Financial Advice
BEWARE THE FOLLOW-ON IMPACT OF PANDEMIC HELP SCHEMES I sincerely hope that all readers are well during these difficult times. My last article focussed on the numerous COVID related financial assistance measures that the government introduced from late March onwards. Those measures have in some cases ‘morphed’ quite significantly over the past few months but I would expect that most readers are now very familiar with the various schemes and have taken advantage of them where possible. I would therefore like to spend some time in this article reminding readers of some of the follow-on impact of the above schemes which may have been overlooked or misunderstood in the urgency to keep businesses afloat.
Dean Flood, Rowland Hall Chartered Certified Accountants
It is important that businesses keep appropriate records to support any claims made, especially in connection with the, often complicated, claims for ‘furlough’ payments.
Tax treatment of Grants
VAT Deferral
The grants that have been issued to selfemployed workers will be assessable for tax within the taxpayer’s self-assessment tax returns in the year to 5th April 2021. Any grants received should be notified to your tax advisors although they may already be aware of this having assisted with the claim process. HMR&C will also be reviewing the reported activity for that tax year to consider whether claims for the grant were legitimate, insofar as whether COVID 19 has had any detrimental effect on income.
The government scheme to defer VAT payments is now effectively over. VAT returns to the end of May 2020 are now due for settlement as per usual as the normal payment date is the 7th July which falls outside of the 30th June cut off for that scheme.
Grants to employers under the Job Retention Scheme (Furlough), are also taxable income for the business. From an accounting perspective, the receipts should be netted against payroll costs incurred although we have seen incidences of clients wanting to show these as a separate income. Either way is generally acceptable, as long as the receipts form part of the taxable profits.
For those businesses that took advantage of VAT deferral for the earlier returns, it is important that you remember to reinstate your Direct Debits for the next return, if you typically pay through that medium. Businesses should also plan ahead for the cashflow impact of settling deferred payments in the 1st quarter of 2021. HMR&C have yet to issue formal guidance on the mechanics of payment for those amounts.
COVID related grants from local authorities are also taxable and should be shown as separate income within the business accounts.
Record Keeping It is important that businesses keep appropriate records to support any claims made, especially in connection with the, often complicated, claims for ‘furlough’ payments. This paperwork should be retained for 6 years which is the recommended retention period for most accounting and tax records.
Wishing you all the best of health. Financial advice by Dean Flood | www.rowlandhall.co.uk
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