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Covid-19 tax assistance: emergency support in response to the pandemic

Posted: 31/03/2020

Less than a month ago, the Chancellor announced a number of tax measures as part of the Budget. This was naturally dominated by initiatives to tackle the coronavirus outbreak and, since the Budget, a further raft of tax measures have been announced as part of the emergency programme put in place to help both businesses and individuals in light of the pandemic.

We have summarised these key tax measures below and other proposals you may wish to consider in light of current circumstances.

Job Retention Scheme

The Chancellor announced support for businesses through the Coronavirus Job Retention Scheme. HMRC will provide a grant (not a loan) to companies equal to 80% of furloughed workers’ gross salary (before deduction of employee NICs and income tax) and employer costs such as employer’s NICs, any apprenticeship levy and pension contributions (up to a maximum of £2,500 per month).

The receipt of the grant should be tax neutral. Whilst the grant is taxable income to the company, the usual deductions are permitted for gross salary, NICs and pension contributions.

It is important to note that the grant will only apply to the minimum automatic enrolment employer pension contributions (currently 3%) and the employer NICs on the salary paid from grant money. If employers choose to ‘top up’ salaries above this, they will need to fund the increase in employer NICS and the 3% pension contribution on this. Additionally, where employers contribute more than the 3% minimum pension contribution, this excess will remain a cost of the company not covered by the grant.

Self-employment Income Support Scheme

On 26 March 2020, the Government extended its support to certain affected individuals who receive more than half their income from self-employment or as a member of a partnership. However, only those who (i) have traded this financial year; (ii) intend to continue to trade in the tax year 2020-21; and (iii) have a trading profit of less than £50,000 in 2018-19 or an average trading profit of less than £50,000 from 2016-17, 2017-18 and 2018-19 can apply.

If eligible, an individual can claim for a direct cash grant worth 80% of their trading profits up to a maximum of £2,500 per month. The Government has clarified that the grant is taxable.

The scheme will not provide support for people who have been paying themselves dividends and salaries through their own companies, although salaries paid through PAYE may be covered under the Job Retention Scheme.

Delay in VAT payments

Generally, businesses will account for VAT on a quarterly basis. However, the Government has identified the deferral of VAT payments as one way to support businesses during the coronavirus crisis. It is hoped that this measure will protect businesses’ levels of working capital and encourage them to retain staff.

All UK businesses are entitled to a VAT deferral for the period between 20 March and 30 June 2020. Businesses will be expected to pay back any deferred amounts by the end of the 2020-2021 tax year. There is no need to apply for the deferral – it operates automatically.

Delay in income tax payments

Under the self-assessment rules, individuals will be due to make their second payment on account of income tax for the 2019-20 tax year on 31 July 2020, with any balance due on 31 January 2021.

Another measure announced by the Government in relation to the coronavirus crisis is the deferral of payments due on 31 July 2020. Any individuals paying tax via self-assessment are entitled to this deferral (not just those who are self-employed). Amounts due on the July instalment date will now be due on 31 January 2021. There is no need to apply for the deferral – it operates automatically. However, if individuals are still able to pay the instalment on 31 July, the Government advises them to do so.

HMRC ‘time to pay’ arrangements

Any businesses and self-employed workers in financial distress, who have outstanding liabilities to HMRC, may wish to consider asking HMRC for a time to pay (TTP) arrangement.

TTP arrangements allow the payment of amounts outstanding to HMRC by way of an agreed payment plan, typically consisting of monthly instalments over a period of 12 months. Arrangements are agreed on a case-by-case basis and anyone who believes they could benefit from such arrangements should contact HMRC directly to discuss this.

Business rates holiday

The Government will introduce a business rates holiday for retail, hospitality and leisure businesses in England for the 2020-21 tax year. These measures cover a wide range of business, including properties used as shops, restaurants and cafes, pubs and bars, cinemas and music venues, hotels and guesthouses and those used for other leisure purposes.

Qualifying businesses will be issued with revised bills and do not need to take any further action to access this scheme.

Delay to changes to IR35

The UK Government has announced that the changes to IR35 in the private sector which were due to come into force on 6 April 2020 will now be delayed until 6 April 2021. The Government’s decision means that the responsibility for accounting for tax and NICs in relation to such arrangements will remain with the contractor’s personal service company for the time being.

In his speech, the Chancellor said that ‘if we all want to benefit equally from state support, we must all pay in equally in future’, indicating that measures to put the employed and self-employed on an equal tax footing will continue to be implemented once the impact of the pandemic has passed.

However, a delay does not mean it is time to forget about IR35 until this time next year. Why not reach out and see how we can assist you over the next 12 months to ensure you are fully prepared for the implementation of the rules next year.

Share incentives

Share incentives and options are a great way to retain and incentivise your employees in the long term without the same upfront cost of increasing salaries or paying bonuses. There are various tax advantaged HMRC approved schemes available, one of the most popular being the Enterprise Management Incentives (EMI) scheme. EMI schemes are currently aimed at smaller entities looking to grow, which meet a set criteria in relation to their size and assets held.

The Government has announced that it will be reviewing the EMI scheme to ensure it provides support for high-growth companies to ‘recruit and retain the best talent so they can scale up effectively’. It will be looking at whether the scheme can be made available to a wider range of companies which, at present, may not meet all of the criteria to qualify for the scheme. The timing of this review has yet to be confirmed.

Share loss relief

In the current financial climate, you may find yourself disposing of shares that you hold at a loss. Usually, this would be a capital loss, and only relievable against capital gains.

However, where the shares you disposed of were in a ‘qualifying company’ (broadly, shares in a company which would be a qualifying company under the Enterprise Investment Scheme), if certain conditions are met, that loss can be used to relieve or reduce your income tax bill in the current and/or prior tax year. Should you believe you hold, or have recently disposed of, shares that may qualify, please feel free to get in touch for further information.

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