BIM40457 - Specific receipts: Coronavirus Support Payments- Specific rules & exceptions

Just and Reasonable Apportionment: Multiple businesses

If an amount of Coronavirus Support Payment is referable to more than one business, for example a person carries on multiple trades or has a trade plus a property business, the Coronavirus Support Payment should be allocated between those businesses on a just and reasonable basis.

The type of grant scheme and eligibility criteria of the scheme may affect to which business the Coronavirus Support Payment should be allocated.

Example 1: Trade and Property Businesses

An individual has a self-employment trade and a property business. He receives a SEISS grant because he is self-employed and receives a payment from his local authority’s Business Support Grant Fund as a landlord liable to business rates. The nature of the grant schemes means that the SEISS payment is a taxable receipt of the trade and the business support grant is a taxable receipt of the property business.

Example 2: Sole Trade and Trading Partnership

An individual is a sole trader and is also a partner in a trading partnership, both of which are adversely affected by coronavirus. She receives a SEISS payment calculated based on averaged sole trader profits of £20,000 p.a. and averaged partnership profits of £10,000 p.a. If both are continuing sources of income, allocating two-thirds of the SEISS payment to her sole trader income, with one-third to the partnership source would be a just and reasonable basis.

Example 3: Property used both in trading and rental business

As a business ratepayer, an individual receives a payment from the Business Support Grant Fund in respect of a property he owns, part of which he runs his sole trade from, and part of which he lets out. An apportionment is required to allocate the grant payment between the trading and property income.

The individual adopts an appropriate basis of apportionment of the business rate expense between the two types of business. As eligibility for the grant income is based on the local authority business rates, a just and reasonable basis would be to allocate the grant receipt on the same basis as used for the allocation of the business rate expense.

Example 4: Landed Estate/Mixed business

A partnership runs a landed estate which carries on several different types of activity, including farming, furnished holiday letting, long term letting etc. Staff are normally engaged across the different types of activity and an appropriate method of apportionment is adopted to allocate the employment costs to each type of business.

A just and reasonable apportionment for the receipt of CJRS would be to allocate the income using the same basis as the allocation of employment costs.

It would not be just and reasonable to apportion the CJRS receipt on one basis (e.g. 75% to the farm) and allocate the corresponding employment costs on another basis (e.g. 50% to property income). The CJRS receipt and corresponding employment expense should be allocated in the same proportion.

Post cessation receipts

Where a Coronavirus Support Payment is received for a business after its trade has ceased, and the receipt had not been recognised in the period the trade was carried on, the payment is treated as a post cessation receipt. [For guidance on post cessation receipts see BIM90000]. Similar rules apply for property and other types of business.

Mutual Businesses

[Note: In practice, this section may not apply to SEISS, as a mutual business would not be eligible for SEISS payments].

A Coronavirus Support Payment is treated as if it were mutual trading income if it relates to the mutual activities of a business. [For guidance on mutual trading see BIM24000]

If a mutual organisation’s only activity is mutual trading, the grant income will be treated as mutual income of its trading business. If it has non-mutual trading income, that grant income (or part of it, if a just and reasonable apportionment is applicable) will be a taxable trading receipt, although the business may then claim any deductible trading expenses to compute its trading profit (or loss) in line with normal principles (and following a similar just and reasonable apportionment for its costs where appropriate).

Example 1: CJRS - Wholly mutual trade

A club operates a members’ only bar and the costs of its bar staff are normally met from the mutual trading receipts of the bar. The club closes its bar during the pandemic and furloughs its bar staff and receives a CJRS payment which it uses to fund its employment costs of the furloughed bar staff. The receipt of CJRS can be treated as if it were mutual income. The corresponding employment costs also relate to the mutual trading, and as the income is not taxable, neither are the costs tax deductible.

Example 2: CJRS - Part mutual, part non-mutual trade

As in Example 1 but the club has a mixture of mutual and non-mutual trading activity. The CJRS income should be apportioned on a just and reasonable basis between the mutual and non-mutual trading activities.

The proportion relating to non-mutual trading activity will be taxable income, but the corresponding employment cost (which should be apportioned on the same basis as the income) can be allocated against that taxable source. In effect (and subject to any timing differences under GAAP), the taxable CJRS receipt and related employment expense would net off to produce an overall tax neutral position for the club.

