Accounting For COVID Related Transactions – How These Affect The Financial Statements And Tax Implications
For many UK businesses, the COVID-19 crisis was devastating. Lockdown measures meant business closures and new social distancing guidelines and the requirement of face masks and other protective gear is making it difficult for many businesses to interact with their customers, let alone stay open long enough to do so.
Fortunately, this should only be a temporary setback for these businesses and operations should be back to normal again very soon. But, with that being said, there are some other important factors that UK businesses need to consider if they are to remain sustainable in our post COVID-19 world. I am talking about COVID related transactions such as loans, grants, and how these will affect profits and business growth.
Let’s take a look at how COVID related transactions are going to affect the financial statements and tax implications of UK businesses:
Want to switch to More Than Accountants? You can get an instant quote online by using the form below. In a like for like comparison for services we are up to 70% cheaper than a high street accountant.
Government Assistance And Income Tax- the response by the UK government to the COVID-19 crisis was to introduce economic stimulus packages for consumers as well as support measures for individual industries. Some of these measures include direct subsidies, tax exemptions, tax reductions and credits, extended expiry period of unused tax losses, reduction of public levies, rental reductions or deferrals and low-interest loans. These relief measures fall within the scope of the standards on income tax, on government grants, on leases or financial instruments and the accounting may be different in each case.
How will accounting for any income tax consequences be differentiated as to whether the government has substantively enacted the relevant law? Bookkeeping will need to determine whether changes to tax rates and laws were substantively enacted as of the reporting date and the characteristics of any tax relief or rebates must be assessed to determine whether they should be accounted for as the receipt of a government grant, or a reduction to the company’s income tax expense.
Financial Reporting – the Financial Reporting Council has recently written UK companies alerting them to the fact that they need to ‘make appropriate meaningful disclosures in their annual reports relating to the disclosure of principal risks and uncertainties affecting a company’s business model.’
In a nutshell The Government Assistance received could have implications on Corporation Tax, VAT as well as financial disclosures to be made in financial statements.
Contact More Than Accountant
To learn more about how COVID related transactions are going to affect the financial statements and tax implications of UK businesses, contact More Than Accountant today and speak with an experienced accounting professional who can assist you and answer any questions you might have.
If you enjoyed this article, please feel free to share it on your favourite social media sites.
