Covid support grants are treated as taxable income in the same way as other taxable receipts. The grants are treated as income where the business is within the scope of either Income Tax or Corporation Tax.
Businesses can then claim relief on the expenditure supported by the grant.
This treatment extends to the Self-Employment Income Support Scheme (SEISS), the Coronavirus Job Retention Scheme (CJRS), the Coronavirus Statutory Sick Pay Rebate Scheme, and coronavirus business support grant scheme and any other support scheme payments.
HMRC’s guidance is clear that whether any tax is paid will depend on the business profits of the grant recipient (taking into consideration the grant and other business income and expenditure under normal tax rules), any other taxable income and personal and other allowances to which they are entitled.
HMRC also has the power to recover payments and charge penalties where claimants have made support grant claims to which they were not entitled.
What Are The VAT Implications?
HMRC has not provided any guidance as to whether the grants will be subject to VAT or count towards turnover for VAT registration limits. Normal principles are expected to apply meaning:
- The grants would be outside the scope of VAT and no output VAT should have to be accounted for.
- The grant income should be disregarded for VAT registration and deregistration limits.
What About State Aid Rules?
UK Government grants count towards state aid.
- Payments of £10,000 or less count towards the total de minimis state aid limit over a 3-year period of €200,000.
- If you have reached that threshold, you may still be eligible for funding under the Covid-19 Temporary Framework.
- Payment of £25,000 count as state aid under the Covid-19 Temporary Framework. The limit for the framework is €800,000.1