Many companies have been receiving financial support from the government during the Coronavirus pandemic, either through the furlough/job retention scheme, rates relief or grants.
The technical advice
Under UK accounting standards, income from the government should be recognised under one of two models, based on the nature of the grant as follows:
- Accrual model – the grant is either a revenue or capital grant (relates to revenue costs or capital assets). Most COVID-19 government support relates to revenue costs. They are recognised in income over the period to which they relate
- Performance model – where no conditions are attached on the grant, it is recognised in income when it is received. Where there are specific conditions attached related to future performance, it is recognised only when these conditions are met (when there is certainty that the income is due/belongs to the entity). If the conditions have not yet been met it will be recognised in creditors as deferred income
Coronavirus Job Retention Scheme (Furlough) – CJRS
The income is received in relation to a certain months’ payroll costs. Therefore it should be recognised in the same period as the payroll costs. It should be classified as other income. Use the accrual model.
Business rates relief
This is not a grant from the government (no money is received) – instead there is just a break on business rates i.e. no cost in the accounts. Continue showing any rates which are paid in the P&L as a cost, the cost for the year will be less if you have benefitted from rates relief. Nothing is included in income for this.
Small Business Grants Fund & Retail, Hospitality and Leisure Grant Fund
At the point of receiving the grant, the company’s eligibility would have already been established, as such any conditions have been met. It can be immediately recognised in other income when it is received, in line with the accrual model. (See FRS102 s.24.5E, which appears to have specific wording on this sort of scenario, where immediate financial support is provided, to use the accrual model)