Tax deductibility of business rates repayment
Published 3 March 2021
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Who is likely to be affected
Businesses that have returned a sum to a public authority in respect of a ‘coronavirus support arrangement’, which is outside of the definition of a Coronavirus Support Payment (CSP) within s106 Finance Act 2020. For example, a business returning a sum, which is no longer required in respect of relief previously granted, such as business rates relief.
Policy objective
The government has supported businesses throughout the coronavirus (COVID-19) pandemic with targeted relief.
In some circumstances the relief has not been required by specific businesses within the sector targeted and they have repaid sums equivalent to the relief to the government or devolved administrations. This policy ensures that the neutrality and fairness of a business’s tax outcome is achieved on the basis that sums returned to government are an allowable expense if the expenses covered by the relief would have originally been an allowable deduction.
The measure outlines the timing and quantum of the tax deduction a business should take when it returns a sum in respect of coronavirus support arrangement to a public authority.
Background to the measure
This measure provides a new statutory relief and overrides the existing law on allowable expenses for payments to the government or devolved administrations in respect of coronavirus support which is no longer required by a business.
There has been no consultation due to the pace of government intervention in rolling out economic stimulus packages to support businesses throughout the pandemic. However, this measure ensures neutrality for business wishing to return a sum which has been provided by way of a relief.
Detailed proposal
Operative date
The measure will have retrospective effect once enacted within Finance Act 2021.
Current law
The existing primary legislation for companies subject to Corporation Tax is contained within chapters 4 and 5 of Part 3, chapter 2 of Part 16 and chapter 1 of Part 20 Corporation Tax Act 2009.
The existing primary legislation for businesses subject to Income Tax is contained within chapters 4 and 5 of Part 2 Income Tax (Trading and Other Income) Act 2005.
Proposed revisions
Legislation will be introduced in Finance Act 2021 so that a business that makes a payment to a public authority to repay coronavirus support or relief, may claim an Income Tax or Corporation Tax deduction equivalent to the quantum of that payment.
The measure seeks to provide neutrality by allowing a deduction in the same accounting periods as the original liability would have been due and paid. The quantum will be limited to the original liability.
To be eligible, a business must have had a liability which would have been deductible in calculating the profits of the business for Income Tax or Corporation Tax purposes had the liability not been removed through coronavirus support or relief. The reason for the original liability being removed must be for a purpose of supporting business in connection with coronavirus by a public authority.
Summary of impacts
Exchequer impact (£m)
| 2020 to 2021 | 2021 to 2022 | 2022 to 2023 | 2023 to 2024 | 2024 to 2025 | 2025 to 2026 |
|---|---|---|---|---|---|
| -160 | -30 | Nil | Nil | Nil | Nil |
These figures are set out in Table 2.1 of Budget 2021 and have been certified by the Office for Budget Responsibility. More details can be found in the policy costings document published alongside Budget 2021.
Economic impact
This measure is not expected to have any significant macroeconomic impacts.
Impact on individuals, households and families
This measure is expected to have no impact on individuals as it only affects businesses. There is expected to be no impact on family formation, stability or breakdown.
Equalities impacts
It is not anticipated that there will be impacts for those in groups sharing protected characteristics.
Impact on business including civil society organisations
This measure is expected to have a negligible impact on businesses or civil society organisations that return coronavirus support arrangements to government that is no longer required, such as businesses rates relief, by ensuring that these payments are tax deductible.
This measure will put the business in the same position as if they had made the payment prior to the liability being reduced to nil. One-off costs will include familiarisation with the change.
There are not expected to be any continuing costs. Customer experience is expected to stay broadly the same as there is no significant change to how businesses or civil society organisations interact with HMRC.
Operational impact (£m) (HMRC or other)
It is anticipated that any operational impacts for HMRC due to this change will be negligible.
Other impacts
Other impacts have been considered and none has been identified.
Monitoring and evaluation
The measure will be monitored through information collected from receipts.
Further advice
If you have any questions about this change, please contact Kristofer Ross or Thomas Brown on email: kristofer.ross@hmrc.gov.uk or thomas.brown1@hmrc.gov.uk.