Coronavirus: implications for UK tax

Tax deferral and time to pay

Businesses will not have to make VAT payments due in the period from 20 March until 30 June 2020. They will be given until 31 March 2021 to pay any liabilities that have accumulated during the deferral period. Deferred amounts will not be subject to interest or penalties.

The deferral relates to payments which are due in the period from 20 March to 30 June 2020. You can only defer:

• quarterly and monthly VAT return payments for the periods ending in February, March and April 2020;
• payments on account due between 20 March and 30 June 2020; and
• annual accounting advance payments due between 20 March and 30 June 2020.

The deferral does not apply to payments due under the Mini One Stop Shop (MOSS) or to import VAT.

The deferral is available to all businesses, regardless of size and it applies automatically, so businesses do not have to apply for it. VAT returns will still need to be submitted on time.

VAT refunds and reclaims will be paid by the government as normal.

HMRC has published guidance for businesses on the VAT deferral arrangements.

For the self–employed, income tax self-assessment payments due on the 31 July 2020 will be deferred until the 31 January 2021.

Businesses that cannot afford to pay tax bills as a result of coronavirus can approach HM Revenue & Customs (HMRC) to see if they will agree to a 'time to pay' agreement which would suspend debt collection. HMRC will want to discuss the business's specific circumstances.

If HMRC agrees, it will enter into an instalment arrangement tailored to the business's specific circumstances and will suspend debt collection proceedings. HMRC will also cancel penalties and interest where the business has administrative difficulties contacting or paying HMRC immediately.

HMRC has set up a dedicated helpline to support businesses and self-employed people concerned about not being able to pay their tax due to coronavirus.

Tax expert Jason Collins of Pinsent Masons, the law firm behind Out-Law, said: "The government has made it clear it will do 'whatever it takes' to support businesses and individuals through this downturn. We expect HMRC to be sympathetic to businesses who want to use cash to pay suppliers and employees first – since keeping as many businesses and individuals solvent as possible will be best for the Exchequer over the long run. But good communication with HMRC is essential."

Business rates

The government has announced an extension of the business rates holiday to all business in hospitality and retail sectors irrespective of rateable value. This means shop, pubs, cinemas and restaurants, for example, will pay no business rates for 12 months.

A £25,000 grant will be provided to retail, hospitality and leisure businesses operating from smaller premises, with a rateable value between £15,000 and £51,000.

Businesses should contact their local authority with any enquiries on eligibility or payment of the reliefs.

Support for employers and employees

The Coronavirus Job Retention Scheme will, subject to conditions, enable employers to claim a grant from HMRC to cover 80% of the wages of their workforce who remain on payroll but who are temporarily not working during the coronavirus outbreak. The scheme will run until at least 30 June 2020 and payments can be backdated to 1 March 2020 provided that employees met the eligibility criteria at the time. The HMRC portal through which claims must be made came into operation on 20 April 2020. For more details see our Out-Law Guide: Coronavirus job retention scheme: what employers should do.

Employers introducing pay cuts across their workforce as an emergency measure to deal with the financial impact of the coronavirus pandemic could find that they are still liable to PAYE on the full amount if they do not obtain consent from the employee before the employee is entitled to receive their salary. Directors need to take particular care when waiving or reducing their salary to ensure that they cannot be taxed on amounts foregone.

HMRC has issued guidance on the tax position where employers reimburse expenses for employees working from home as a result of coronavirus. It explains the tax position under current rules and gives no additional relief. In particular, reimbursement of employee’s expenses on equipment for office equipment for working from home remains taxable.

A number of measures have been announced as regards statutory sick pay (SSP), including that employees who self isolate, or are caring for someone who is self isolating, will be able to claim SSP and claims can be made from day one of illness.

Businesses with fewer than 250 employees will be able to reclaim SSP expenditure up to a maximum of two weeks per employee from the government. Although details of how this expenditure can be reclaimed have not yet been given, this is expected to be by way of offset against the amount of PAYE payable to HMRC for the period.

Support for the self-employed

The Self-employment Income Support Scheme will support self employed people whose income has been adversely impacted by coronavirus. The scheme will provide a grant to self-employed individuals or partnerships, worth 80% of their profits up to a cap of £2,500 per month.

HMRC will use the average profits from tax returns in 2016-17, 2017-18 and 2018-19 to calculate the size of the grant. The scheme will be open to those where the majority of their income comes from self-employment and who have profits of less than £50,000. The scheme will be open for an initial three months, but may be extended.

Individuals should not contact HMRC now. HMRC intends to contact those who may be eligible based on existing information by mid-May 2020, and says it will make payments by early June 2020.

The scheme will not cover those who were not self employed in 2018-19, such as those who have started businesses since that time.

