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Covid support grants and NIC

Are Covid support grants subject to Class 2 and Class 4 NIC

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I understand that the Covid-19 business support grants are taxable. But I cannot seem to find an answer to as to whether they are subject to Class 4 NIC ( and to class 2 as well)?  I am completing an SA return for a self-employed client, and his Small Business Grant ( £10k), was received on 3rd April. So it needs to be included in the 2020 return. Does anyone know if it is subject to NIC. In this case the client pays Class2 in any case, but does it have an impact on Class 4 NIC?  Any asistance on this would be appreciated.  

 

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By SXGuy
13th Sep 2020 14:25

I don't think any one has a clear answer on this yet, but I've calculated class 4 on it as a worst case scenario.

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By Paul Crowley
13th Sep 2020 15:46

All grants were meant to contribute to costs. The costs would have Ni relief.

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By richard thomas
13th Sep 2020 16:27

The answer is, as the law currently stands (ie in FA 2020 without having been modified by any regulations), yes.

This is the combined effect of para 1 Sch 16 FA 2020 (making the grant a receipt of the business for income tax purposes), s 16 Social Security Contributions and Benefits Act 1992 (making the income tax trading profit the basis for Class 4) and s 11(3) of the 1992 Act (making the Class 2 base the same as Class 4). This is subject to the trade not being carried on wholly outside the UK.

My check of the regulations made since Royal Assent is necessarily a bit superficial, but I can't see any using the obvious filters on legislation.gov.uk

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Replying to richard thomas:
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By LancsAccountant
14th Sep 2020 14:12

Thanks for that detailed information, This makes complete sense.

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By fawltybasil2575
14th Sep 2020 10:35

@ LancsAccountant (OP).

I of course agree Mr. Thomas’s advice that the £10K Grant will be subject to both Class 2 and Class 4 NI. The key legislation, which I would respectfully recommend you read, is at Section 106 and (more especially) Para (3) of Schedule 16 of the Finance Act 2020 (such legislation readily “googled” - apologies for my being unable to provide a link from this device).

Whether the £10K “needs to be included in the 2020 return” depends upon the accounting period for which the self-employment figures will be shown on that Return. Hence if that accounting period is on or after 3 April 2020 then your assumption is correct; but if it ends on or before 2 April 2020, then it will be included instead as part of the self-employment profits, on the 2020/21 Tax Return (for completeness, albeit unlikely to be relevant, arguably if entitlement to the Grant was established before 2 April 2020 then that entitlement date replaces “2 April 2020” in my above comments, unless of course the “cash basis” is operated).

One must of course, however, apply normal accounting principles to the £10K Grant. If therefore the self-employment Accounts are prepared to 5 April 2020, and thus include that £10K Grant, then one must also (and this is a point upon which there may be disagreement, albeit I am confident of my view) make an adjustment to the Accounts to reflect the fact that, in almost all cases, it is received as a form of “contribution” towards the premises costs in the forthcoming weeks or months: the key to that principle lies in the fact that the Grant is only given where there are business premises.

As a general comment, the same comments which I have made above apply to all other forms of government Coronavirus support (including CJRS) with ONE important exception, that exception being the SEISS grants. In the case of SEISS Grants, one ignores the accounting period aspect, as the SEISS Grants are NOT treated as an addition to the profits of the business: instead they are treated as a SEPARATE source of income (hence almost certainly a separate Box for SEISS income will appear on 2020/21 Tax Returns). The rationale behind this is presumably that SEISS Grants are, per se, not received FROM operating the business: indeed, they are received as compensation for the “loss of profits” from the reduced business activity.

[Para. (3) of Schedule 16 Finance Act 2020, as referred to above, is the legislation to support my previous paragraph above - subsection (3)(3) covers sole proprietorship income and subsection (3)(4) onwards covers the slightly different treatment re income from partnerships].

Basil.

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Replying to fawltybasil2575:
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By LancsAccountant
14th Sep 2020 14:26

Thank you for your detailed answer. My thoughts were, that the receipt was subject to NIC.
Your response, and that of the others, has confirmed this. Much appreciated.

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