Is furlough non-business income?

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We are a charity with both partial exemption and non-business income. We furloughed a number of staff and we have treated this income as negative wages. However, it is really grant income so should we include it in our non-business calculations? If so, it does not seem fair as other businesses will not be making these restrictions. Will HMRC follow up and start assessing all businesses that claimed furlough and should now be carrying out non-business calculations? Any help is appreciated...

Replies (23)

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By Mr_awol
19th Jan 2021 10:50

I haven't thought about it too deeply, but i would have said the income follows the categorisation of the expense it relates to, rather than considering it all business (or non business) income based upon the source of the finding. That would be the most fair, and logical, way.

Same applies to SMP, etc - albeit those wont ordinarily be shown separately as income, and instead are deducted directly from the expense (in most cases)

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Replying to Mr_awol:
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By Charityguy
19th Jan 2021 10:58

Thanks, that's an interesting comparison, i.e. the SMP treatment. But Furlough is not a "statutory" payment, it's more a grant you have to apply for.

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Replying to Charityguy:
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By lionofludesch
19th Jan 2021 11:07

SMP is what you pay to your employees.

What you receive from the Government is not SMP.

The comparison is a good one and one which I've used myself in the past.

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Replying to lionofludesch:
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By Charityguy
19th Jan 2021 11:18

So is furlough non-business grant income?

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Replying to Charityguy:
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By the_drookit_dug
19th Jan 2021 13:13

Are the associated wages costs business or non-business? Therein lies your answer.

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Replying to the_drookit_dug:
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By Charityguy
19th Jan 2021 13:16

They are an overhead cost, but that doesn't answer whether furlough is a non-business income or not...

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Replying to Charityguy:
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By lionofludesch
19th Jan 2021 13:23

Charityguy wrote:

They are an overhead cost, but that doesn't answer whether furlough is a non-business income or not...

No - because you need to say whether the wages are business or non-business overheads. No-one is in a better place than you to decide.

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Replying to lionofludesch:
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By Charityguy
19th Jan 2021 13:49

Bull... dust. They are an overhead because the staff are involved in both business and non-business activities. Therefore have to be apportioned. Do you understand PE and NB? When apportioning them you use the income as the method of splitting them, so you need to know whether furlough is non-business income. I hope you understand it now.

But Bobbo gets it and has been very helpful.

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Replying to Charityguy:
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By the_drookit_dug
19th Jan 2021 14:08

Haha, how rude!

Yes, Bobbo has indeed been very helpful and I'd go with his/her answer, although the guidance does acknowledge that there are other ways of apportioning business and nonbusiness activities other than the income method, and that in some circumstances it may be necessary to confirm exclusion of the CJRS grants with HMRC.

Why not pay for advice in future instead of getting tetchy with folk on a free web forum?

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Replying to the_drookit_dug:
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By Bobbo
19th Jan 2021 16:25

Charityguy please pay attention to the_drookit_dug 's point here - the link I provided was the first link I found after 30 seconds of google searching.

While I don't imagine that firm will have knowingly published something blatantly incorrect, it should not be relied upon as definitive.

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Replying to Bobbo:
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By Charityguy
19th Jan 2021 16:31

Thanks, Bobbo I was not going to rely on it, it has given me sufficient information to allow me to take matters forward. If I wanted a definitive answer that could be relied on I would indeed have taken professional advice and paid for it as suggested by Drookit dug.

As I understand it this site is not a source of professional advice that can be relied on. More of a general discussion site.

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Replying to Charityguy:
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By lionofludesch
19th Jan 2021 15:45

Charityguy wrote:

Bull... dust. They are an overhead because the staff are involved in both business and non-business activities. Therefore have to be apportioned.

Quite. Who said otherwise ?

Being involved in both doesn't make these costs an overhead.

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Replying to lionofludesch:
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By Charityguy
19th Jan 2021 16:28

Good afternoon, I think there has been a misunderstanding here. If you look at the opening question and the title of the query it was "Is furlough non-business income?". The answers seem to have strayed off into the costs and thankfully Bobbo identified this and answered it.

I do not see any advice that would need to be paid for, I was looking for input from individuals who I thought may have come across this particular issue. I am sorry if you took offence at my direct summary of your reply.

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Replying to Charityguy:
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By lionofludesch
19th Jan 2021 16:40

Don't worry. We're used to folk spitting their dummies when the answer given is not what they're looking for.

I stand by my earlier advice. If the work done by the staff is business, the CJRS is business. If the work is non-business, the CJRS is non-business. If the staff do some of both, you'll need to apportion it. The CJRS is inextricably linked to the wages paid.

