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Unusual situation - are these grants taxable?

Local authority grants

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A very unusual one has come across my desk.

Mrs Cook & Mr Washerup wanted to open a restaurant, they took a property and were rate payers from Feb 2020, there was a fair amount of work getting it ready and therefore they would have opened the doors April/May 2020, but we all know what happened next.  In April 2020 the local authority paid them them a 25k grant.

After this they continued to attempt to get the business up and running but for various reasons were unable to.  They were even given a further grant from the local authority later in the year.

Has the trade commenced? I would say no, because they have never been in a position to open the doors and offer a service.

If we accept that, is the Local Authority grant therefore not taxable?  The grants far exceed the expenses.

 

Replies (11)

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By bernard michael
22nd Jan 2022 09:31

Local authority grants are taxable and should be declared on the SAR. They received it by dint of being occupiers and ratepayers of commercial premises

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Replying to bernard michael:
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By Winnie Wiggleroom
22nd Jan 2022 09:46

bernard michael wrote:

Local authority grants are taxable and should be declared on the SAR. They received it by dint of being occupiers and ratepayers of commercial premises

Yes that was the advice I initially gave, however (and I admit my question was playing the devils advocate somewhat) if they have not commenced a trade then no Self Employment exists so where can those grants be declared?

HMRC page (admit not the legislation so unreliable) states -
If you received a payment to support you during COVID-19, you may need to report this on your tax return if you are:
self-employed
in a partnership
a business

Ignoring the grants I think that if I tried to claim expenses for this HMRC would well argue that no trade exists.

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By Truthsayer
22nd Jan 2022 09:36

'If we accept that, is the Local Authority grant therefore not taxable?'

Are you serious?

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By bigdave1971
22nd Jan 2022 09:40

The grants are definitely taxable, I'd say the more pertinent question is, should the grants be repaid?

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Replying to bigdave1971:
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By Wanderer
22nd Jan 2022 11:57

No, in the scenario outlined by the OP certainly the £25k grant was properly claimed. Further issue that may exist however is that this should probably have been taxed in 2019/2020.

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Replying to Wanderer:
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By Paul Crowley
22nd Jan 2022 14:24

Agree re ye 2020
@ anyone
Has anyone had any issues yet regarding this? I suspect HMRC not really interested if taxed in one of the two years

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Replying to Paul Crowley:
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By Wanderer
23rd Jan 2022 13:08

Got a couple of FHL cases where strictly it should probably have been reflected in 2019/2020. As there were enough losses to absorb anyway haven't worried about that & just reflected in 2020/2021.
Other than that, (& other than the OPs case), I think there will be few cases, other than 5 April year ends, where strictly it should be brought into 2019/2020.

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By Wanderer
22nd Jan 2022 10:57

Winnie Wiggleroom wrote:

If we accept that, is the Local Authority grant therefore not taxable?

Oh dear. You are trying to reach a conclusion that doesn't relate to the scenario.
As you have gone down the route that you are arguing have a look at Section 6 of Schedule 16 of the Finance Act 2020.
In particular look at Section 6(3) & advise your client you won't be claiming any expenses.
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Replying to Wanderer:
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By Tax Dragon
22nd Jan 2022 12:44

I see what you did there Wanderer. Rather than make up an argument, you looked up a rule.

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Replying to Wanderer:
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By Winnie Wiggleroom
22nd Jan 2022 13:12

Wanderer wrote:

In particular look at Section 6(3) & advise your client you won't be claiming any expenses.

Yes, nice one, thats the answer I was looking for, that will teach me for thinking up a spurious argument before referring to legislation.

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Replying to Winnie Wiggleroom:
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By Tax Dragon
22nd Jan 2022 13:25

I should say that I quite liked your argument. Shows you're still thinking in January.

There is a preliminary step to Wanderer's answer - the definition of "coronavirus support payment". This is in s106 and includes (in England) the small business grant, the retail, hospitality and leisure grant and local authority discretionary grants. It also includes the equivalent grants in Scotland, Wales and Northern Ireland.

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