When will Coronavirus support payments tax apply?

Businesses leaders across the UK need to start preparing to account for their Coronavirus support payments tax.

Coronavirus support payments, whether received from your local authority or central government, are taxable income for your business. How and when will Coronavirus support payments be taxed, and when should you report the income to HMRC?

Let’s take a look.

coronavirus support payments tax
Coronavirus support payments, whether received from your local authority or central government, are taxable

Coronavirus Support Payments Tax – Special rules apply

Special rules included in the Finance Act 2020 set out how the various grants collectively referred to as coronavirus support payments should be treated for tax purposes.

The rules not only confirm that coronavirus support payments are taxable (there are exclusions for charities etc.) but how they should be declared to HMRC. This can differ for companies and unincorporated businesses.

The general rule for coronavirus support payments is that they count as income for the purpose of calculating profits or losses. Generally accepted accounting principles (GAAP) should be used when including coronavirus support payments as income in your business accounts unless tax rules override them or you don’t follow GAAP when preparing accounts. 

If you’ve received Self-Employment Income Support Scheme (SEISS) payments, they are taxable only for 2020/21, i.e. the tax year in which they were paid. This is the position even if accounting principles attribute part of the SEISS grant to 2019/20.

Coronavirus support payments paid to a business which ceases or has ceased to trade are income for the tax year in which they are received. For example, a payment by a local authority received in April 2020 is taxable in 2020/21, again regardless of GAAP.

Unincorporated businesses generally aren’t required to prepare their accounts using GAAP, but they can be, when prepared by an accountant rather than by the business.

Where GAAP is used coronavirus support payments (unless subject to one of the tax overrides) must be shown in the accounts covering the date on which the business became entitled to the payment. For example, local authority grants for the hospitality industry were approved on 10 March 2020 and so must be reported in the accounts covering that date even if the money is received after the end of the accounting period.

SEISS payments received by a partner in a business are not treated as income of the partnership if the entire coronavirus support payment is kept by the partner rather than shared. They must not be included in the calculation of the firm’s profit or loss but instead added to each partner’s share of the profits after they have been allocated in the usual way.

Do you need help understanding when Coronavirus support payments are taxed? Get in touch and we can help.

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