Since the first UK lockdown in March 2020, the government has announced an unprecedented amount of support for businesses and the self-employed.
The largest of the support schemes is the Coronavirus Job Retention Scheme, commonly referred to as the furlough scheme. This was launched on 20th April 2020 and has been utilised by 1.2 million employers to furlough 9.9 million jobs.
Coronavirus has resulted in several new accounting obligations for businesses, meaning individuals without an accountant that have utilised government help may be unaware of which support payments are taxable and what they need to declare to HMRC.
Our latest blog post runs through which of the government support payments are considered taxable income and how they can be declared to HMRC.
Which of the Support Payments are Taxable Income?
All of the following support payments that have been received by a business since March 2020 are considered taxable income. As a result, they must be declared in business profits for the relevant period. This includes:
- The Coronavirus Job Retention Scheme (CJRS) including the Coronavirus Job Retention Bonus Scheme
- The Self-Employment Income Support Scheme (SEISS)
- Any other scheme subject to a direction given under section 76 Coronavirus Act 2020 (This includes the Eat Out to Help Out scheme)
- The Coronavirus Statutory Sick Pay Rebate Scheme (CSSPRS)
What About Grants?
Whilst people may think a ‘grant’ is tax exempt, in addition to the above support, funds received as part of any Coronavirus Business Support Grant Scheme (CBSGS) are considered revenue in nature and therefore must also be declared. These include:
- Small Business Grant Fund
- Retail, Hospitality and Leisure Grant Fund
- Local Authority Discretionary Grant Fund
- Fisheries Response Fund
What Do I Need to Do?
To ensure that you do not fall foul of the rules, you need to ensure that any support received from the government as a result of the impact of Coronavirus on your business is declared in your business profits for the relevant period.
If you’re a limited company, you should treat any support payments as taxable income for corporation/income tax purposes. If the CJRS scheme has been utilised, employment costs can be deducted as normal when calculating taxable profits.
If you are a sole trader, the SEISS grant should be declared on your self-assessment tax return.
How Will HMRC Check What Has Been Claimed?
When any support scheme such as the CJRS is utilised by a business, they must provide specific information to HMRC including details of the bank account to which the support payments are being made (which would normally be business bank account).
As this information has been provided by the business, HMRC has full records of all support payments applied for and received by each claimant.
There is specific HMRC anti-avoidance legislation already in place to prevent businesses claiming a support payment where the bank account of the recipient of the monies from HMRC is not the business that has claimed the support payment.
For example, a sole trader claiming a £5,000 SEISS grant in June 2020 but giving the bank details of a relative or friend to avoid declaring the income on their self-assessment for the 20/21 tax year.
In this scenario, the sole trader and the recipient of the grant will both be considered to have participated in tax avoidance – the sole trader by merit of not declaring the £5,000 SEISS grant and the recipient of the funds as they have been party to the tax avoidance.
More Help & Information
If you need help with the management of your business accounting or self-assessment tax return, we can help. For more information, give one of our team a call on 0117 379 0810 to arrange a free no-obligation consultation.
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This post was written by Steph Roffey