Covid-19: tax related policies
We have drafted detailed commentary on the measures in relation to furlough workers which can be found here and we also share our FAQs on Covid-19 related employment issues here. Guidance from the government on the Coronavirus Business Interruption Loan Scheme and Covid-19 Corporate Financing Facility is still developing, therefore for further details on these schemes please ask your normal Macfarlanes contact.
This note outlines the package of tax related policies announced by the government, which includes:
Business rates holiday
The government announced on 17 March 2020, that businesses in the retail, hospitality and leisure sectors in England will pay no business rates for the next twelve months irrespective of their rateable value. This was an extension to the business rates holiday that was announced at the Budget which was capped at business properties with a rateable value of less than £51,000. Businesses do not need to apply for this relief, it will apply automatically in the next council tax bill in April 2020.
On 19 March 2020, the Welsh Government announced a package of measures to match the announcements in England. This means retail, leisure and hospitality businesses in Wales are granted with a year-long business rates holiday.
In Scotland, it was also announced that retail, hospitality and leisure businesses will get 100% rates relief. It is not clear how the Scottish Government plans to administer the relief, but more information will be shared on this page in due course.
In Northern Ireland, there was an announcement on 17 March 2020 that all businesses will pay zero rates for the next three months. The business rates bills will also be deferred from April to June to help businesses with short-term cash flow.
In England, grant funding of £25,000 for retail, hospitality and leisure businesses operating from smaller premises with a rateable value between £15,000 and £51,000 will also be available. Any enquiries on eligibility for, or provision of, the reliefs and grants should be directed to the relevant local authority.
In Wales, similarly, a grant of £25,000 will also be offered for businesses in the same sector with a rateable value of between £12,001 and £51,000.
In Scotland, retail, hospitality and leisure businesses with premises with a rateable value between £18,000 and up to and including £51,000 will be able to apply for a one-off grant of £25,000.
A similar scheme has not been announced in Northern Ireland.
Coronavirus Job Retention Scheme for furloughed workers
The government announced further support on 20 March 2020 through the Coronavirus Job Retention Scheme which will support employers to continue paying part of the salaries of employees who would otherwise have been laid off during this crisis.
All UK employers will be able to access the scheme which should mean HMRC will reimburse 80% of furloughed workers wage costs, up to a cap of £2,500 per month. HMRC is working urgently to set up a new system for reimbursement which is expected by April, but it is expected that the scheme will be backdated to 1 March 2020. It is anticipated that the scheme will run for at least 3 months.
In order to qualify for the reimbursement, employers will need to:
- designate affected employees as "furloughed workers", and notify employees of this change; and
- submit information to HMRC about the employees that have been furloughed and their earnings through a new online portal (HMRC will set out further details on the information required).
With limited details published there are many questions unanswered, such as whether the payments will attract employers' NICs and whether the £2,500 limit is net or gross of PAYE and NICs. It is anticipated that there will be some controls in place to ensure that the system is only used for staff that are furloughed, i.e. a temporary change in status where employees are still retained on payroll but not working, however there is insufficient detail available at the moment to determine what these will look like in practice. There might also be the option for employers to bring employees who they have already made redundant (due to coronavirus) back on to payroll to benefit from this scheme.
Employers will need to keep in mind that changing the status of employees remains subject to existing employment law and, depending on the employment contract, may be subject to negotiation.
On 20 March 2020, the Chancellor announced that he would defer the next quarter of VAT payments. This measure is for all businesses, and means that no business will pay any VAT from now until the end of June. Businesses would be expected to repay the VAT bills by the end of the financial year.
It should be noted that the deferral does not extend to VAT payments under the “Mini One Stop Shop” (MOSS) scheme (for VAT on sales of digital services to consumers in the EU). Furthermore, the deferral also does not extend to the administration side of VAT, as returns should still be filed on time.
The Chancellor has also waived import taxes on certain medical equipment used to fight against coronavirus.
Personal tax deferral
The government has announced that income tax self-assessment payments due on the 31 July 2020 will be deferred until the 31 January 2021. There is no need to contact HMRC as this will run automatically, however HMRC has advised customers that those who normally pay by direct debit should cancel with their bank if they are unable to pay. HMRC has also confirmed that no penalties or interest for late payment will be charged in the deferral period.
Other tax deferrals and administrative easements
We are aware of taxpayers successfully requesting deferral of other taxes including corporation tax and payroll taxes. HMRC is likely to use their discretion therefore it may depend upon the sector that the business is operating in; whether the business has a named HMRC contact; and the taxpaying record to date. These deferrals will be agreed on a case by case basis, and different to the formal Time To Pay scheme (detailed below).
