For the first time, companies are having to account for and understand the tax consequences of government support in a way they could not have imagined in 2019. 

For companies in receipt of COVID government support and applying FRS 102, the accounting treatment is generally covered by the requirements of Section 24 ‘Government Grants’ of FRS 102, say ICAEW’s Financial Reporting and Tax Faculties. In most cases, the tax treatment follows the accounting treatment. Section 24 permits an entity to recognise grants based on either the performance model or the accrual model.

However, there are nuances in the tax treatment of the schemes and the two faculties have set out a guide for subscribers – Accounting and tax consequences of COVID-19 related support – which provides explanations and examples of key schemes – and how they should be accounted for.

The guide is designed to provide an overview of the accounting and tax consequences of receiving government assistance and also the consequences if the company chooses to repay any assistance received. It also signposts where further guidance can be found. 

Marianne Mau, Technical Lead in the Financial Reporting Faculty, says: “The guide is not intended to cover all eventualities and only sets out the tax consequences for companies, rather than unincorporated entities. However, companies will find it useful to better understand how the accounting and tax treatment is related.”

Richard Jones, Business Tax Manager in the Tax Faculty, adds: “It is important for businesses to understand the tax cost of the support they are receiving so that they know exactly what extra funds are available to them and can plan accordingly. The relevant rules are not always straightforward. Understanding them is key to avoiding unexpected tax bills in the future.”