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What date is it taxable?

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Small business rate grant of £10000...

if you have a year end of 5th April 2020 is this taxable in this year  as you were contractually entitled to it at that date even though received after 5th April? Many thanks. Thoughts please.

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By pauld
19th May 2020 15:48

Thoughts are in the 1000 times this question has already been asked.

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By paulwakefield1
19th May 2020 16:59

Well it may have been asked a 1,000 times but I am damned if I can find a search term that leads me to an answer. I have found an instance of the question being asked before but it was never answered.

Have you got one of the links please?

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By mikeyban
19th May 2020 18:06

Please show me the answer or provide an answer..

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By Calculatorboy
19th May 2020 17:01

FFS...it's called accruals

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By mikeyban
20th May 2020 13:29

Accruals..... it’s a one off payment?

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By susanreed
19th May 2020 17:22

Hi,

It is taxed as any other income, when you are entitled to it. So in your case, y/e 5.4.20.

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By susanreed
19th May 2020 17:22

Hi,

It is taxed as any other income, when you are entitled to it. So in your case, y/e 5.4.20.

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By John R
19th May 2020 17:47

I would say that it depends on your accounting policy. i.e. are you using the performance model or the accrual model. I imagine that most will use the accrual model and this would mean spreading the grant over the period the associated lost income arises so probably mostly 2020-21. See here http://stevecollings.co.uk/frs-102-grant-accounting/.

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By Bobbo
20th May 2020 14:16

I suggest you re-read the second bullet point under the accrual model. "A grant that becomes receivable as compensation for expenses or losses already incurred, or for the purpose of giving immediate financial support to the entity with no future related costs, is recognised in income in the period in which it becomes receivable."

This grant would certainly fall into the category of 'immediate financial support with no future related costs'. (Obviously businesses in receipt of the grant will be incurring costs related to their being closed/less busy, however the amount of these costs has no bearing on the grant).

As already noted by another commenter, the recipient was entitled to the grant prior to 05/04/2020. I believe the prescribed entitlement date by govt is the earlier of payment date or 01/04/2020.

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By John R
20th May 2020 15:05

I did read that but I have taken the view (rightly or wrongly!) that most recipients will be using the grant towards future expenditure. For example, I have a client who, because he was in receipt of the grant, decided to use the money to top up his employees furlough pay. Maybe every case will need to be looked at individually.

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By Bobbo
20th May 2020 15:24

I don't think any case needs to be looked at individually. Your particular client has chosen to use the grant in that way but they were under no requirement to do so.

FRS 102 24.5 C-G are the bullet points which were repeated in your previous link. The basis you appear to be going on is 24.5D "Grants relating to revenue shall be recognised in income on a systematic basis over the periods in which the entity recognises the related costs for which the grant is intended to compensate."

The grant is not intended to compensate for the cost of topping up employee's furlough pay, so to recognise it on that basis would appear incorrect.

I don't really see how this grant can be classified as anything other than 'for immediate financial support' and recognised when receivable under 24.5E.

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By mikeyban
21st May 2020 18:03

So in summary... is it the consensus that
it is the earlier of the announcement by the chancellor which was before 5th April 2020?

Or the receipt date in 5th April 2021?

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By paulwakefield1
21st May 2020 20:52

Here is the ICAEW position (sorry about the formatting):

Small Business Grant Fund (SBGF), Retail, Hospitality and Leisure Grant Fund (RHLGF) and discretionary fund

The Small Business Grant Fund (SBGF), the Retail, Hospitality and Leisure Grant Fund (RHLGF) and the discretionary fund represent cash payments from local authorities to eligible businesses. These are government grants for which there are no future performance-related conditions. They should be accounted for in accordance with Section 24 of FRS 102.

Paragraph 24.4 of FRS 102 permits an entity to recognise grants based on either the performance model or the accrual model. This is an accounting policy choice which must be applied on a class-by-class basis. Practically this choice doesn’t make a difference to the accounting treatment of these particular grants, however, the accounting policy used should be disclosed in the notes to the financial statements.
Performance model

Under the performance model, FRS 102 paragraph 24.5B(a) states a grant that does not impose specified future performance-related conditions on the recipient is recognised in income when the grant proceeds are received or receivable (this is likely to be when the scheme eligibility criteria were first published, or if there was uncertainty around eligibility, when confirmation of entitlement was received from the local authority). Practically, this will be shown within other income, with a corresponding debtor until the cash has been received from the local authority.

Accrual model

Under the accrual model, FRS 102 paragraph 24.5E states that a grant that becomes receivable for the purpose of giving immediate financial support to the entity with no future related costs shall be recognised as income in the period in which it becomes receivable (again, this is likely to be when the scheme eligibility criteria were first published, or if there was uncertainty around eligibility, when confirmation of entitlement was received from the local authority). Practically, this will be shown within other income, with a corresponding debtor until the cash is received from the local authority.

So in most cases that would be on 1 April.

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By mikeyban
21st May 2020 21:35

That’s brilliant Paul... thank you!!

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By Southwestbeancounter
28th Oct 2020 15:13

Thank you for this too Paul!

This topic has been 'doing my head in' as I have official articles stating that it is declared on the date of entitlement (11th March or thereabouts) but they don't link to any official guidance and then when I look on AW, commentators are talking about spreading it over 3 months and all sorts of ideas which don't match the official commentators at all.

I have a corporate client with a 30 April 2020 year end receiving two grants; one in April and one in May so I will now accrue for the May one in the 2020 accounts.

Thank you!

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