Businesses helped by COVID-19 support could face unexpected tax charges
Posted on 31st January 2022 at 17:26
Businesses and self-assessment taxpayers that received any financial aid as part of the COVID-19 support scheme will now need to include these grants in their tax return.
Have you set money aside for the new tax on support grants?
HMRC has emphasised the following are taxable in the UK (except Northern Ireland)
• money paid for test and trace
• or self-isolation payments
• Coronavirus Business Support Grants (also known as local authority grants or business rate grants)
• Payments via the Coronavirus Job Retention Scheme (CJRS)
• Payments via the Eat Out to Help Out scheme
These must now be included on tax returns as these are considered income for tax purposes.
In addition payments via the CJRS grant and the Eat Out to Help Out scheme will need to be included as income in their CT600 tax return and reported in the relevant boxes on their Company Tax Return.
Myrtle Lloyd, HMRC’s Director General for Customer Service, said: “We want to make sure companies are getting their tax returns right first time, including any COVID-19 support payment declarations. Support and guidance is available on GOV.UK, just search ‘file my company tax return.”
Throughout the year accountants have been highlighting to companies that despite prior beliefs, these payments are indeed taxable. However, companies that have little communication with their accountants are now being greeted with these new unanticipated tax return requirements in which they have not set money aside for.
Hidden costs employers could face caused by the CJRS
Although the CJRS scheme reduced the number of redundancies made as a result of the COVID-19 lockdowns, there were a number of unanticipated costs that come along with these grants. Included in these costs are the employer’s National Insurance contributions and employer’s pension contributions.
Here’s an example to demonstrate these changes:
An employee on full furlough had a salary of £2,000 a month. Then based on 80% of their salary this would have fallen to £1,600 gross. At the rates applied in the 2020/21 tax year, the costs to the employer for this CJRS grant would be:
• £119.78 of Employer’s Class 1A National Insurance;
• £32.40 of Employer’s Pension Contributions (based on the 3% minimum under auto enrolment);
• There is also the potential cost of accrued holiday, which is £153.80 – calculated based on 4/52 weeks (this is the maximum amount of holiday that can be carried forward into the following year) x monthly salary.
Where holiday has been carried forward to the following year, businesses that are struggling to recover from the pandemic also have to contend with up to four weeks of holiday that can be passed into the following tax year. If an employee leaves the business, this could result in the employer having to find sums potentially into the thousands of pounds to account for this in the employee’s final payslip.
Sympathy for companies struggling to pay tax bills
Reports suggest that HMRC are being very understanding in relation to any tax bills that are difficult for companies to meet. Even debt collectors are currently trying to produce any feasible solutions to manage the debt rather than collecting on the spot.
Tax Return Deadlines
The deadline for customers or agents filing company tax returns (CT600) is 12 months after the end of the accounting period it covers. The deadline to pay Corporation Tax will depend on any taxable profits and when the end of the accounting period occurs. Information on which support payments need to be reported to HMRC and any that do not is available on GOV.UK.
If you think you will struggle to meet any of your tax liabilities this year, then please contact us as soon as possible to get advice on the best course of action.
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