Readers’ forum: Lettings compensation

We act for a client who owns a holiday letting cottage. Due to the coronavirus outbreak he has had no bookings since the end of February and it seems that he will have none until the end of June at the earliest. This means that he has qualified for a £10 000 payment from his local council. Can Taxation readers advise on whether this payment – or grant – is taxable income or non-taxable as compensation? If it is taxable in what tax year should this be declared? There will be lost income due to cancelled bookings and a reluctance to book holidays in both 2019-20 and 2020-21.

Finally are there any potential VAT implications here?

Query 19 550 – Basil.

Reply by Aleksandr Orlov

Potentially. the grant is part of the taxable profits of the business. ...