How do I account for the Government’s Coronavirus support?

The Coronavirus Job Retention Scheme results in cash payments from government for part of the wages, associated national insurance contributions and employer pension contributions for employees who have been placed on furlough. How should these payments be recorded and shown in a company’s annual report and accounts?

Payments received under the Coronavirus Job Retention Scheme are considered grants and should be accounted for in accordance with Section 24 of FRS 102 or Section 19 of FRS 105.

In practice, this means that it will be shown within other income, with a corresponding debtor until the cash is received from the government. As the grant is intended to cover costs, it should be recognised in income in the same period in which the related expense is incurred.

It is not appropriate to net the grant income off against wages and salaries costs.

We have claimed the statutory sick pay rebates from government for a number of our staff. How should these cash rebates be shown in our accounts?

The accounting treatment of statutory sick pay rebates should be treated in the same way as payments received under the Coronavirus Job Retention Scheme (above).

Payments received are considered grants and should be accounted for as other income. As the grant is intended to cover costs, it should be recognised in the same period in which the related expense is incurred.

It is not appropriate to net the grant income off against wages and salaries costs.

My business received a grant from our local authority (the Small Business Grant Fund). Should that be shown as income in our annual report?

The Small Business Grant Fund is a government grant with no future performance-related conditions. It should be accounted for in accordance with Section 24 of FRS 102 or Section 19 of FRS 105.

This means the grant will be recognised as income in the period in which it becomes 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.

The grant income will be shown within other income, with a corresponding debtor until the cash is received from the local authority.

Our retail business will no longer need to pay rates for the financial year 2020/21. Does this need to be shown in our annual reporting?

Under the FRS 102 and FRS 105 accounting rules, this simply represents a reduction in the rates expense.

If the financial year of the business is aligned to the tax year, the business would simply have a zero rates expense for the year. In most cases, the financial year will not be aligned to the tax year, so time apportionment will be necessary.

Our business has successful applied for a loan under the Coronavirus Business Interruption Loan Scheme (CBILS). Should this be shown in our annual accounts in the same way as other bank borrowing?

The Coronavirus Business Interruption Loan Scheme combine three elements:

  • A bank loan;
  • A government-backed guarantee; and
  • A business interruption payment (i.e. the government pays any fees and interest payments for the first 12 months).

If your business prepares its financial statements under accounting standard FRS 102, this requires financing transactions to be initially measured at the present value of future payments and discounted at a current market rate of interest, adjusted for transaction costs. Subsequent measurement will then be at amortised cost using the effective interest method.

If your business is a micro-entity and preparing financial statements under accounting standard FRS 105, no present value of future payments is required, instead the financial liability must initially be recognised at cost (i.e. the amount borrowed).

To be a micro-entity the business must meet certain criteria including, at least two of the following being met:

  • Annual turnover not more than £632,000
  • Balance sheet total not more than £316,000
  • Average employees not more than 10.

My business has received money under the government’s bounce back loan scheme. Does this need to be shown in our accounts in the same way as other borrowing?

Bounce Back Loan Schemes should be accounted for in the same way as Coronavirus Business Interruption Loan Scheme (above).

If your business prepares its financial statements under accounting standard FRS 102, this requires financing transactions to be initially measured at the present value of future payments and discounted at a current market rate of interest, adjusted for transaction costs. Subsequent measurement will then be at amortised cost using the effective interest method.

If your business is a micro-entity and preparing financial statements under accounting standard FRS 105, no present value of future payments is required, instead the financial liability must initially be recognised at cost (i.e. the amount borrowed).

To be a micro-entity the business must meet certain criteria including, at least two of the following being met:

  • Annual turnover not more than £632,000
  • Balance sheet total not more than £316,000
  • Average employees not more than 10.

This update has been prepared by Abby Wells, please get in touch if you have an questions