It will also not cover self employed contractors who operate through limited companies.

Those who pay themselves a salary and dividends through their own company will be covered for their salary by the Coronavirus Job Retention Scheme (CJRS) if they are operating PAYE schemes. However those operating through personal service companies (PSCs) tend to pay themselves only a small salary and to take out most of the profit by way of dividend.

The government has announced the postponement of the extension of the IR35 off-payroll working rules to large and medium-sized private sector businesses until 6 April 2021.

The IR35 rules require that employment taxes be paid by people who provide services to a business through an intermediary, usually a PSC, if that person would otherwise have been regarded as an employee of the engaging business. Currently, where a private sector business engages a contractor through a PSC, liability to decide whether IR35 applies and to pay any employment taxes rests with the PSC.

The change to the rules, which was due to take place on 6 April, will make large and medium-sized engaging businesses liable for determining whether the IR35 rules apply. This is already the position for public sector engagers. Engaging businesses will also be required to operate PAYE and pay employers' National Insurance contributions (NICs).

Although a parliamentary committee has criticised the new rules and has suggested that they be delayed further, the government has confirmed that the start date will be 6 April 2021. The government has, however, announced further research into the long-term effects of the off-payroll working rules in the public sector.

Tax residence

Jason Collins of Pinsent Masons said: "The physical location of people is a critical factor in determining where tax should be paid for cross-border businesses. The location of people affects transfer pricing, corporate residence and individual residence."

"In these exceptional times, people will be stuck not just in their home jurisdiction but literally at home when they would otherwise be conducting activity in another jurisdiction – which may have some quite dramatic tax consequences. It is hoped that HMRC and other tax authorities will take a pragmatic view as to whether some of these consequences can be waived due to the exceptional circumstances we are facing," he said.

The UK's statutory residence test determines whether an individual is UK tax resident. One of the factors it considers is the number of days an individual spends in the UK. However, it is possible to exclude a maximum of 60 days spent in the UK in any tax year as a result of 'exceptional circumstances'. HMRC has issued guidance on when coronavirus may result in exceptional circumstances for these purposes.

The guidance says that 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.

However, the guidance confirms that the circumstances are considered as exceptional. if you:

• are quarantined or advised by a health professional or public health guidance to self-isolate in the UK as a result of the virus
• find yourself advised by official government advice not to travel from the UK as a result of the virus
• are unable to leave the UK as a result of the closure of international borders, or
• are asked by your employer to return to the UK temporarily as a result of the virus.

The Organisation for Economic Cooperation and Development (OECD) has issued guidance on how it considers that international tax treaties should be interpreted in the light of the coronavirus pandemic. It expresses the view that if an individual is stranded for a period in a country that is not his country of residence due to the travel restrictions and quarantine measures, this should not cause his residence to change.

In relation to corporate residence and permanent establishments, HMRC's coronavirus specific guidance states that HMRC considers that the existing legislation and guidance already provides flexibility to deal with changes in business activities necessitated by the response to the pandemic.

The guidance confirms that HMRC does not consider that a company will necessarily become resident in the UK because a few board meetings are held in the UK, or because some decisions are taken in the UK over a short period of time. HMRC will "take a holistic view of the facts and circumstances of each case".

HMRC guidance also confirms that a non-resident company will not automatically have a taxable presence after a short period of time. It states that whilst the habitual conclusion of contracts in the UK would also create a taxable presence in the UK, "it is a matter of fact and degree as to whether that habitual condition is met".

The OECD coronavirus guidance deals with issues affecting the residence of companies for tax purposes, where their management is carried out in another country due to the travel and quarantine restrictions. It examines teleworking and the implications for companies of having cross-border employees telework in their home country and therefore performing their duties there. In these situations, the OECD Secretariat’s general view is that these special circumstances should not affect the residence status of companies under the international tax treaty rules.

Tax disputes and investigations

HMRC has put routine tax compliance checks on hold as a result of the coronavirus pandemic, although the work of its Fraud Investigation Service is expected to continue.

HMRC has warned staff returning to the NHS that they are being actively targeted by promoters of tax avoidance schemes. Criminals are also believed to be using the Covid-19 pandemic as a cover to defraud individuals and businesses seeking to outsource payroll services.

The First-tier Tax Tribunal put all proceedings in the 'standard' or 'complex' category on hold for a period of 28 days from 24 March 2020. It has extended this stay of proceedings until 30 June for proceedings received by the tribunal before 24 March. The dates of all hearing windows and for compliance with all time limits in those proceedings have been further extended by 70 days. However, taxpayers must still comply with the usual time limits for appealing against a disputed decision.

There is already a backlog of outstanding tax disputes and there are concerns that the coronavirus pandemic will make the situation much worse.