Paying Tax on Covid Related Grant Support

HMRC have issued draft legislation confirming as previously announced that various Covid-related grant support to businesses is subject to income and corporation taxes. Grant payments are not subject to VAT as they are not made in return for a supply of goods or services, and grants don’t need to be included in VAT returns nor count towards the VAT registration threshold.

The grants subject to income and corporation tax are:

  • Self-Employment Income Support Scheme (SEISS)
  • Coronavirus Job Retention Scheme (CJRS)
  • Discretionary Grant Fund (DGF)
  • Small Business Grant Fund (SBGF),
  • Retail, Hospitality and Leisure Grant Fund (RHLGF)
  • Other payments made by public authorities to businesses in response to COVID-19, and any other COVID-19 support scheme specified or described in regulations made or to be made by the Treasury

Whether or not any tax is actually due will depend on the business profits of the grant recipient.  That will be subject to the usual factors of other business income and expenditure, and any other taxable income or tax allowances that the company or individual may have.

The draft legislation will be in the forthcoming Finance Bill 2020 as a late amendment.  For unincorporated businesses, payments will be deemed to be income for the 2020-21 tax year, with tax due in January 2022, with companies bearing the tax on the usual corporation tax payment date for their year end.  For partnerships, the SEISS grant is made based on each partners’ personal eligibility.   It is expected that the SEISS grant is being allocated by such partnerships to the relevant partners, in which case it does not feature in the firm’s calculation of partnership profits and is reportable by the individual partner alone.

The rules also confirm the statutory basis to enable HMRC to reclaim payments from a business which has received a grant but was not entitled to it. HMRC can also make an officer of an insolvent company jointly and severally liable for the Income Tax charge raised in relation to any CJRS payment to which the company was not entitled or any CJRS payment which can be shown was never intended by the company to be used to pay employee costs, PAYE, NICs and pension contributions. Those circumstances are where the officer is culpable for making a deliberate CJRS claim to which the company was not entitled and where the company enters insolvency.

 

Contact Rob Durrant-Walker, Business Tax Technical Director rdwalker@garbutt-elliott.co.uk for more information