Reporting covid 19 support payments on your tax return
The pandemic brought unprecedented financial support from the government to help businesses survive lockdowns and restrictions. If your company or self-employed business received Covid-19 support payments—whether through the Bounce Back Loan Scheme, grants, or other relief measures—you’ll need to report these correctly on your tax return. Getting this right matters, both for your compliance with HMRC and for accurate financial records.
At Severn Accounting, we’ve helped many Worcester businesses navigate the tax implications of these payments. This guide explains what you need to know about reporting Covid support on your Self Assessment or Corporation Tax return.
Which payments need reporting?
First, let’s clarify what counts as taxable income. Most Covid-19 support payments were grants or loans, and the treatment differs:
Grants (such as the Local Authority Discretionary Grants Fund, closed business lockdown payments, and restart grants) are generally taxable income and must be declared to HMRC. These should be reported as business income in the year you received them.
Bounce Back Loans and other government-backed loans are not taxable—they’re borrowed money, not income. You won’t pay tax when you receive the funds. However, if any portion has been forgiven by your lender, that forgiven amount may become taxable. Check your lender’s correspondence carefully; they should clarify whether your loan was subject to forgiveness schemes.
Statutory sick pay top-ups, furlough support, and employee grants have different rules if you claimed these on behalf of staff. The good news is that amounts you claimed through the Job Retention Scheme and similar employment support were generally not taxable to the business (though you must have claimed correctly in the first place).
Self-employed traders and sole proprietors
If you’re self-employed, grants received need to be included in your business income on your Self Assessment tax return. Report them in the relevant box on your Self Employment pages (SA103) or in your business income section if you use the cash basis.
The key date is the tax year in which you received the payment. If the grant arrived in your account during tax year 2023/24 (6 April 2023 to 5 April 2024), it goes in that return, regardless of when you applied for it.
One important consideration: if you’ve claimed capital allowances on equipment purchased using grant money, or if the grant was specifically for a capital asset, you may need to adjust your capital allowances claim. HMRC’s view is that you shouldn’t claim capital allowances on items funded by grants you’ve declared as income—there’s a risk of double-relief. Your accountant should review this if applicable to you.
Limited companies
For companies, Covid-19 support grants are taxable profits and must be reflected in your Corporation Tax return (CT600). They’ll flow through your profit and loss account and increase your taxable profits.
Report the grant income in the relevant section of your accounts. If your company received a grant in the year ended 31 March 2024, for example, it’s included in that accounting period’s figures and reported in your next Corporation Tax filing.
Loans again: Bounce Back Loans received by companies aren’t taxable income. If the loan was subsequently forgiven, HMRC’s position has been evolving, and many forgiven amounts were treated as non-taxable in light of the government’s stated intention. However, you should verify this with your accountant—the rules have been complex.
Record-keeping and common pitfalls
HMRC expects good records. Keep:
- All correspondence from the awarding authority
- Bank statements showing receipt
- Details of how the money was spent (if it was spent)
- Any loan documentation or forgiveness notices
- Evidence that you’ve correctly declared it (or proof it wasn’t income, if applicable)
A common mistake we see is businesses double-declaring payments—once when received and again when spent on stock or equipment. Report the grant as income once only, in the year you received it.
Another pitfall: ignoring loan forgiveness. If your lender has confirmed a Bounce Back Loan (or similar) was forgiven, don’t assume it’s tax-free without checking HMRC’s latest guidance or seeking advice.
Moving forward
Most Covid-19 support claims are now several years old. If you’re unsure whether you’ve reported everything correctly on previous returns, or if you’ve received amended correspondence from your lender, it’s worth reviewing. HMRC has generally been pragmatic with genuine errors, but getting it right now protects you going forward.
For tailored advice on your specific situation—whether you’re still clarifying old claims or want to ensure your current filings are accurate—contact Severn Accounting. We’re here to help.
For tailored advice, contact Severn Accounting — we’re here to help.