Tax Insight: COVID-19
This Insight provides an overview of measures announced by the government to support individuals and businesses facing difficulty because of the COVID-19 pandemic. As the crisis develops, new announcements are being made daily, so it is worth taking advice before taking action on any of these measures.
While the Coronavirus Act has given the government emergency powers to implement many of the measures announced, further tax-enabling legislation will be needed to implement others. Some measures have been devolved to local government; references to England are therefore deliberate and local rules should be considered where appropriate.
We have broken down the measures into key areas, so that you may read the Insight in full or scroll to the sections most relevant to your situation:
1. Tax measures
i. Deferring income tax payments and ‘Time to Pay’
ii. Deferring VAT payments
iii. Statutory Residence Test
iv. Business rates
v. HMRC late payment interest rate cut
2. Business support
i. Coronavirus Job Retention Scheme
ii. Coronavirus Business Interruption Loan Scheme
iii. Larger businesses: COVID-19 Corporate Financing Facility
iv. Company accounts filing extension
v. Insurance advice
3. Workers support
i. Self-Employment Income Support Scheme
ii. IR35 and off-payroll working
iii. Statutory Sick Pay
i. Landlords and tenants
1. Tax measures
• Deferring income tax payments and ‘Time to Pay’
Income tax under Self-Assessment is generally paid in three parts:
1. Pay half of the expected the tax liability for the tax year by 31 January during the relevant tax year.
2. Pay the other half of the expected tax liability by 31 July after the relevant tax year.
3. Make a balancing payment by 31 January after the end of the tax year if the first two payments do not equate to the tax liability due.
The government has confirmed that the second payment on account for the 2019/20 tax year does not have to be made until 31 January 2021.
Therefore, for the 2019/20 tax year, payments can be made as follows:
1. By 31 January 2020: First payment on account should have been made.
2. By 31 January 2021: Second payment on account and balancing payment must be made.
Her Majesty’s Revenue and Customs (HMRC) has confirmed that taxpayers do not need to be self-employed to be eligible for the deferment. This deferment is available to anyone who is due to make a payment on account through the Self-Assessment system by 31 July 2020.
No claim needs to be made and no penalties or interest will be charged on the deferred payment if all payments for the 2019/20 tax year are made by 31 January 2021. However, the deferment is optional and if it is possible to pay the second payment on account on time, HMRC recommends that you do so.
HMRC is also extending its ‘Time to Pay’ facility to all firms and individuals in temporary financial distress. ‘Time to Pay’ is a longstanding facility for those unable to meet a lump sum tax payment. However, it is available at HMRC’s discretion and their agreement must be obtained.
In our experience, it is always better to speak to HMRC about how to pay a tax liability earlier rather than later. There is no guarantee HMRC will approve all ‘Time to Pay’ requests as decisions are reached on a case-by-case basis, but we believe HMRC will be more amenable in the current environment.
There is a dedicated ‘Time to Pay’ helpline on 0800 0159 559.
• Deferring VAT payments
To provide a cash flow advantage to UK businesses, the government has announced that VAT payments do not have to be made between 20 March 2020 and 30 June 2020, although returns do still have to be filed. The deferred payment must be made by the end of the next financial year (31 March 2021).
All UK businesses are automatically eligible, and no claim is required. However, the deferment is optional, and payments can be made by businesses if this is possible and they would like to keep up to date.
VAT refunds and reclaims will be paid by the government as normal.
Businesses which pay VAT by direct debit must cancel the direct debit with their bank if they are unable to, or choose not to, make the payment.
• Statutory Residence Test
The government’s latest advice is to avoid all non-essential international travel and many airlines have cancelled scheduled flights. Therefore, HMRC has updated its guidance for the Statutory Residence Test (SRT) to reflect restrictions imposed and recommendations made because of COVID-19.
The SRT has been used since 2013 to determine an individual’s tax residence by considering the number of days spent in the UK during a tax year and the amount of factors connecting the individual with the UK (e.g. family resident in UK or available UK accommodation).