There are many instances where paper forms and “wet” signatures are still required by HMRC for certain filings. There has been progress by HMRC to introduce electronic communication, for example stamp duty (see below), however this is not widespread so, for example, there is uncertainty around the proper filing of Form CT61 for withholding tax on interest payments during these times.
Stamp duty on share transfers: e-filing
New arrangements for the payment of stamp duty on share transfers during the Covid-19 crisis have been issued. These arrangements cover not just the simple cases of the payment of duty on sales of shares in private companies for cash consideration, but also cases where consideration has to be valued or a relief from duty is being claimed.
In summary, for the duration of the crisis, HMRC will no longer apply a physical orange stamp to stock transfer forms. Instead, taxpayers are asked to send copies of documents which would otherwise require stamping to HMRC by email and make payments electronically. HMRC will then, by email, confirm receipt of any duty and provide an assurance that the company's registrar may register the transfer even though the registrar will not be in possession of a stamped stock transfer form (as legislation currently requires).
Corporate tax residency
The travel restrictions imposed by many governments as a response to the Covid-19 crisis mean that many people cannot be where they want to be when they want to be. One knock-on consequence facing corporate groups is that their key decision-makers may not be able to be physically located where they were expected to be when they make their decisions or conclude business. While the wonders of modern technology might facilitate decision-making processes by allowing for virtual meetings and remote working, there can be unforeseen consequences for the tax residence of companies especially under tax residence rules, which focus on the location of the strategic management of the company. We have prepared a more detailed note explaining some of the risks, that can be read here. In the meantime, HMRC has issued guidance to state they are sympathetic to the disruption caused by Covid-19. HMRC is of the view that it would take a “holistic view of the facts and circumstances of each case”, therefore a few board meetings or some decisions being made in the UK over a short period of time should not pose any difficulties. Similarly, in relation to permanent establishments being established in the UK, HMRC is not of the view that this would happen after a short period of time. In the guidance, HMRC places emphasis on whether there is habitual conclusion of contracts in the UK, and that this would be a matter of fact and degree given the circumstances.
IR35 off-payroll workers
On 17 March 2020, the Chief Secretary to the Treasury announced that the long awaited Off-Payroll Worker (IR35) tax reforms would be delayed by one year.
New legislation was due to come into force from 6 April 2020, requiring "medium and large" businesses to determine whether contractors engaged through personal service companies were effectively operating as employees. Where this was determined to be the case, the business would be required to operate PAYE and National Insurance withholding.
A week earlier the Chancellor had confirmed that the reforms would be going ahead as planned, however the government concluded that pressing on with the changes in the current unprecedented circumstances would have put further unwelcome pressure on businesses across the UK.
Though the delay does provide some respite it is worth highlighting that the announcement was for a delay, not a cancellation. Where "deemed employment" status determinations had been made in anticipation of the reform, contractors would be advised to ensure they are operating the current IR35 rules correctly.
Rishi Sunak had previously said that HMRC would apply a soft-touch approach in 2020/21, and not levy any penalties. The government may not be so generous a year from now, so businesses should ensure they use the additional time wisely and that they know how the rules will apply to any new engagements with contractors that are expected to go on beyond 6 April 2021.
The Statutory Residence Test (SRT) for individuals
The government has updated its guidance in relation to the SRT for individuals in light of COVID-19. The government understands that it may affect the ability of individuals to move freely to and from the UK or, require individuals to remain unexpectedly in the UK.
Under the SRT, an individual’s residence status for UK tax purposes is determined by reference to the amount of time the individual has spent in the UK and his or her connections with the UK. For certain aspects of the test, an individual is permitted to leave out of account days spent in the UK due to “exceptional circumstances”.
Whether days spent in the UK can be disregarded due to exceptional circumstances will always depend on the facts and circumstances of each individual case. But the government has recognized that COVID-19 may affect the ability of individuals to move freely to and from the UK or require individuals to remain unexpectedly in the UK and has confirmed that for individuals the following circumstances are considered exceptional:
- quarantined or advised by a health professional or public health guidance to self-isolate in the UK as a result of the virus;
- advised by official government advice not to travel from the UK as a result of the virus;
- unable to leave the UK as a result of the closure of international borders; or
- asked by your employer to return to the UK temporarily as a result of the virus.
HMRC “Time To Pay” scheme
All businesses in financial distress, and with outstanding tax liabilities, may be eligible to receive support with their tax affairs through HMRC’s Time To Pay scheme. These arrangements are agreed on a case-by-case basis and are tailored to individual circumstances and liabilities. HMRC have set up a helpline to support businesses affected by coronavirus. It is not clear whether HMRC will adopt a different, more sympathetic approach for taxpayers who are having difficulty paying, therefore it is advisable to approach HMRC in these circumstances like any other negotiation and expect robust questioning.