The Government has confirmed to launch the Subsidy Scheme for the Abolition of the MPF Offsetting Arrangement (“SSA”) on 1 May 2025, in order to help employers reduce the additional cost of the post-transition portion of the Long Service Payment / Severance Payment (LSP / SP). The funding of the SSA was approved by LegCo in November 2024.
Accounting treatment – guidance
In January 2025, the Hong Kong Institute of Certified Public Accountants (HKICPA) issued a guidance relating to the accounting treatment for the SSA. HKICPA considers that a generally acceptable method is to account for it as a government grant in accordance with HKAS 20, “Accounting for Government Grants and Disclosure of Government Assistance”.
The guidance specifies that under most circumstances the subsidy payment from the SSA is recognised as a receivable when the employer has paid or is about to pay the LSP to the employee in accordance with HKAS 20. Further, as the receivable is compensation for LSP expense already incurred by the employer, the amount is recognised in the profit or loss of the period in which it becomes receivable.
In the guidance, HKICPA has not ruled out the possibility of other accounting alternatives.
Next steps
The guidance provides clarity to the accounting treatment for SSA under HKAS 20, whilst flexibility for accounting alternatives may be allowed, subject to separate discussions with auditors.
Further, it has no impact on the current accounting treatment for LSP liabilities which should continue to follow HKAS 19 as specified in the HKICPA’s Educational Guidance “Accounting implications of the abolition of the MPF-LSP offsetting mechanism”, issued in July 2023.
We suggest employers should familiarize with the new guidance, and plan ahead for the adoption following 1 May 2025. We welcome a further discussion with you about the accounting treatment of the LSP and the SSA.
You may find a copy of the SSA guidance and the LSP guidance.
