While the UK economy recovers from the COVID-19 pandemic, your limited company clients will continue to require annual accounts and tax returns where any direct financial support received from central government, local government or devolved governments will need to be reported. This includes any overpayments of financial support which your clients may have only recently discovered and now need to report to HMRC.
Accountants will recall that significant resources were made available by the government to support limited companies through the extended lockdowns introduced in 2020 and 2021. However, many business owners remain unclear on the tax implications of this income for their limited companies and what to do if they have been overpaid. The wide range of support and different government sources also make tracking any income received by your clients challenging.
This blog highlights guidance issued by HMRC to help accountants and limited company directors understand the tax reporting requirements for COVID-19 financial support.
A reminder of the taxable COVID-19 support grants
Throughout the pandemic, accountants went the extra mile to help clients apply for financial support made available by the government in the most difficult of circumstances. While grants across the UK were similar, arrangements for application, approval and distribution varied across each of the four home nations. The various grants and other support made available are shown in the table below.
|Type of grant|
|Small Business Grant Fund||Welsh Government Business Grants (grants 1 and 2)||Business Support Fund||Small Business Support Grant Scheme|
|Retail, Hospitality and Leisure Grant Fund||Economic Resilience Fund||Creative, Tourism and Hospitality Enterprises Hardship Fund||Retail, Hospitality and Leisure Grant|
|Local Authority Discretionary Grant Fund||Pivotal Enterprise Resilience Fund||Limited Company Director’s Support Scheme|
|Fisheries Response Fund||Aquaculture Hardship Fund||Other emergency and hardship funds for businesses|
|Other taxable grants in response to the Omicron variant||Sea Fisheries Hardship Fund|
Regardless of the source, all of the above grants are taxable and need to be reported on your client’s limited company accounts and company tax return for the relevant accounting and tax periods.
Other support provided by way of loans such as Bounce Back Loans and The Coronavirus Business Interruption Loan Scheme do not need to be reported on the company tax return Form CT600 but do form part of the annual company accounts. These loans were arranged on preferential terms with no interest payable for the first 12 months. Both loans are accounted for following the same accounting principles as any other loan from a financial institution. After the first year, the interest payable is included as a business expense and so will be an operating cost for a limited company, reducing the overall Corporation Tax liability.
Some businesses may have received income to support them through the pandemic from organisations other than the government or financial institutions. Accountants will need to review such arrangements carefully to see if these are taxable income for the business. This may include payments from Arm’s Length Bodies sponsored by government departments. Specialist advice may be needed depending on the contractual nature of the funding to decide whether it is taxable or not.
How to report COVID-19 grants and other support payments
When an accountant is preparing to file Form CT600 using a client’s online Government Gateway account, various prompts will appear asking the accountant to enter different grants and payments as part of the filing process. If third party accounting or tax software is used, the latest version of the software will be needed to complete the relevant boxes on Form CT600.
How to report Coronavirus Job Retention Scheme (CJRS) and Eat Out To Help Out (EOTHO) payments on Form CT600
If your client had to furlough any employees during the pandemic (including company directors paid a salary) and received support from the Coronavirus Job Retention Scheme (CJRS) scheme, then these transactions need to be reported in your client’s annual accounts and Form CT600. Similarly, payments received for discounts under the Eat Out To Help Out (EOTHO) scheme must be reported under the relevant accounting standards in calculating the annual profit for the relevant accounting period. The payments are separately identified on Form CT600 using specified boxes.
All other taxable COVID-19 payments are included as income when calculating taxable profits, in line with the relevant accounting standards. These do not need to be reported separately on Form CT600.
If your client has previously filed a company tax return and has not declared any COVID-19 support grants or payments received as taxable income then you will need to prepare and submit a revised Form CT600 to HMRC. Accountant’s onboarding arrangements for new clients should be quite specific on this matter.
Reporting a CJRS grant or EOTHO payment on Form CT600
Accountants will need to complete box 205, boxes 471 to 474 (inclusive) and box 647 on a client’s Form CT600 to report CJRS income and any EOTHO discounts received. These boxes were added to Form CT600 from 6 April 2021.
When recording income, HMRC requires accountants to enter the amount of CJRS received into box 205 in the ‘other income’ section on Form CT600 and label the amount as ‘CJRS Furlough received’. The amount of EOTHO discounts should also be included in box 205.
HMRC then requires accountants to provide more details across boxes 471 to 474 depending on your client’s individual circumstances and if an overpayment occurred. Box 647 is used to collect information on the amount of EOTHO discount received.
If your client filed Form CT600 before 6 April 2021, and has subsequently found an overpayment, then an amended return will need to be submitted to include the overpayment amount. Returns do not need to be corrected if grants or payments have been included as taxable income in calculating the annual corporation tax amount and there is no overpayment.
If your client has complex disclosures to make around overpayments of CJRS, EOTHO and other coronavirus grants, you should refer to the detailed guidance provided by HMRC. .
If your client has claimed too much CJRS
If your client informs you they have over claimed CJRS, they must let HMRC know immediately and repay any amounts due. HMRC may apply penalties of up to 100% of the amount of CJRS grant if they find a failure to report the circumstances of the overpayment.
Records your client must keep
Clients who received CJRS support should keep the following records for six years:
- the amount claimed and claim period for each employee
- the claim reference number
- original CJRS calculations to support claim amount
- calculations for flexibly furloughed workers including usual and actual hours worked.
A written record of all furlough agreements must be kept for five years.
Clients in receipt of EOTHO support must keep records of the total:
- number of people using the discount at each establishment (records must be kept for each establishment)
- value of eat-in food and non-alcoholic drinks sold where discounts were given
- value of discounts given.
How Initor Global can help with your clients accounting for COVID-19 grants and other support
At Initor Global we have accountants and tax specialists who can meet your outsourcing needs. Our experts can prepare your clients annual accounts, company tax returns and calculate any tax due to ensure all deadlines are met. We have helped many accountants prepare their clients records to ensure COVID-19 grants and other financial support are correctly accounted for.
You can also call us on 0203 519 2121.
This blog draws on information published by HMRC and other professional bodies. It is not a complete guide to accounting and corporation tax for coronavirus payments and support. Information may be subject to change and Initor Global accepts no responsibility should you decide to rely on the information we have published in this blog. Professional advice should always be taken as necessary based on your individual circumstances.