The SRT allows up to 60 ‘exceptional’ days spent in the UK to be discounted where the individual has no choice about spending time in the UK and it is out of their control. As HMRC appreciates that there may be some days spent in the UK because of the COVID-19 outbreak, the definition of ‘exceptional’ has been extended to include days spent in the UK for the following reasons:
- You are quarantined or advised by a health professional to self-isolate in the UK as a result of the virus;
- You find yourself in a ‘lockdown’ situation as a result of the virus;
- You are unable to leave the UK due to the closure of international borders; or
- You are asked by your employer to return to the UK temporarily as a result of the virus.
The circumstances traditionally considered ‘exceptional’ under the SRT still apply.
• Business rates
The government has confirmed a business-rates holiday for retail, hospitality and leisure businesses in England for the 2020/21 tax year.
The exemption will be applied automatically to relevant businesses by local governments and authorities. No action is required by businesses as the local authorities will be aware of the exemption based on prior knowledge of how buildings are used. Affected businesses should expect a new invoice setting out the large reductions in rates.
Also, businesses in these industries can qualify for cash grants of up to £25,000. This relates to buildings, and therefore applies only to businesses trading from properties. The grants are £25,000 per property unless it is a very small property with a rateable value of under £15,000, in which case the grant is £10,000. Local councils will send these funds to businesses and there is no requirement to claim.
Some of England’s smallest businesses do not pay business rates because they are either covered by small-business rates relief or rural rates relief. In either scenario, these businesses are entitled to a one-off £10,000 grant and again, local authorities will automatically send the money to businesses soon.
• HMRC late payment interest rate cut
In response to the Bank of England's (BoE) cut in the base rate to 0.1%, the late payment interest rate set by HMRC will also be reduced.
For companies making tax payments in quarterly instalments, the interest rate is reduced to 1.25% from 23 March 2020.
The interest rate charged on non-quarterly instalment payments made late will be reduced from 30 March 2020 to 2.75%.
2. Business support
• Coronavirus Job Retention Scheme
The new scheme permits UK employers who are considering making redundancies to retain employees for three months, with the government paying 80% of the employee’s salary. The employee will need to be retained on the payroll, but this is only applicable in situations relating to the current COVID-19 crisis.
The support will initially be available for three months and will be backdated to the beginning of March (therefore covering March, April and May salaries). The Chancellor has publicly commented that the scheme may be extended if required.
Employers need to take the following actions to qualify:
- Designating affected employees as ‘furloughed workers’, and notifying employees of this change;
- Advising employees about the decision that has been taken (attention should be paid to the employees’ contracts, which are unlikely to consider such circumstances, as action may be needed); and
- Submitting information to HMRC about furloughed employees and their earnings through a new online portal. HMRC is due to release further details on the information required.
HMRC will reimburse employers with 80% of furloughed workers’ wage costs up to a cap of £2,500 per month. It has not been confirmed which date will be used to determine the relevant salaries of furloughed workers, but we understand HMRC is working tirelessly to set up the required mechanisms as quickly as possible.
• Coronavirus Business Interruption Loan Scheme
The British Business Bank is delivering a new Coronavirus Business Interruption Loan Scheme which is available from 23 March 2020.
The facility is aimed at providing small and medium-sized businesses with liquidity in these difficult times, with the government guaranteeing up to 80% of loans from accredited lenders. There is no fee for lenders or businesses for use of this scheme and it supports loans up to £5 million. The loan will be interest-free for 12 months, as the government will cover interest payments during this period.
Conditions for qualifying:
- Being a UK-based business with annual turnover of less than £45 million;
- Having over 50% of revenues from trading activity; and
- Making an application which would be viable were it not for the COVID-19 crisis.
• Larger businesses: COVID-19 Corporate Financing Facility
The government has also introduced a new facility for larger businesses to obtain short-term liquidity. Large businesses will be able to access quick and cost-effective working capital by means of the BoE purchasing short-term debt.
The minimum amount provided by the BoE will be £1 million and the facility will be available for a minimum of 12 months. Businesses will have to show they were of ‘sound financial health’ before the COVID-19 crisis to qualify for the cash injection.
• Company accounts filing extension
The government announced a three-month extension for the filing of accounts from 25 March 2020.
Applications can be made through a fast-tracked online system and those listing COVID-19 related reasons for the extension will be granted the extension automatically.
However, companies who have already extended their filing deadline may not receive an additional extension.