Example 3: Local Authority Grant – Part mutual/Part non-mutual trade

As in example 2, but the club receives a Coronavirus Business Support grant from its local authority. Unlike the CJRS grant, there are no conditions attached to the grant which require the income to be expended for a particular purpose.

If there is a mixture of mutual and non-mutual activity, a just and reasonable apportionment will be required to allocate the grant income between taxable trading and mutual trading income. The organisation will already be required to adopt an appropriate basis (or bases) for apportionment of its revenue costs between the mutual and non-mutual parts of its business [see BIM24455+]. A reasonable basis of apportioning the grant income would be to adopt similar rules of apportionment as is applied to the organisation’s mixed expenditure.

Alternatively, the nature of the grant scheme itself may influence what is a just and reasonable basis. For example, where eligibility for the grant is based on local authority business rates, it would be just and reasonable to allocate the grant receipt in line with the appropriate basis used by the organisation for the allocation of the business rate costs between the mutual and non-mutual trading activities.

So if, for example, a club adopts an appropriate basis which results in a 50:50 split of mixed expenditure between the mutual and non-mutual trading activity, then it will be acceptable for the Coronavirus Support Payment to be split in the same 50:50 apportionment.

Any reasonable basis of apportionment can be accepted, which should be applied consistently.

CASCs, Charities and Charitable Companies

For Community Amateur Sports Clubs (CASCs), charities and charitable companies, the receipt of Coronavirus Support Payments may be ignored for the purposes of section 528(1) ITA, section 482(1) and section 661CA(1) CTA10 [For reference, see Annex IV, Chapter 15 Small Trading Exemption guidance and chapter 2.22 of CASC guidance].

Payments received under employment-related schemes are ignored for the purposes of sections 662(2) and 663(2) CTA 2010 (see chapter 3.1 of CASC guidance].

Example 1: CJRS & Charity Small Trading Exemption

A small charity raises funds by selling items such as pens, pencils, mugs etc. Its profits from this activity ordinarily qualify for the small trading exemption and are not taxed. The charity furloughs some staff involved in the sale of goods but is able to continue to make some profits via online sales. The receipt of the CJRS grant does not count towards the incoming resources threshold and if other conditions are satisfied it may continue to qualify for the small trading exemption on its trading profits.

Example 2: Local Authority grant & Community Amateur Sports Club

A Community Amateur Sports Club receives a non-employment related Coronavirus Support Payment of £10,000 from its local authority. That receipt of £10,000 does not count as a receipt for the income condition test in section 661CA CTA 2010. However, as it is not an employment-related grant, it does count as a receipt for the purposes of Condition A test in sections 662(2) and 663(2) CTA 2010. As such the £10,000 local authority grant is to be considered as income and, subject to the other conditions, may be taxable.

Example 3: CJRS & Community Amateur Sports Club

A Community Amateur Sports Club furloughs its staff and receives CJRS income of £30,000. As CJRS is an employment-related scheme, that receipt of £30,000 does not count as a receipt for the purposes of Condition A in section 662(2) and 663(2) CTA 2010. If all other conditions are satisfied, the CASC will qualify for exemption from corporation tax for its UK trading and/or property income.

Charge where no business carried on

[Note: This section is not applicable to payments received under SEISS or Employment-Related Schemes - Specific rules for these other schemes are included in BIM40458 and BIM40459]

If a person receives a Coronavirus Support Payment under a CBSGS it will by its nature relate to a business. However, in certain circumstances, that receipt may not fall to be taxable as a trading receipt or a post cessation receipt, for example where (for tax purposes) the trade had not yet commenced. In those circumstances, the amount is taxed as a miscellaneous receipt. To avoid any double taxation, the amount received should be left out of account in computing trading profits if the trade does commence.

Example: Pre-trading income

In February 2020, an individual acquires premises from which to run a retail shop. As a business ratepayer, the individual qualifies and receives a payment from the Small Business Grant Fund. As a result of the coronavirus pandemic, the shop never opens its doors and, for trading income purposes, no trade has commenced. The Small Business Grant Fund provides support for businesses, hence the payment relates to a business. It is taxable on the recipient as a miscellaneous receipt.

If the shop does eventually open its doors and trading commences, any receipt which has already been taxed as a miscellaneous receipt does not need to be brought into account in calculating the taxable trading income profits of the trade.