In April, the Government took the (I think) brave step of providing many UK businesses with a grant to help them survive this COVID-19 year of 2020.
Those businesses with a year-end in May are taxed on that grant and so have less resources to survive the longer period. Those businesses with a year-end in March have a full twelve months use of the cash – and if their profits are zero (or less) they pay no tax.
The Government said at some point that they ‘hoped that insurers would not take grant funding into account when settling claims’. However, if the Government is treating grants as taxable revenue – then why shouldn’t the insurers?
This is having a major effect on those who were lucky enough to be insured for the Business Interruption caused by COVID-19: generally under either the Infectious diseases or denial of access extensions.
These extensions are normally for a restricted period of three months: not twelve months or 24 months as is the case for the main Business Interruption Cover.
So some of our clients find themselves in a position where:
- They pay tax on the grant because their previous year was profitable
- The insurance settlement is reduced by the full pre-tax value of the grant (gross of tax) even though the insurance settlement is applied to one quarter of the year.
One insurer has written saying:
“The grants and other assistance to businesses in the government’s benefits package need to be taken into account when quantifying the losses suffered so that the policyholder does not receive a double indemnity”
The Association of British Insurers said
The role of insurance is to act as a final safety net for any losses that cannot be covered elsewhere. For claims relating to Covid-19, insurers will generally expect businesses not to claim for losses which are already adequately covered by any government grants they have received.
Insurance acts as a vital final safety net for businesses, stepping in where cover or support is not available elsewhere to fund irrecoverable losses. This is a long-established principle of insurance which also helps keep premiums affordable for customers buying the cover.
However, no allowance is made by insurers for either
- the effective net value of the grant – for example, this might be £8,000 rather than £10,000, or
- The fact that the grant was made to help over the coming year – not just the month of receipt.
If the government were to agree that the grant should be amortised over a 12 month period then a more equitable solution might be achieved:
- The revenue would still receive tax on profits at the end of the year – assuming a profit was made
- Insurers would still reduce their settlement offers by the value of the grant relevant to the period that the insurance applies.
Small businesses would be better off when they most need the help.
The Inland revenue would still receive tax revenue due.
Insurers would not be providing a double indemnity.