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Replying to lionofludesch:
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By Charityguy
19th Jan 2021 16:46

If I may quote my good friend Drookit Dug... Ha Ha, How Rude!

I am afraid you still have not grasped it. But I will let you have the last word.

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Replying to Charityguy:
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By Cheshire
19th Jan 2021 17:25

[quote=Charityguy] ''I am afraid you still have not grasped it. ''

I would suggest it is you who has not grasped it.

Lion is a very well respected, full qualified Accountant, who really does know his stuff. You would certainly want him in your corner if getting into it with HMRC.

I would imagine there would have been a few with open mouths when reading your 'Bull....dust' comment. As well as a few who were probably sniggering behind their hands at what you have missed in his comments.

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Replying to Cheshire:
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By Mr_awol
21st Jan 2021 10:33

I agree that Charity Guy has not grasped it (it being the bigger picture and the implications/reasons for not giving a comprehensive answer). Perhaps because the income basis is the most common, he is unaware of the alternatives and/or reasons that the income method may not be appropriate.

What he has grasped is a generic bit of guidance that contains caveats such as 'may be' and 'could' but suits his desire for someone else to give him "the answer" without him providing any real information which would enable any specific quirks of his entity to be taken into account.

Now given his little paddy i wasn't particularly inclined to help him. I nearly posted this the other night but thought id wait a while as people like him frequently disappear once they've got the response they are looking for (and thrown some insults at regulars on the way out of course).

I did subsequently think about this in a bit more detail, mulling it over for a few PE clients and how it affects them, and also thinking it through on a few hypothetical scenarios. The MH article linked by Robbo is of course a very good guide and i believe in many cases the CJRS grant will indeed be allocated as 'non business' income. This isn't necessarily because that is the correct method - although in some cases it is, and that's simple. In other cases, it will be included as business income but at the end of the calculation it will be necessary to over-ride the result as it isn't fair or reasonable.

So my conclusion is:
1) If you're lazy or don't understand the calculations you are performing, just sling it in as non business and be done with it. You will probably end up in the right place and even if you don't, you can justify your position easy enough.
2) If you're advising on this, you really should consider it carefully, as you may be able to achieve a more favourable result - but bear in mind you may not be able to charge much (if anything) for your advice as you're probably going to end up back as non business.
3) If you have a special method agreed with HMRC then you need to follow that and then consider whether you should contact HMRC to request their confirmation hat the agreement is unaffected by this.

Nothing enlightening there unfortunately, so i could have posted it the other night after all..........

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Replying to Mr_awol:
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By Youareatit
24th Jan 2021 10:26

There are certainly a few cases where it might be better that all respondents wait a couple of days before responding, especially with the inappropriate/breaking the rules anon type questions. Might keep some of the undesirables off here.

There have been a few strops on here in the last few days that I was putting down to Januaryitis, although in truth I think most fall into the 'lazy category'. Lets face it is it so much easier to dump a question and let others do your work for you. The 'dont understand' category I have a bit more sympathy for, but only if they just say ' Im not sure I understand' rather than attacking the more knowledgeable on here, or just being downright rude.

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By Bobbo
19th Jan 2021 13:34

Charityguy, this might be useful https://www.macintyrehudson.co.uk/uploads/gated/NFP_eNews_-_May_2020.pdf

Specifically page 5 seems to suggest you can just exclude CJRS from your business/non-business calcs

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Replying to Bobbo:
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By Charityguy
19th Jan 2021 13:45

Thanks Bobbo very helpful

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By Echo761
21st Jan 2021 10:02

You raise a very interesting point Charity guy, you are asking about the liability of the income and not how the VAT on costs should be apportioned - Correct?

HMRC do not usually follow the accounting treatment, but they do for example in the Capital Goods Scheme (VAT Notice 706/2 para 4.1).

So if furlough is seen as a non-business grant then your overall recovery will decrease. I guess it is an area that has not been tested yet. The article from Bobbo below shows that it is not certain... I agree that it appears to be a grant but not specifically to support any particular area of the charity.

See also HMRC's VAT Manual on supply and consideration https://www.gov.uk/hmrc-internal-manuals/vat-supply-and-consideration/va...

If HMRC deems that furlough is non-business then lots of businesses will be in big trouble. But a good way to raise extra VAT.

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Replying to Echo761:
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By Charityguy
22nd Jan 2021 09:02

Thanks, very helpful.

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By Paul Crowley
21st Jan 2021 10:15

Remarkable that new guy is always the rude guy
Lion given the award of member of the year by the site moderators
Understands this stuff
Clearly you think you know more than you do actually know
Look at his thanks rating

Shame on you

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