Covid-19: tax related policies

Over the past few days, the UK Chancellor of the Exchequer, Rishi Sunak announced further support as an economic response to coronavirus and to supplement the measures announced in the UK Budget on 11 March 2020.

On the understanding that businesses need support with their cashflow and fixed costs, this package of policies 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.

Grant funding

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.

VAT

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.

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.