BIM40405 - Receipts: government support for new businesses: Business start up scheme: tax treatment

This section applies to payments, other than lump sum payments, made under a Business start up scheme, paid:

• (In England & Wales) by the Training and Enterprise Councils in pursuance of arrangements under section 2(2)(d) of the Employment and Training Act 1973; or
• (In Scotland) by Local Enterprise Councils under section 2(4)(c) of the Enterprise and New Towns (Scotland) Act 1990 in relation to arrangements under section 2(3) of that Act; or
• (In Northern Ireland) by the Local Enterprise Development Unit under section 1(1A)(d) of the Training and Employment Act (Northern Ireland) 1950.

The legislation (ICTA88/S127) was introduced when the government support was known as Enterprise allowance. Later schemes are taxed in the same way provided that they retain the essential characteristics of the original Enterprise allowance scheme (in particular that the applicant is unemployed or working notice and that the allowance is a flat rate weekly amount).

These payments:

• Should be included in the self-assessment as a Miscellaneous receipt.
• Are paid to individuals, not partnerships, and individual partners should enter the payments they receive on their self-assessment.
• Should be included in the company’s return as Miscellaneous income, where the recipient runs the business through a limited company. They receive the payments as agent for the company.

Other payments, including lump sums, will be taxable as additional trading receipts.

Losses

The payment is part of an individual's total income. As such, if the individual makes a trading loss, they can claim loss relief under ICTA88/S380.

In practice, such a claim will be unlikely. It will be to the taxpayer's advantage to carry forward trade losses or surplus capital allowances, if this receipt is covered by personal allowances. Even if there remains Miscellaneous income assessable, it may be to the taxpayer's advantage to make a claim under ICTA88/S381 to carry the losses back against income of earlier years (BIM75400 onwards).

Class 4 NIC

Section 15(4) Social Security Contributions and Benefits Act 1992, specifically charges Enterprise allowance payments to Class 4 NIC. The Class 4 NIC is calculated on the sum of business profits (as computed for Class 4 NIC) plus the Enterprise allowance.