COVID-19 Support Measures in the 2020 Financial Statements
The corona crisis has had major consequences for many businesses. As a result the 2020 financial statements are also affected. Questions often arise about how the Dutch corona support measures such as the NOW, TVL and deferred payment of tax should be disclosed and explained.
The NOW subsidy in the annual statements
The Temporary Emergency Bridging Measure for Sustained Employment (NOW scheme) is a contribution towards payroll costs for companies that have suffered a substantial drop in turnover as a result of the COVID-19 pandemic. The NOW compensation depends on the wage costs per entity and the decrease in revenues for the NOW group (at least 20% decrease in revenues) as a result of corona.
If you have applied for a NOW subsidy, you will have received an advance payment of 80%. The remaining 20% will be paid when you have submitted the final declaration. The advance payment may relate to NOW 1.0 (March-May 2020), NOW 2.0 (June-September 2020) and / or NOW 3.1 (October-December 2020). How do you recognize this in the 2020 financial statements?
In the Profit and Loss Statement
The NOW subsidy is recognized in the profit and loss statement as soon as there is reasonable assurance that you meet the NOW requirements and you will actually receive the subsidy. This is usually when the final declaration for NOW 1.0 has been submitted, or when the audit work has been (materially) performed. In the P&L you recognize the amount as income as calculated in the final declaration. The difference is reported in the balance sheet as NOW subsidy to be received or to be repaid.
NOW regulations are complex. The amount of the NOW subsidy depends on the actual decrease in revenues for the NOW group (at least 20% decrease in revenues) and the wage costs per entity. Determining which entities form part of the NOW group can be complex. Additionally, NOW 2 and NOW 3 contain further requirements that must be met if you want to apply for this subsidy. That is why the final settlement can deviate from the advance payment received.
The main rule is that the NOW subsidy is reported as income in the P&L when it is reasonable certain that you meet the NOW requirements and will actually receive the subsidy. Otherwise, you do not recognize income, but report an advance payment in the balance sheet.
In the profit and loss account you recognize the NOW subsidy either as ‘other income’ or deduct it from the employee costs. Furthermore, the nature of the subsidy (contribution for sustained employment) and related uncertainties are disclosed.
The NOW 1 desk will be open until 31 October 2021. The NOW 2 desk will open from 15 March 2021 to 5 January 2022.
Reimbursement of fixed costs (TVL) in the financial statements
In 2020 SME entrepreneurs (up to 250 employees) and self-employed persons who have suffered more than 30% loss of turnover as a result of corona, may have received TVL compensation. The TVL compensation depends on the amount of the fixed costs and the loss of turnover.
Like NOW, this reimbursement is either deducted from the relevant costs or recognized as other income. The maximum reimbursement amounts to € 90,000.
Note: For Q1 and Q2 2021 the TVL reimbursement has been expanded. The TVL reimbursement is now available for all companies in the Netherlands, including companies with more than 250 employees.
The reimbursement percentage has increased to 85% for all entrepreneurs who have a loss in turnover for more than 30% for Q1 2021, and 100% for Q2 2021. The maximum reimbursement amount per quarter has increased to € 550,000 for SMEs (maximum 250 employees) and € 600,000 for non-SMEs (more than 250 employees) ).
Note: in order to avoid double payments, the TVL does count as NOW turnover for the NOW regulation.
The TVL Q1 2021 desk is open from February 15, 2021 to MayApril 1830, 2021, and the TVL Q2 2021 desk is expected to be open as from the middle of May 2021.
Deferment of tax payments in the financial statements
Companies that have liquidity problems due to the corona crisis can request a relaxation of deferment of tax payments for various taxes until 30 June 2021. Please note that the company still has to file their tax declarations on time.
In the financial statements under the line item ‘taxes payable’, a description is given for which taxes deferment has been obtained and for which amounts during which periods. Depending on the deferral period, this is presented as long-term (amounts to be paid in 2022-2024) or short-term payable (amount to be paid in 2021).
When there is (material) uncertainty to continue as a going concern, this deferral of tax payments is also disclosed here. In the evaluation of whether or not there is material uncertainty going concern (12 months as from the date of the auditor’s report), the deferment of tax payments is taken into consideration.
At this moment the deferment of tax payments because of corona has to be repaid from October 1, 2021 till October 1, 2024.
If you have any questions about how to record the various government support measures in the financial statements, please contact the Crowe Peak specialists today.