Business rates grant

What year should it be accounted for and taxed in?

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Sole trader receives 3 £10k grants. Year end is 5th April. One received 3rd April and 2 others 12th April. 
in which accounting year should they be accounted for and therefore taxed?

Replies (13)

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By SXGuy
14th Aug 2020 17:21

The year in which the client was entitled. Which was March I believe. So the tax year just gone.

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By Mr_awol
15th Aug 2020 22:16

SDGREEN wrote:

Sole trader receives 3 £10k grants. Year end is 5th April. One received 3rd April and 2 others 12th April.
in which accounting year should they be accounted for and therefore taxed?

If you are using the accruals basis then absolutely 2019/20 - assuming they were always going to be entitled, didn't have to appeal it, etc in which case the date of entitlement.

(I cant immediately think of any circumstances which wouldn't make the effective date March, in all honesty, but there may be some)

Cash basis? Arguably year of receipt. I believe the cash basis is rarely used though (or at least not properly/formally)

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By Paul Crowley
14th Aug 2020 17:53

Agree both above

Seems daft to me as I am sure intension was to Cover building costs during lockdown, not costs whilst trading.

But then when has HMRC done exactly what HM Gov actually wanted

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Replying to Paul Crowley:
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By Mr_awol
15th Aug 2020 22:17

The intention may or may not have been to cover 2020/21 expenditure - but there is no requirement for it to be spent on anything specific.

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By John Stone
14th Aug 2020 19:54

Can anyone supply a (HMRC) link which confirms it is taxable in 2019/2020?

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Replying to John Stone:
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By Mr_awol
15th Aug 2020 22:14

John Stone wrote:

Can anyone supply a (HMRC) link which confirms it is taxable in 2019/2020?

Why do you need an HMRC link?

Forget tax, and follow the accounting principles. The clients were entitled to it in March. They don’t need to do anything further to confirm entitlement, and although Rishi did insinuate it was to help with rent, there is no actual stipulation as to what it should be spent on (and indeed many recipients won’t even pay rent so we can ignore Rishi’s comments about that) so there is no requirement to match it against expenditure.

So, apart from the cash basis of accounting, what justification is there for not putting a debtor in?

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Replying to Mr_awol:
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By wizwozzoo
18th Aug 2020 16:27

Grayson Moore points out further along the thread:
"If you read the Government guidance Annex A states the entitlement date as the "Earlier of the date of payment of the grant by the Local Authority or 1st
April 2020"."
https://assets.publishing.service.gov.uk/government/uploads/system/uploa...

So they are only entitled in March if they received the funds in March, otherwise 1st April.
If a 5th April 2020 year end, then assessable 2019/2020 regardless.
If 31st March 2020 and received after that date 2020/2021.

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By Lucy N
15th Aug 2020 13:46

In my opinion the rates grant is intended to cover the period of trade affected by CoVid so would be from 20th March onwards. I will be spreading the grants over the time period that the business was affected. So for 5th April year ends, it will be mainly in 20/21.
If you are completing a return on cash basis though, this would be the date received.

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Replying to Lucy N:
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By legerman
15th Aug 2020 14:35

Lucy N wrote:

In my opinion the rates grant is intended to cover the period of trade affected by CoVid so would be from 20th March onwards. I will be spreading the grants over the time period that the business was affected. So for 5th April year ends, it will be mainly in 20/21.
If you are completing a return on cash basis though, this would be the date received.

I have a FHL client who received his on 3rd April. Is there likely to be any issues if I change the FHL year end to 31st March from 19/20 tax year going forward? Most of the impact will be on his 20/21 year so it makes sense to allow the grant income to fall in that year, rather than 19/20

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Replying to Lucy N:
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By Mr_awol
17th Aug 2020 09:44

Lucy N wrote:

In my opinion the rates grant is intended to cover the period of trade affected by CoVid so would be from 20th March onwards. I will be spreading the grants over the time period that the business was affected. So for 5th April year ends, it will be mainly in 20/21.
If you are completing a return on cash basis though, this would be the date received.

https://library.croneri.co.uk/cch_uk/idnukg/10-7
10.7.4 and 10.7.5.4
Appreciate this relates to FRS102

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By Grayson Moore
16th Aug 2020 08:55

If you read the Government guidance Annex A states the entitlement date as the "Earlier of the date of payment of the grant by the Local Authority or 1st
April 2020".

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Replying to Grayson Moore:
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By John Stone
16th Aug 2020 09:13

But in determining into which accounting period the income falls which is key? The 'entitlement date' or the matching of the income to the fixed costs it was designed to help with (as per Sunak's Budget speech on March 11)?

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Replying to John Stone:
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By the_fishmonger
17th Aug 2020 10:17

An asset or liability is recognised at the point where an obligation to transfer a benefit from one entity to another arises.

When these grants are received, they are not repayable. A benefit is thus transferred.

Matching - although the grants were nominally for use against the [future] costs of retaining business premises during the lockdown, no one at the time knew for how long that lockdown would be, beyond an initial 3 months. Therefore, the best you could do was drip feed into the P&L over those 3 months.

In the case of March year end micro businesses, you might very well want to push the two-thirds [for April and May] into 2020/21 to reduce any tax coming due sooner. For most others, it's hardly worth the effort when there's all the other covid crud to deal with.

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