How to account for furlough paid back to hmrc

I returned furlough grants voluntarily. How to account for this?

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I have been claiming forlough for period March 2020 - December 2020. I completed year end accounts and CT600 to 31.10.2020, which are both showing the furlough grants as grant income. Now I returned the grants for the whole period voluntarily as my turnover has increased by 20% comparing to last year and I dont want to fall into the category of bad morale. My question is: shall I amend the alrrady submitted accounts and CT600 to 31 oct 20 and if so what adjustment should be made? Or shall I recognise the voluntarily repayment as an expense in this years accounts as the transaction took place now?

 

thank you

Replies (17)

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By Duggimon
05th Mar 2021 11:19

I'm not entirely sure you should include it at all, a voluntary payment made to an organisation other than a charity may not be tax deductible at all. Of course it has to be included somewhere if the money has come out of the company, but I don't think it ought to be on the P&L.

If the furlough was claimed in error or incorrectly that would be one thing but assuming everything was done correctly when claiming, deciding to gift the money to HMRC now does not necessarily make that money a tax deductible expense.

Can you say it's wholly and exclusively for the purpose of your trade? I don't think you can considering nobody is requiring you to pay it and the business gets no benefit from doing so.

Perhaps someone better versed than me knows more and has some legislative backing though, don't just take my word for it.

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A Putey FACA
By Arthur Putey
05th Mar 2021 11:24

An interesting question. I suppose the supermarkets and large plcs who returned CJRS grant did so in the same accounting period as they received. I'd love to say logically what is different here but a period end has intervened so I'll await someone telling us what the law says!

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Replying to Arthur Putey:
By Duggimon
05th Mar 2021 11:33

Just to add to my first post, I don't see why those examples would be tax deductible either, I don't think the period end intervening makes any difference.

I would imagine the big organisations did get tax relief on it though, and if so I'd be interested to know how/why that was allowed because there's clearly a gap in either my knowledge or my thinking!

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By Kalaccontrol
05th Mar 2021 11:42

If I didnt claim the grand then corporation tax would have been less, so I suppose when I return it - that should be treated as I never had it and corporation tax adjusted accordingly ?

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Replying to Kalaccontrol:
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By SXGuy
05th Mar 2021 15:02

The point is, when you received it, it was taxable income, when you gave it back, that doesn't mean its a business expense allowable for tax deduction.

That is the point other posters are making.

Just because one way increases tax. Does not mean the other reduces it.

As to whether it is or is not allowable for ct deduction, I'll leave to someone else to comment.

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By Kalaccontrol
06th Mar 2021 09:36

Hi thanks for your comments. What do you think about amending the year end accounts where it was recorded as income and journal it out to liabilities as government grants repayable.

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Replying to Kalaccontrol:
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By tom123
06th Mar 2021 09:59

At the time when furlough started, though, presumably you didn't know what business would turn out like - so, I am sure you made valid claims at the time.

I don't recall there being any requirements to look at forecasts etc.

So - why would you do such a thing?

Can't help with the tax effect though - which is probably adverse.

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Replying to Kalaccontrol:
Stepurhan
By stepurhan
06th Mar 2021 20:59

Kalaccontrol wrote:

Hi thanks for your comments. What do you think about amending the year end accounts where it was recorded as income and journal it out to liabilities as government grants repayable.

The point is that it is not grants repayable.

If you had been determined you were not eligible, that would be a different matter. On the facts given, it would be no more deductible than if you gave the proceeds from a particular job to someone that helped carry your shopping. You would be giving the money for what could be considered a positive reason, but that doesn't render the income non-taxable or the payment a tax deduction.

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By tom123
06th Mar 2021 12:29

Do HMRC know why you have paid this?

Is there not scope to say it was paid in error, and leave it on account until next time?

I really don't see the need for hand wringing and voluntary payments - unless you are Tesco.

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By Matrix
06th Mar 2021 12:56

It is normally a good idea to get advice before doing something than afterwards.

I don’t really understand though. I assume you sent your staff a furlough letter, put them on furlough, they didn’t work, you met the criteria to claim CJRS, received the money, then your profits went up, you paid back the grant. The criteria were related to your staff not your profits so why did you pay it back? Are all the staff redundant if you didn’t need them to increase your profits?

Or did you claim it for your own wages, in which case you shouldn’t have been working so I agree with the repayment since the criteria weren’t met.

Sorry I can’t answer the booking/accounting/tax treatment query. I hope a client would discuss this in advance and I would look into it then.

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Morph
By kevinringer
08th Mar 2021 13:08

CJRS is claimable if the employee is on furlough. Furlough has nothing to do with the turnover of the company. The turnover test was SEISS3. If you claimed furlough grant when the employees were not furloughed, then the business was not entitled to the grant to repaying it restores the business to where it should have been. But if the employees were correctly furloughed and the business has voluntarily repaid a grant that it was entitled to, then I have to ask why repay it?

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By Kalaccontrol
08th Mar 2021 13:14

It seems that I should not have repaid it then. I was thinking my turnover went up so I was technically not affected by covid which means I should not have furloughed the workers. That is why I decided to repay it back which I now start to regret

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Replying to kevinringer:
Morph
By kevinringer
08th Mar 2021 13:43

I had a construction client who does a lot of work for local authorities. The local authorities stopped all non-essential maintenance so my client furloughed 90% of their workforce keeping 10% non-furloughed to carry out essential maintenance. At the end of the first lockdown non-essential maintenance resumed so all staff came off furlough. Since then they won additional contracts so turnover is up, but the client furlough claim was valid.

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By Kalaccontrol
08th Mar 2021 14:35

Thanks for your replies, but I have paid it back already and the question now is how to account for it. Obviusly the repayment should be posted somewhere on the accounts. Hmrc guidance says no tax if grant paid back. So do I amend the tax return and post it as grant repayable rather than grants received or I post it as an expense in this years accounts. If both inappropriate then when does the amount go?

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By paulwakefield1
08th Mar 2021 15:18

I am sure I heard something about the budget making voluntary repayment tax allowable*. Anyway this may also be relevant: BIM40456 "Where a claimant otherwise makes a repayment of any amount received under a Section 76 HMRC scheme, this should be treated as a reduction in the amount of taxable income received from the scheme."

*On reflection I think that was referring to voluntary payment of rates

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Replying to paulwakefield1:
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By Kalaccontrol
08th Mar 2021 16:12

That was very helpful at least I will not have to pay tax on it. Now the question is weather to make amendment on already submitted accounts or account for it somehow in current tax year. I think - showing it as a liability in the submitted accounta will be more accurate as proving financial position of the company where this would take into consideration events that have happened after the period end date. What do you think about it

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