Calculating income and corporation tax after payments made under Covid-19 support schemes.
New legislation will be included in Finance Bill 2020 that will apply to individuals, businesses, individual members of a partnership and employers who received or applied for a payment from:
- Self-Employment Income Support Scheme (SEISS)
- Coronavirus Job Retention Scheme (CJRS)
- the Small Business Grant Fund (SBGF), the Retail, Hospitality and Leisure Grant Fund (RHLGF), the Discretionary Grant Fund (DGF), or their parallel schemes in the devolved administrations
- other payments made by public authorities to businesses in response to COVID-19
- any other COVID-19 support scheme specified or described in regulations made by the Treasury.
The measure will have effect from Royal Assent of the Finance Bill 2020 and will apply to all payments made under Covid-19 support schemes defined in the measure regardless of when paid.
The legislation:
- defines a coronavirus support payment
- confirms that a COVID-19 support scheme payment received by a business, or an individual member of a partnership, is within the scope of tax. It is of a revenue nature for the purposes of calculating either income tax or corporation tax. Business includes a trade, UK or overseas property business or investment business
- ensures HMRC can use its information and inspection powers to check a SEISS or CJRS claim has not been overpaid and that a CJRS payment has been used to pay furloughed employee costs
- gives HMRC powers to raise an income tax assessment on anyone who has received a SEISS or CJRS payment to which they are not entitled, or anyone who has not used a CJRS payment to pay furloughed employee costs. The assessment is equal to the amount to which they are not entitled, or they have not used to pay furloughed employee costs
- ensures the Taxes Management Act (TMA) 1970 provisions apply to the assessment
- gives HMRC powers to charge a penalty where a person deliberately makes an incorrect claim for a SEISS or CJRS payment. It also gives HMRC powers to charge a penalty where a person who has claimed a CJRS payment deliberately does not use it for the costs it was intended to reimburse. The penalty will only apply if the person fails to notify HMRC about the situation within 30 days, or 30 days after the Finance Bill receives Royal Assent if it arose before that
- gives HMRC powers to make a company officer 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 was never intended to be used to pay furloughed employee costs in certain circumstances. Those circumstances are where the officer is culpable for making a deliberate CJRS claim to which the company was not entitled. These powers apply where HMRC can meet certain tests showing there is a serious risk that the company will be unable pay the income tax assessment.
In addition to the above taxation implications, there are also accounting implications of the various grants. View ACCA’s technical factsheet on the accounting aspects
Article from ACCA In Practice