CORONAVIRUS - TAX - 04.06.2020

Protecting your workers - tax relief on costs

Protection money

The cost of coronavirus continues to rack up for businesses. Even as the lockdown eases and employees return to their normal workplaces, their employers are having to pay for coronavirus preventive measures, such as face masks, extra washing and sanitising facilities, plus physical screens and barriers. One of our subscribers asked us if there are any changes to the tax rules that will allow extra tax relief for these costs.

Tax deductible

The short answer to our subscriber’s question is that there are no new tax measures, at least not so far. That said, in most circumstances the existing rules will allow tax deductions for the financial year in which the costs are incurred. However, there is potential for problems if the expenses aren’t recorded correctly in your company’s books.

Revenue expenses

The cost of items such as face masks, sanitiser and services, e.g. extra cleaning, are all what HMRC and accountants describe as “revenue expenditure”. Essentially, they are everyday costs which are tax deductible for the financial year in which they are incurred. Tip. Your bookkeeper doesn’t need to record them as anything special; they can be recorded in the same way as other general overheads and expenses.

Capital expenditure

Things get a little trickier for the cost of installing physical barriers or other construction works. These may not count as revenue expenditure but as capital. The good news is that the tax system means that for most businesses this won’t delay tax relief for these costs. Nevertheless, your bookkeeper must record the expenses correctly, i.e. as either revenue or capital costs. Tip. As a reliable rule of thumb, if the construction, e.g. a framed perspex barrier, is expected to be usable in your business for no more than two years, it counts as revenue expenditure, otherwise it should be recorded as capital. Our view is that the cost of constructing most types of barrier can be categorised as revenue expenditure.

Structure or equipment?

A further complication is that capital expenditure can be one of two types: plant and machinery (P&M) or structural, e.g. a new wall. Tax relief is given far more quickly for the first type of the expense than the second.

P&M. Essentially, tax relief for the cost of P&M totalling up to £1 million in the twelve months to 31 December 2020 is given for the financial year in which it’s incurred. If your business has already spent that much, the tax relief on the excess is spread over many years but can be accelerated by making a special election (see The next step ).

Structural. Tax relief for structural work is spread over 33 years, i.e. you get a deduction equal to 3% of the cost per year (see The next step ). Whatever corornavirus-related costs you incur it’s important to put it in the proper pigeon hole in your books to ensure tax relief is claimed correctly.

For a free sample election and information on the 3% deduction, visit http://tipsandadvice-business.co.uk/download (CD  21.18.03).