• Insurance advice
Some businesses will have insurance which covers both pandemics and government-ordered closure. However, while HMRC has acknowledged that most businesses will not have this cover, it has recommended checking policy documents, as the level of cover can vary significantly between providers.
3. Workers’ support
• Self-Employment Income Support Scheme
The Coronavirus Act 2020 includes provisions for a scheme which will provide self-employed individuals with a taxable grant worth 80% of their average trading profits over the last three years. The grant will be capped at £2,500 per month for at least three months (March to May 2020).
The scheme is available to individuals with trading profits of £50,000 or less in 2018/19 and who make more than 50% of their income from self-employment. Alternatively, a worker will be eligible if their average trading profits for the tax years 2016/17, 2017/18 and 2019/19 were less than £50,000 and more than 50% of their income came from self-employment. HMRC will use the average trading profits from these three tax returns to determine the size of the grant.
Only those who are already in self-employment will be eligible for the scheme. This also includes those who are members of partnerships. Workers who would like to receive the grant must have filed their 2018/19 tax return and if they haven’t, the Chancellor has extended the deadline for filing until 23 April 2020 in order to qualify.
Additional eligibility criteria include requirements for the individual to have lost trading profits due to COVID-19; to have traded in 2019/20; to intend to trade in 2020/21; and to be trading at the point of application, or to be in the a position where they would be trading except for COVID-19.
HMRC will identify qualifying individuals and contact them with details of how to apply. Those eligible can apply directly to HMRC for the grant using an online form. HMRC will then make a payment directly to the worker’s bank account.
The income support scheme will be paid as a lump sum at the beginning of June and will cover the three months to May.
Those who are operating Personal Service Companies (PSCs) and pay themselves a salary and dividends will not be covered by the scheme but will be covered for their salary by the Coronavirus Job Retention Scheme mentioned above if they are operating PAYE systems.
• IR35 and off-payroll working
The extension of the off-payroll working rules to the private sector was due to be enforced from 6 April 2020. In light of the COVID-19 crisis, the rules have been delayed until 6 April 2021.
Workers providing labour via their own Personal Service Company (PSC) will be entitled to claim Statutory Sick Pay under the current rules via their own PSCs for another year.
• Statutory Sick Pay (SSP)
An employee can qualify for £94.25 per week of SSP paid by an employer. The government has extended the rules because of the current crisis so that SSP is receivable from day one rather than day four of an absence from work due to COVID-19. This will include employees who have contracted the virus but will also cover those who are self-isolating or quarantined in line with government advice.
This extension applies retrospectively from 13 March 2020. Directors of limited companies with less than 250 employees can pay themselves two weeks SSP if they meet the minimum payroll requirement for SSP, which is to earn at least £118 per week or £6,136 per year. In this case, the government will refund £94 per week for a maximum of two weeks.
HMRC has announced that they are going to refund small and medium-sized employers with two weeks of SSP for anyone who is required to be absent from work because of COVID-19. This extends beyond those absent because they have contracted the virus, as outlined above.
It is important that employees provide their employer will full facts regarding their absence and that this is captured appropriately by employers to justify their claims for a refund.
Qualifying employers are small and medium-sized businesses defined as those with fewer than 250 employees as at 28 February 2020.
The process for making the claim and receiving the refund, and the period the facility will cover, have not yet been confirmed. The government will work with businesses in coming months to finalise the delivery of this support.
• Self-employed and low earners
SSP is not payable to those who are earning less than £118 per week or those who are self-employed. These individuals can make a claim for Universal Credit or Contributory Employment and Support Allowance.
The income-floor requirements for claiming Universal Credit have been temporarily relaxed to ensure the self-employed can still benefit.
• Landlords and tenants
New measures have been announced to give more protection to tenants who may be facing financial difficulties because of COVID-19 and support for landlords renting to such tenants. The new measures apply to private or social accommodation. Specifically, among other measures:
- Landlords are restricted from initiating eviction proceedings against a tenant for the next three months;
- Landlords with tenants who are facing financial difficulties due to COVID-19 are entitled to a three-month mortgage payment holiday; and
- At the end of the three-month period, landlords and tenants are expected to work together to agree a payment plan which is affordable for the tenant.
If you have any questions about the government’s measures and how they may affect your affairs, or the affairs of your business, please do not hesitate to contact the Tax team at Tax@hoaresbank.co.uk