The government has opened a new consultation ‘Taxation of Coronavirus (COVID-19) support payments’ on draft legislation which includes measures to tax the grants available, recover payments from businesses not entitled to them and penalise deliberate non-compliance.
Legislation will be incorporated into Finance Act 2020 and apply to the following grants, collectively defined as ‘COVID-19 support scheme payments’:
- Self-Employment Income Support Scheme (SEISS).
- Coronavirus Job Retention Scheme (CJRS).
- Small Business Grant Fund (SBGF) and Retail, Hospitality and Leisure Grant Fund (RHLGF).
- The Discretionary Grant Fund, or parallel schemes in Scotland, Wales, and Northern Ireland.
- Other payments made by public authorities to businesses in response to COVID-19, including payments under any other COVID-19 support schemes specified in Treasury regulations.
The legislation confirms that all COVID-19 support scheme payments are taxable under either Income Tax or Corporation Tax as appropriate.
- Where the business has ceased, they are to be taxed as post-cessation receipts.
- Payments for more than one business are to be apportioned on a just and reasonable basis.
- For SEISS, the payments are to be treated as 2020/21 profits.
- There are some specific rules around deductions which can be set against the payments including pre-trading expenditure, cessation costs and the trading allowance, as well as exemptions and reliefs for charities, mutual traders and community sports clubs.
In respect of SEISS and CJRS, the draft legislation gives HMRC the power to:
- Use information and inspection powers to check a claim has not been overpaid and that a CJRS payment has been used to pay furloughed employee costs.
- Raise Income Tax assessments to recover amounts from the recipient of a payment:
- which they are not entitled to,
- for CJRS, where the payment has not been used to pay furloughed employee costs, such as wages, PAYE and National Insurance Contributions (NICs) or pension contributions.
- The recipient will be the self-employed individual or partner for SEISS and the employer for CJRS.
- Charge a penalty where a person deliberately makes an incorrect claim for SEISS or under the CJRS and they fail to notify HMRC about the situation within 30 days. For CJRS payments, penalties could also apply where they deliberately do not use the payment for furloughed employee costs.
- Penalties will fall under the failure to notify rules and, as these will be treated as deliberate and concealed actions, the penalties could be anything between 30% and 100% of the overclaimed amounts.
- Make a company officer jointly and severally liable for Income Tax assessments raised on CJRS payments where:
- that officer deliberately made a CJRS claim where the company was not eligible and
- HMRC can show there is a serious risk that the company will not be able to pay the Income Tax assessment.
The consultation closed in June 2020.
Links to our guides
COVID-19: Coronavirus Job Retention Scheme
Coronavirus Job Retention Scheme: a cash grant that is designed to allow employers to retain staff who would otherwise be laid off.
COVID-19: Self-Employment Income Support Scheme (SEISS)
COVID-19: Support for the self-employed during the coronavirus crisis. HMRC's claims portal is now open.
COVID-19: Grant funding for business
A number of cash grants to support businesses during the COVID-19 crisis are available.
COVID-19: Business Rates
The Expanded Retail Discount scheme: a business rate holiday applies to retail, hospitality and leisure businesses in England for the 2020/21 tax year.
COVID-19: Northern Ireland
A number of measures have been announced by the Northern Ireland government to support individuals and businesses.