06 Jan Know all About COVID Redundancies
Covid 19 impact brought a lot of changes in business operations in the UK. The reduced operations mean less staff. To completely go through the concept of covid redundancies, you have to go through some of FRS 102 and corporation tax rules.
More About Covid Redundancies
The furlough scheme is further extended until April next year. Due to the uncertain situation, you may have to terminate your redundant staff. FRS 102 and corporation tax rules explain the termination process.
Let’s go through the tax implications of redundancy payments for companies.
Checklist for FRS 102 accounts
Section 28 defines the termination benefits. Employees can get these benefits if the company gets committed to terminate its employees. These redundancy payments are accounted for according to the rules defined in section 28.
You can avail these benefits if
- Your company decides to terminate your employment before the devised retirement date
- Or if you decide to accept voluntary termination in exchange for benefits
Your company will not get any gain from the termination payments. If you are a company owner, your company needs to recognize the redundancy costs in loss or profit quickly after you decide to terminate the employee.
What if I decide to make COVID redundancies close to the balance sheet date?
If you are smelling bad days ahead and decide to reduce staff close to your balance sheet date, you have to analyze your position first. You have to ensure your position to meet all the conditions. You should recognize the expense and other provisions in your accounts. If your company is not committed to the termination, you don’t have to recognize the expense.
What do I have to demonstrate to make redundancy payments?
Don’t think that your company’s redundancy plan will approve straight away. You will have to demonstrate that your business:
- has prepared a formal plan and approved it to terminate its employees. Also, there is no chance of withdrawal from the plan.
- the company will raise a valid expectation and it will restructure its affairs to implement the plan. They will also announce the plan to the employees affected by it.
Measure the benefits of termination
You have to measure the benefits or what you are getting out of the terminations at the reporting date of the expenditure. If you want to make a voluntary termination offer, you have to measure the expected number of employees accepting the offer.
You will have to follow the general tax rules if you are making payments during the course of ongoing business.
The payments are for capital purposes. It is purely for business purposes. If you want to obtain relief, you have to make payment within nine months of the end of that period.