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Businesses receiving Covid-19-related support payments need to ensure the receipt is correctly recorded as taxable income for corporation tax purposes. For unincorporated businesses using the cash basis, this is straightforward. However, where the accounts are prepared using GAAP, greater attention is required.
According to Section 106 of Finance Act 2020 payments received under the following schemes are within the scope of this:
- the coronavirus job retention scheme;
- the self-employment income support scheme;
- any other scheme that is the subject of a direction given under section 76 of the Coronavirus Act 2020 (functions of Her Majesty's Revenue and Customs in relation to coronavirus or coronavirus disease);
- the coronavirus statutory sick pay rebate scheme;
- a coronavirus business support grant scheme;
- any scheme specified or described in regulations made under this section by the Treasury.
- Schedule 16 deals with the tax treatment of the income, as well as exemptions for charities, charitable companies, and community amateur sports clubs.
In summary
The fundamental rule is that the payments are taxable when they are recognised using GAAP. This means that they should be reported in the period they relate to, rather than when they are received. This is based on the date that the business becomes entitled to the payment, not the date it is paid. As an example, the first tranche of Local Authority grants based on the business premises' rateable value were approved on 11 March 2020 and based on the rateable value at that date, as long as the business was still trading. There were no performance conditions, so an eligible business became entitled to the grant on 11 March 2020, and this is the correct date to use for recognising the income.
Important exceptions
Firstly, receipts under the Self-Employed Income Support Scheme (SEISS) are taxable in 2020-21, even if part of this is attributable to the period before 6 April 2020.
Secondly, if a business ceases trading but subsequently receives a coronavirus support payment, the income is included for the year it is received, even if this gives a different result than under GAAP.
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