The Chancellor announced an unprecedented package of financial and tax measures on Friday evening to address some of the key challenges facing individuals and business as the Coronavirus crisis evolves. This briefing summarises the latest tax related announcements and provides an overview of the other key COVID-19 tax measures announced over the past two weeks.
Coronavirus Job Retention Scheme (CJRS)
Under the CJRS, all UK employers will be able to access a grant to continue paying up to 80% of salary for those employees that would otherwise have been made redundant during this crisis. All UK businesses are eligible, regardless of the size or sector. The amount of wage cost support that each business can receive per employee is capped at £2,500 per month and it appears that the support will cover more than just pure salary costs, but the precise costs that will be covered are still to be clarified. The current announcements suggest that the employer is not obliged to fund the difference between the CJRS payment and the individual’s full salary in order to access the CJRS support, although it may choose to do so, but this is also subject to clarification.
To access the scheme, employers need to:
- Designate affected employees as ‘furloughed workers’ and notify employees of this change
- Employment law aspects of this change in status will need to be considered. To qualify for this scheme, the employee must not undertake any work for the employer during furlough, although the individual will remain employed while furloughed.
- Submit information to HMRC about furloughed employees and their earnings through a new online portal. HMRC are urgently working to set-up the online portal and mechanism for reimbursement.
- The CJRS will run for at least 3 months from 1 March 2020, but will be extended if necessary.
Businesses will not need to make any VAT payments to HMRC in the period 20 March 2020 to 30 June 2020. Taxpayers will be given until the end of the 2020/21 tax year to pay any liabilities that have accumulated during this period. The VAT deferral will be automatic meaning that no business will need to apply.
Note that this measure does not directly impact on VAT due on purchases. The extent to which a business needs to pay VAT on goods or services it receives from a supplier will be governed by the contractual arrangements and/or agreements with those suppliers. The Government has stated that VAT refunds and reclaims will operate ‘as normal’ during the deferral period.
Income tax holiday
All income tax payments due from the self-employed under self-assessment will be deferred to January 2021. Again, the deferral is automatic and so no individual needs to apply. No announcements have been made to date in relation to the deferral of corporation tax instalments or annual payments.
Extending the measures announced in the Budget, the Government has announced a 100% business rates holiday for all retail, hospitality and leisure businesses in England for the next 12 months, regardless of the rateable value of the business. In addition, the grants available to small businesses eligible for Small Business Rate Relief are increased from £3,000 to £10,000 and a further £25,000 grant is available to retail, hospitality and leisure businesses operating from smaller premises, with a rateable value over £15,000 and below £51,000. Please see our latest update on COVID-19 rating measures.
Time to Pay
HMRC has established a dedicated COVID-19 helpline in order to facilitate businesses agreeing bespoke Time to Pay arrangements, with 2,000 further staff handling calls. The phone number is 0800 0159 559. These arrangements may include agreeing instalment arrangements, suspending debt collection proceedings, and cancelling penalties and interest where administrative difficulties are encountered when
attempting to contact or pay HMRC.
Requests are currently being considered on a case by case basis with businesses being required to demonstrate particular hardship as a result of the COVID-19 crisis. We understand that HMRC is agreeing to deferrals of up to three months for payment of taxes including PAYE, VAT, and corporation tax. These deferrals may not be agreed until a payment is overdue and a debt has fallen due to HMRC.
Delayed tax reform
The extension of IR35 reform to the private sector is being postponed by a year to 6 April 2021. The announcement was clear that this is not a cancellation of the reform, but simply a deferral in response to the COVID-19 situation. The delay of the complex and onerous new rules will be welcome news to both businesses and contractors.
The reintroduction of the Crown preference was expected to come into force on 6 April 2020. However, the Budget delayed this until 1 December 2020. When it comes into force, the reintroduction of this measure will mean that HMRC becomes a preferential creditor in insolvency for uncapped amounts of VAT and other taxes collected and held by businesses on behalf of taxpayers (eg. PAYE). Businesses in an insolvency situation (and their creditors) will be relieved not to have this additional burden amid the COVID-19 crisis.