The basic premise of the draft legislation is that payments received under the grants are taxable payments like other taxable receipts. Whether tax is paid will depend on the business or trade profits of the grant recipient, taking into account the grant and other business income and expenditure under the normal tax rules. Businesses within the scope of the new rules include any trade or profession, any UK or overseas property business and any businesses which makes investments.
However, there are a number of exemptions to the principle that coronavirus support payments are taxable, including where (i) any such income is outside the scope of tax, the support payment may also be outside the scope of tax and (ii) payments are made to charitable companies or community amateur sports clubs.
If businesses have received coronavirus support payments under CJRS, SEISS or under a direction given under section 76 Coronavirus Act 2020 to which they are not entitled, HMRC can raise income tax assessments against the recipient of the payment, who will be liable to an amount of income tax equal to the amount of the payment that the recipient was not entitled to and which had not been repaid. For deliberate failures to notify HMRC of a liability to income tax chargeable where a business was not entitled to a payment; penalties can be levied.
In the context of the CJRS, this concept is extended to apply where a payment received under the CJRS was used for costs other than those that the CJRS is intended to reimburse i.e. costs relating to PAYE, NICs and pension contributions of employees.
In the context of SEISS, where the grant is retained by an individual partner (and does not feature in the firm's calculation of partnership profits) then that grant is treated as taxable income of the partner alone, rather than of the partnership.
Importantly, directors of any company which is subject to an insolvency procedure, or where there is a serious possibility of that company becoming subject to an insolvency procedure, where there is a serious possibility that some of its income tax liability will not be paid following receipt of a coronavirus support income payment will be joint and severally liable to HMRC with the company for the income tax due.