Tax treatment of Covid-19 support payments

Your business may be receiving various government grants to help mitigate loss of income because of Covid-19. In his Winter Economy Plan on 24 September and subsequent October update, the Chancellor announced additional support schemes. But be aware: these grants are taxable.

Payments from the following schemes must be included in calculating taxable profits:

  • Self-Employment Income Support Scheme (SEISS) including the extended scheme.
  • Coronavirus Job Retention Scheme (CJRS), including the job retention bonus for previously furloughed employees who are still employed at the end of January 2021.
  • Job Support Scheme (JSS) running from 1 November.
  • Small Business Grant Fund (SBGF).
  • Retail, Hospitality and Leisure Grant Fund (RHLGF), 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 and any other Covid-19 support scheme.

These grants must be included in the business’s taxable income for the period in which they are received because they replace business income. But businesses will only have to pay tax on the grants if they make a profit in the accounting period in which they receive them. Many businesses will still make a loss even after any including any grants in their income.

SEISS grants

HMRC estimates that up to 3.4 million individuals were eligible for SEISS payments under the first scheme. The scheme has now been extended in a new form for six months from 1 November 2020. However, many people are excluded as they were under the original SEISS, including the newly self-employed, those with trading profits of more than £50,000 and people operating as directors of their own limited companies. The new SEISS is also limited to self-employed individuals who are actively continuing to trade but are facing reduced demand because of Covid-19.

HMRC will have the power to raise income tax assessments to recover amounts from any recipients of SEISS CJRS payments to which they are not entitled or where a CJRS payment has not been used to pay furloughed employee costs. HMRC will also be able to charge a penalty in cases of deliberate non-compliance.

Tax returns and tax payments

Many self-employed individuals will include SEISS payments in accounts that form the basis for their 2020/21 tax return. They will need to factor in these grants when deciding whether to reduce their payments on account for 2020/21, which are payable on 31 January and 31 July 2021.

These payments are based on taxable income for 2019/20, a period before businesses were impacted by Covid-19. Self-employed people were initially able to defer their second payment on account for 2019/20 until 31 January 2021, which would normally have been payable on 31 July 2020. Further time to pay was announced in September for taxpayers – self-employed and others – with up to £30,000 self-assessment liabilities. They will be able to use HMRC’s self-service Time to Pay facility to arrange a plan to pay over an additional 12 months – up to January 2022.

Businesses in England required to close because of local lockdowns or targeted restrictions will be able to receive grants worth up to £1,500 per property every three weeks. These grants will also be treated as taxable income. An additional wage subsidy scheme paying up to 67% of wages for those affected was also announced in early October.

If you need help with any Covid-related payments, please get in touch.