Pandemic support payments and the tax return

26 Apr 2021

The past year has been dominated by the coronavirus (COVID-19) pandemic, which has had an extraordinary impact on lives, finances and businesses. The UK government's response was an exceptional array of measures to support businesses and livelihoods. From the furlough scheme to self-employed grants, statutory sick pay rebates to Eat Out to Help Out, the government has provided numerous avenues for businesses to get help.

However, businesses and individuals now have to start to think about the accounting and tax consequences of such support payments.

The tax position

The taxation position of coronavirus support payments was legislated for in the Finance Act 2020.

For business purposes, the general position is that all such receipts are taxable business income, whether as part of the ongoing profits or as post-cessation receipts. There are no particular tax rules relating to the timing of such receipts, other than for the Self-employment Income Support Scheme (SEISS).

Where an amount of a COVID-19 support payment made under the SEISS is paid to an ongoing business, the whole of the amount is to be treated as a receipt of a revenue nature for the year in which payment was received, irrespective of its treatment for accounting purposes.

However, this rule does not apply to an SEISS payment in respect of a partner of a firm where the amount is distributed amongst the partners, rather than being retained by the partner, meaning that such a payment would be taxed by reference to the accounting treatment.

Consequently, the general principle, other than for the SEISS, is to follow the accounting treatment for taxation purposes. In addition, the Finance Act 2020 contained assessment and recovery provisions in relation to incorrectly claimed COVID-19 support payments.

Broadly, where a business accepts that it is not entitled to some or all of a payment but is not assessed separately, the sums concerned are not included as taxable income of the business but treated as tax due in the tax computation.

The tax return

Self assessment and corporation tax returns require COVID-19 support payments to be specifically isolated and disclosed on the return.

On self assessment returns HMRC says the must include 'amounts of taxable coronavirus support scheme payments'. These include the SEISS, Coronavirus Job Retention Scheme (CJRS), Eat Out to Help Out and other applicable HMRC coronavirus support schemes.

Those taxpayers that received a COVID support scheme payment that they were not entitled to and have not voluntarily paid it back to HMRC already must include the incorrectly claimed amounts on their main tax return.

A further important point is referred to in the notes in that the trading allowance of £1,000 cannot be used against the SEISS.

So, the self assessment return is excluding all COVID-19 support scheme payments including the SEISS from turnover and then asking for those payments to be separately identified. Although the tax return notes do not make this point, other than for the SEISS, those sums separately identified must relate to the basis period rather than the tax year 2020/21.

Corporation tax

Those filing corporation tax returns will have to make similar adjustments for CJRS, Eat Out to Help Out and other relevant coronavirus support schemes. However, they will be spared the complications relating to the SEISS.

Another level

Tax has rarely been a straightforward topic and filing tax returns has always required both knowledge and care. However, the advent of COVID-related support payments, questions about eligibility, the administration of payments and their tax treatment has added another level of complexity to the process. Extra care will need to be taken in order to fill in returns correctly in another example of the 'new normal' post-pandemic.

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