Tax Treatment

The UK government is consulting on newly published draft legislation on the tax treatment of coronavirus support payments. This draft legislation will form part of Finance Bill 2020 which is currently going through the UK Parliament. Views on the technical effectiveness of the measure should be submitted to HMRC by Friday, 12 June at this link.

The draft legislation confirms that grants covered by the legislation will be treated as receipts of a revenue nature for income tax or corporation tax purposes. This includes Self-Employment Income Support Scheme (SEISS) payments, Coronavirus Job Retention Scheme (CJRS) payments, business support grants from either the UK government or other devolved administrations, and any other payment made by public authorities to businesses in response to COVID-19.

The three major avenues of relief have been the SEISS, the CJRS and the business support grants. Read our legal update for more information and to see whether you or your business are eligible.

  • The SEISS grant received will be taxed as if it were profits of the trade to which it relates in the 2020/21 tax year. None of the grant will be treated as relating to March 2020. In the case of partnerships, a grant received by an individual partner is treated as taxable income of the individual partner alone.
  • Employers receiving the CJRS grant will be taxed on the amount received. This will ensure that any tax deduction for employee expenses met by the grant will be matched by the taxation of the grant covering those expenses.
  • The business support grants will be taxed as income of the business in receipt of the grant and will be subject to either income tax or corporation tax. This includes the Scottish Retail, Hospitality, Leisure Support Grant and the Small Business Support Grant administered by local authorities.

Recovery of SEISS and CJRS payments which should not have been made and penalties

HMRC have been paying CJRS and SEISS payments on a “pay now check later” basis but have the power to audit claims subsequently. SEISS payments have been based on information held by HMRC, so there may be less checking to be done there, but there may be questions as to whether recipients were actually entitled to claim.

The draft legislation gives HMRC compliance and enforcement powers to allow for proper administration of the SEISS and CJRS schemes and to protect against fraudulent or deliberately inaccurate claims. HMRC will have the power to recover SEISS or CJRS payments where the recipient should not have claimed them or where the CJRS has not been used to pay furloughed wages or other relevant costs within a reasonable time.

HMRC have set-up a dedicated portal to report fraud in relation to the CJRS, SEISS and Statutory Sick Pay scheme. This could include situations where employees had been furloughed but asked to work, or where CJRS payments have been claimed but not paid to employees by their employer. There are reports that this portal has received around 1,900 reports of ‘Furlough Fraud’ and other relief scheme fraud since it was launched.

HMRC’s powers under the draft legislation will extend to officers of insolvent companies. Where a company goes into insolvency, officers can be held jointly and severally liable for the repayment of any CJRS payment to which the company was not entitled or which they never intended to use to pay employee costs.

Amounts will be recovered by imposing a 100% income tax charge on the relevant amount and HMRC will raise an assessment to collect this. Quite significant penalties may also be charged in cases of deliberate non-compliance.