Does furlough income for a business count as turnover when looking at VAT registration threshold

Retired_Minky

Grumpy_chap said:

Others have answered this in strict accountancy terms, i.e. to report the CJRS grant as "other income" and that the CJRS grant falls outside the scope of VAT.

I, however, ask a different question as I want to understand what value the employee(s) that were furloughed bring to the business.
Please could the OP could outline whether this is a genuine situation they are faced with (and how), or is a made-up hypothetical consideration?

The eligibility for CJRS grant is that the business operations have been affected by coronavirus and employees cannot work for the business while on furlough.  In the OP's situation as described:

1. Business turns over £80k in a normal year (£6,666 per month)
2. CJRS grant received £10k is resulting in additional income to the business, potentially moving above the £85k VAT-threshold.
3. (2) implies the business was not adversely impacted by coronavirus as the normal level of turnover would need to have been maintained in addition to receiving the CJRS grant.
4. Details of the employee salaries have not been shared but, let us assume the business furloughed one employee at a normal monthly salary of £3,125, so furlough paid at £2,500 for four months to make the £10k furlough payment.  
5. If the business is a type that is providing services and business costs other than staff are very low, then it may just be possible to have 2 employees at salary of £3,125 and cover that within the £6,666 monthly turnover rate.  This will be extremely tight because of costs to employ such as employer's NI.
6. The annual turnover £80k is probably not sufficient to support more than two employees, but there must be at least two employees if the business has maintained turnover at normal levels while one employee has been furloughed.  If there was only one employee, the business would have ceased operations and turnover in this period reduced to nil because the furloughed employee cannot work for the business while furloughed.
7. So, the business has one employee less for 4 months, but maintained turnover at normal rate so the CJRS is additional to normal income.  
8. What on earth does that furloughed employee add to the business please?

There are other scenarios, but they suggest fraud in the context of the business claim for CJRS and the requirement that the business cannot maintain the workforce because the operations have been affected by coronavirus:

1. There is only one employee, owner Director, who furloughed themselves but carried on working for the business ?
2. Seasonal business, such as Santa Clause, so the whole £80k turnover is usually earned in November and December, but then there would have been no impact to the business from coronavirus impacts from March through October when the CJRS scheme is in operation ?

I am very keen to understand this situation, why this is not a fraudulent CJRS claim and why the OP does not dismiss the employee that brings no value to the business.

This was a theoretical situation. I was "thinking" I'd come across an unreported consequence of the grant that would affect many small businesses i.e. they'd need to register for VAT but it turns out they won't which is good.

Grumpy_chap

Not only does CJRS grant not contribute to VAT threshold, it is hard to see how receiving the CJRS grant could result in turnover increasing.  That may not be the case with some of the property related grants, which did not necessarily require the business to be adversely impacted by coronavirus to qualify.