BIM40457 – Business Income Manual – HMRC Internal Manual

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Fair and reasonable distribution: several companies

If an amount of coronavirus alimony relates to more than one business, for example a person has multiple trades or has a trade plus a real estate business, the coronavirus alimony should be distributed among those businesses on a fair and fair basis. reasonable.

The type of grant program and the program’s eligibility criteria may affect which company the Coronavirus Support Payment should be allocated to.

Example 1: Commercial and real estate companies

An individual has an independent trade and a real estate business. He benefits from a SEISS grant because he is self-employed and receives a payment from the Business Assistance Fund of his municipality as an owner subject to the professional rate. The nature of the subsidy schemes means that the SEISS payment is a taxable revenue from the trade and the business support grant is a taxable revenue from the real estate business.

Example 2: Single trade and commercial partnership

An individual is an individual trader and is also a partner in a business partnership, both of whom are affected by the coronavirus. She receives a SEISS payment calculated on the basis of the average sole proprietorship profit of £ 20,000 per year and the average partnership profit of £ 10,000 per year. at the source of the partnership would be a fair and reasonable basis.

Example 3: Well used for both trading and rental

As a business taxpayer, an individual receives a payment from the Business Support Grant Fund for property he owns, operates part of for his own business and rents part of it. An allocation is needed to allocate the subsidy payment between business income and property income.

The individual adopts an appropriate basis for allocating business costs between the two types of business. Since eligibility for grant income is based on local authority commercial tariffs, a fair and reasonable basis would be to award the grant receipt on the same basis as that used for the allocation of expenses related to the grants. commercial rates.

Example 4: Land domain / Mixed affairs

A partnership manages a land estate that carries out many different types of activities, including farming, furnished vacation rentals, long-term rentals, etc. Staff are normally engaged in the different types of activity and an appropriate allocation method is adopted to allocate the costs of employment to each type of business.

A fair and reasonable allocation of the CJRS collection would be to allocate the income on the same basis as the allocation of salary costs.

It would not be fair and reasonable to allocate CJRS revenue on one basis (eg 75% to operations) and allocate the corresponding wage costs on another basis (eg 50% to property income). The receipt from CJRS and the corresponding employment expense should be distributed in the same proportion.

Received after termination

When a coronavirus-related support payment is received for a business after going out of business and the receipt has not been recognized during the period in which the trade has been carried out, the payment is treated as a receipt. after termination. [For guidance on post cessation receipts see BIM90000]. Similar rules apply to goods and other types of businesses.

Mutual companies

[Note: In practice, this section may not apply to SEISS, as a mutual business would not be eligible for SEISS payments].

A coronavirus-related support payment is treated as if it were mutual business income if it relates to the mutual activities of a business. [For guidance on mutual trading see BIM24000]

If the only activity of a mutual is mutual trade, the income from the subsidy will be treated as mutual income from its commercial activity. If it has non-mutual business income, that subsidy income (or a part of it, if a fair and reasonable allocation is applicable) will be taxable business income, although the business may then claim deductible business expenses for calculate its trading profit (or loss) in accordance with normal principles (and following a similar fair and reasonable allocation of its costs, if applicable).

Example 1: CJRS – Fully Mutual Trade

A club operates a members-only bar and the costs of its bar staff are normally covered by the bar’s mutual commercial revenue. The club is shutting down its bar during the pandemic and putting its bar staff on leave and receiving a CJRS payment which it uses to fund its costs of employing bar staff on leave. The receipt from CJRS can be treated as if it were mutual income. The corresponding labor costs also relate to mutual trade, and since the income is not taxable, the costs are not tax deductible either.

Example 2: CJRS – Trade partly mutual, partly non-mutual

As in Example 1, but the club has a mix of mutual and non-mutual business activities. CJRS revenues should be allocated on a fair and reasonable basis between mutual and non-mutual business activities.

The proportion relating to the non-mutual business activity will be taxable income, but the corresponding wage cost (which should be allocated on the same basis as the income) can be charged against this taxable source. This is because (and subject to any timing difference under GAAP), the CJRS taxable receipt and related employment expenses would be offset to produce a tax neutral position for the club.

