humphreys’ investigations have subsequently forced HMRC to release an official statement on the matter, which revealed that approximately 0.6% of the 2.7 million grants that were issued between May and July included an overpayment, equating to around 16,000 individuals. The only explanation provided so far has been that in a small proportion of cases, not all the information held on tax returns was taken into account when calculating eligibility and grants.

Initial government guidelines published on July 28 included a stark warning that anyone who had either received a grant they were not entitled to, or an overpayment, had until October 20 to notify HMRC or they would face a penalty. However, an HMRC spokesperson has since said that it will not look to recoup these excess payments, to avoid causing hardship to those who may have already spent the money.

Instead, those known to have received overpayments will have this excess money deducted should they now apply for a second support grant. The application window for a second wave of SEISS grants began on Aug. 17 and is open until Oct. 19. It provides payments equating to 70% of average trading profits over the course of three months.

The U.K. isn't alone in its troubled distribution of coronavirus grants. In the U.S., stimulus payments were slow to arrive because many U.S. residents lacked a digital connection to the IRS and others did not have a bank account to deposit the funds into. This caused over a month of delays — and the frustrations were compounded by reports that 1.2 million dead people had received payments in the meantime.

For self-employed U.K. residents who mistakenly received excess payments, the news that they will now receive far less money than they were anticipating and budgeting for has been not easy to accept.

“They were only a week away from making a second claim and had broadly worked out what to expect, so around 88% of the first amount,” said Humphreys. “Many of my clients were devastated by the news.”

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Government payments U.K. Coronavirus