We explain what businesses need to do
As businesses become accustomed to operating within a Covid environment the focus remains on survival and close monitoring of cash flows that includes claiming furlough grants from HMRC.
However, some of our clients have turned their attention to how they should account for furlough receipts within their accounting record and the question we now often hear is ‘How do I account for furlough payments?’
Our answer to this question is:
These receipts from government for furloughed employees are in the form of a grant and the accounting for these are covered in:
- 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.
In simple terms this grant is intended to cover costs and therefore should be recognised in the profit or loss in the same period in which the related expense is incurred.
- Under UK GAAP (FRS: 101, 102 and 105) this should be recorded as other income received.
- Under IAS 20, there is an option to net the income off against the related expenses, but this is not permitted under UK GAAP.
If you have any questions or need further clarification on accounting for furlough payments please contact us.