Revenue have recently issued the following guidelines on the tax treatment of the various Government supports available to businesses during the pandemic.
Temporary Wage Subsidy Scheme (TWSS)
TWSS guidance states: In computing the employer’s liability to income tax or corporation tax, as the case may be, the employer shall not be entitled to a deduction in respect of the temporary wage subsidy payment paid to an eligible employee under the scheme. Section 28(5)(i) Emergency Measures in the Public Interest (Covid-19) Act 2020 also notes that TWSS payments are not tax deductible in computing the employer’s income tax or corporation tax liability. Revenue confirmed that as TWSS payments were made to employers to be passed onto employees, TWSS payments are not payments to the employer and are not a grant. Accordingly, TWSS payments do not constitute taxable income in the hands of the employer and no deduction is available in respect of the portion of the employee’s wage covered by the TWSS payment.
Employment Wage Subsidy Scheme (EWSS)
EWSS guidance states: Subsidies received are taxed on the employers as part of their trading income but are ignored in the calculation of the 30% reduction in turnover. Revenue confirmed that the EWSS is different from the TWSS in that it is a payment to the employer. It is a taxable grant, and a deduction is available for the portion of wages supplemented by the EWSS. Example: The employer receives €10,000 in EWSS payments, then this is treated as taxable grant income of €10,000. The employer can take a tax deduction for the portion of wages supplemented by the EWSS. The tax steps would be that taxable income includes €10,000, but deductible expenses for payroll costs also include €10,000 (which the employer paid out to employees from the EWSS payments) so the ultimate income tax or corporation tax liability arising from the receipt of EWSS payments is nil. However, under enhanced payment rates in place for pay dates from 20 October 2020, the employer may receive more EWSS than the gross wage paid to the employee, and in such cases, the excess is taxable in the hands of the employer.
Revenue confirmed that there are no special tax rules for Restart Grants. These grants are therefore subject to the usual taxation rules for Government grants. See Revenue’s TDM Part 07-03-01. Revenue’s EWSS guidelines treat the Restart Grant as capital for the purposes of the turnover test. Revenue confirmed that this treatment is solely for that purpose, i.e. to ensure Restart Grants are excluded when undertaking the eligibility review for EWSS purposes. For tax purposes other than the EWSS eligibility test, it is necessary to consider what the grant was expended on to establish if the grant is revenue or capital in nature and apply the appropriate tax treatment accordingly.
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