Example 3: Local authority subsidy – Part mutual / part non-mutual trade

As in example 2, but the club receives a Coronavirus Business Support grant from its municipality. Unlike the CJRS grant, there are no conditions attached to the grant that require the income to be spent for a particular purpose.

If there is a mix of mutual and non-mutual activities, a fair and reasonable allocation will be required to allocate the grant income between taxable business income and mutual business income. The organization will already be required to adopt an appropriate basis (s) for the allocation of its revenue costs between the mutual and non-mutual parts of its activities. [see BIM24455+]. A reasonable basis for allocating grant income would be to adopt allocation rules similar to those applied to the organization’s mixed expenses.

Alternatively, the nature of the grant program itself may influence what is a fair and reasonable basis. For example, where grant eligibility is based on local government commercial tariffs, it would be fair and reasonable to allocate the grant receipt in accordance with the appropriate basis used by the organization for the cost allocation of tariffs. commercial between mutual and non-mutual commercial activities.

So if, for example, a club adopts an appropriate basis that results in a 50:50 split of mixed expenses between mutual and non-mutual business activity, then it will be acceptable for the coronavirus support payment to be split into the same 50:50. : 50 distribution.

Any reasonable basis of allocation can be accepted, which should be applied consistently.

CCAC, Charities and Charitable Societies

For Community Amateur Sports Clubs (CCACs), Charities, and Charities, receipt of Coronavirus Support Payments may be bypassed for the purposes of Section 528 (1) ITA, Section 482 (1 ) and article 661CA (1) CTA10 [For reference, see Annex IV, Chapter 15 Small Trading Exemption guidance and chapter 2.22 of CASC guidance].

Payments received under employment-related plans are disregarded for the purposes of Sections 662 (2) and 663 (2) LTC 2010 (see Chapter 3.1 of the CCAC Guidelines].

Example 1: Exemption for small operations of CJRS and charities

A small charity raises money by selling items such as pens, pencils, mugs, etc. Its profits from this activity generally qualify for the small trade exemption and are not taxed. The charity is putting some of the staff involved in the sale of merchandise on leave, but is able to continue to make a profit through online sales. Receipt of the CJRS grant does not count toward the incoming resource threshold and if other conditions are met, it may continue to enjoy the small trading exemption on its trading profits.

Community amateur sports club receives an unrelated coronavirus support payment of £ 10,000 from its local authority. This £ 10,000 receipt does not count as a receipt for the Income Condition Test in section 661CA CTA 2010. However, as it is not an employment grant, it counts as a receipt. for the purposes of the Condition A test in Sections 662 (2) and 663 (2) CTA 2010. As such, the £ 10,000 grant from the local authorities should be considered income and, subject to other conditions, may be taxable.

A community amateur sports club puts staff on leave and receives income of £ 30,000 from CJRS. As the CJRS is an employment-related scheme, this receipt of £ 30,000 does not count as a receipt for the purposes of Condition A of Sections 662 (2) and 663 (2) LTC 2010. If all others conditions are met, the CCAC will be granted a corporation tax exemption for its income from business and / or real estate in the UK.

Costs when no business is exercised

[Note: This section is not applicable to payments received under SEISS or Employment-Related Schemes – Specific rules for these other schemes are included in BIM40458 and BIM40459]

If a person receives coronavirus-related alimony under a CBSGS, it will inherently be related to a business. However, in certain circumstances this receipt may not be taxable as a transaction receipt or post-termination receipt, for example when (for tax purposes) the transaction has not yet started. In these circumstances, the amount is taxed as a miscellaneous receipt. To avoid double taxation, the amount received should not be taken into account in calculating trading profits if the transaction begins.

Example: Income before negotiation

In February 2020, an individual acquires premises to operate a retail business. As a corporate taxpayer, the person qualifies and receives payment from the Small Business Grant Fund. Due to the coronavirus pandemic, the store never opens, and for commercial income purposes, no businesses have started. The Small Business Grant Fund provides business support, so the payment relates to a business. It is taxable on the beneficiary as a miscellaneous receipt.

If the store eventually opens and the business begins, any receipt that has already been taxed as a miscellaneous receipt does not need to be taken into account in calculating the taxable business profits of the business.

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