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How To Account For Furlough Payments: HMRC JRS For Covid-19

How do you account for HMRC JRS Covid-19 furlough employee payments:

A lot of businesses are currently focused on managing their cash flow and taking the needed steps to operate in the business world that has been turned upside down due to the Coronavirus pandemic. Whist the government has taken steps to help workers cope with employees wages like the HMRC Job Retention Scheme JRS payments: aka furlough employee payments, we know a few businesses have been grappling with how to treat the furlough grants; something that is currently being paid to more than 800,000 employers.

We know we said “furlough grant”, and we will get to that in a moment, but as the number of clients making enquiries on how to treat these “received payments” are on the rise we decided to put out this piece to help businesses know how to classify the furlough payments; (ahem, grants).

Such receipts from the government as are considered as grants, with qualifying conditions and purpose to which you can put them. i.e. 80% of employee wages costs. Defining them as grants allows you to recognise the transactions under Section 24 of the FRS 102 or IAS 20.

  • Section 24 of FRS 102, The Financial Reporting Standard for the UK and Republic of Ireland for entities reporting under UK GAAP,

or

  • IAS 20, Government Grants for entities reporting under IFRS.

The HMRC ERS Furlough grant is intended to cover up to 80% of employee costs and as such should be recognised in the profit and loss account in the same period as the expense it covers.

The ultimate treatment will depend on your businesses standard of reporting

Businesses reporting under the UK GAAP (FRS 102, FRS 101 or FRS 105) the grant should be recorded as other income received

Businesses reporting under the IAS, will have the option of netting the grant receipts directly against the related expense item. This however is not permitted under the UK GAAP.

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