Trading or non-trading?

Employers who furlough employees

Didn't find your answer?

Just a thought.

I wonder what the trading status will be for many one person companies who have furloughed themselves and made a claim under the job retention scheme.

The aren't permitted to carry out trading duties - only director duties - does this mean the company is non-trading during this period?  If so, this could potentially mean the grant income is taxable but perhaps they can't deduct 100% of salary costs?

Take a cafe who has 3 members of staff.  Closed as instructed by the government for, lets say 3 months.  They furlough staff and director.  Do they receive CT relief on any costs incurred during the period of closure?

I think i will ignore and allow as a full trading period, but I wonder if HMRC has any comeback on this?

Replies (7)

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By Wanderer
15th May 2020 13:56

JCresswellTax wrote:

I think i will ignore and allow as a full trading period,......

Good call, exactly what I'll be doing.
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Replying to Wanderer:
RLI
By lionofludesch
15th May 2020 14:21

Good job I filled your glass, Wanderer.

Me too. Sometimes it's best not to think too hard.

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By Tax Dragon
15th May 2020 14:55

Tax training teaches you to look for problems. (Which could explain a lot of my contributions.)

But even I don't see an issue here, in the general run of things, so long as the trade resumes (if that's the word) in due course.

There may be some situation-specific peculiarities, e.g. if an EIS subscription was just before lockdown, but hopefully there'll be specific relaxations to deal with such cases. Government/HMRC is actually quite good at spotting those. They've already put off the reporting requirement under the UK's implementation of DAC 6, for Pete's sake. Who in here would have thought of that?

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Replying to Tax Dragon:
RLI
By lionofludesch
15th May 2020 15:06

Tax Dragon wrote:
Who in here would have thought of that?

Not me.

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By pauld
15th May 2020 15:01

Definition of active includes 'receiving any other income' i.e. receiving furlough grants.

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By Duggimon
15th May 2020 15:06

The sensible thing, ignoring what the actual law may say in the specific details, is that the wages paid are an allowable cost because the income is taxable.

If it helps, you could look on the grant as income earned by the company which means it is trading, albeit a change of trading activity from "doing their normal work" to "having staff" - this is what they're now being paid to do hence is a trading activity - so their costs are allowable.

Or you could look on it as the cost of retaining staff for when the normal trade resumes and allow the costs on that basis, whatever helps.

It would be mad to disallow wages as deductible costs, in my opinion, just pick your favourite reasoning and go with that.

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Replying to Duggimon:
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By Tax Dragon
15th May 2020 15:45

Specifically on the cost of staff, rents, other normal allowable business costs:

Duggimon wrote:

It would be mad to disallow wages [and the other costs] as deductible costs, in my opinion, just pick your favourite reasoning and go with that.

OK...

Duggimon wrote:

If it helps, you could look on the grant as income earned by the company which means it is trading, albeit a change of trading activity from "doing their normal work" to "having staff" - this is what they're now being paid to do hence is a trading activity - so their costs are allowable.

Nah, this isn't my favourite.

Duggimon wrote:

Or you could look on it as the cost of retaining staff for when the normal trade resumes and allow the costs on that basis, whatever helps.

Yeh, this is better.

Or you could just ask: has the purpose of the expenditure changed? Thought not. And it is purpose that is tested (W+E).

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