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Markel Tax

27 Mar 2020

Tax support to minimalise the impact of COVID-19

Thankfully, tax measures can help blunt the economic challenges arising from Covid-19 measures. 

Details are still being worked on by HMRC at the time of writing, but below we set out some support which businesses can seek in this difficult period through the tax system, including:
  • VAT payment deferral
  • Income Tax payment deferral
  • Time To Pay arrangements (including deferral)
  • R&D tax credit

VAT

Businesses can now defer their VAT payments to HMRC which will aid cash flow. 
The Government’s announcement provided little detail.  We have been working with HMRC to provide practical information (which we share below) to help businesses and their advisers counter the economic impact of Covid-19.

Immediate action

Deferment of VAT payments is effective immediately.  Businesses should cancel their VAT direct debits to HMRC now, otherwise payments will still be taken automatically.  These VAT direct debits should be restarted after 30 June 2020 (though the period could be extended, watch for HMRC announcements).

What is deferred?

The deferment applies to VAT payments due to be made to HMRC between 20 March 2020 and 30 June 2020 (rather than relating to VAT returns covering this period or the tax point of a transaction, etc) and these payments will instead fall due at the end of the tax year.  HMRC have said that ‘tax year’ in this context means 31 March 2021. 

HMRC say that interest will not be applied to the deferred VAT payments.  It is hoped that HMRC will also not apply default surcharges or increase default surcharge periods/rates as the result of deferment. 

Any VAT due for payment after 30 June 2020 will still have to be paid to HMRC (as things stand, but watch for official announcements). 

However, VAT returns must still be submitted on time: it is only the payment which is deferred.  Since VAT refunds and reclaims will be paid by the Government as usual, if a business is due to receive a repayment in its next VAT return, submit that VAT return as early as possible. You should then consider opting for monthly VAT returns.

What types of VAT payment are deferrable?

The VAT liability stated in box five of the VAT return and payable to HMRC within the specified period will be deferrable. 

HMRC are saying that payment on account instalments and annual accounting payments can also be deferred where the due date falls between 20 March 2020 and 30 June 2020. 

HMRC are currently inconsistent as to whether VAT amounts payable as the result of an assessment are also deferrable when the due date falls in the specified period.  In the absence of a clear deferment of assessed VAT liability, prompt action is required as the deadline for appeals is 30 days (although Tribunals and HMRC are making announcements as to deadlines too).  We will continue to accumulate information as HMRC’s policies settle.

HMRC are also currently inconsistent as to whether they might accept deferral of the payment instalments under a Time To Pay arrangement.  Even if deferment is agreed in relation to any VAT payments, we have been alerted that HMRC’s Debt Management Unit might still try to chase for payment and should be contacted on 0300 200 3838. 

Although payment of VAT on imports can be described as a VAT payment due to HMRC, VAT on importation is currently payable as usual and is not deferred, as with any other transaction. 

Eligibility criteria

Entitlement is automatic, no application is required. 

All UK businesses are eligible.  HMRC are still working on their policy regarding non-UK businesses which should be available later. 

Income tax deferment

To support self-employed individuals throughout this time, the Chancellor has announced that payments under Income Tax Self-Assessment, normally due on 31 July 2020, will be deferred until 31 January 2021.

During this period, individuals will not be charged any penalties or interest for late payment.

The deferral will apply automatically to all. Taxpayers who believe that their 2019/20 income will be lower than their 2018/19 income can make a claim to reduce their payments on account.  

Early income tax return preparation

Individuals and companies who believe that they may be entitled to a tax repayment in respect of the 2019/20 tax year may wish to submit their tax returns earlier rather than later to accelerate any repayment.
 
If you are unsure of whether you are due a repayment, it may still be worth preparing the returns to establish if any repayment is due.  If no repayment is due, the returns can always be submitted later in the year.

Time To Pay Arrangements

Time To Pay arrangements can be negotiated with HMRC to stagger VAT liability payments across a longer period of time. 

The government announced in the Budget 2020 that Time To Pay arrangements would be relaxed.  Such an arrangement should be sought if taxpayers have problems making VAT or any other payments after these deferral periods expire. 

For VAT liabilities (as noted above), HMRC are currently inconsistent as to whether they might accept deferral of the payment instalments under a Time To Pay arrangement.  Even if deferment is agreed in relation to any VAT payments, we have been alerted that HMRC’s Debt Management Unit might still try to chase for payment and should be contacted on 0300 200 3838. 

R&D tax credits

Cash flow can be aided through tax relief against qualifying R&D expenditure.  Such relief would provide a welcome boost at an important time.

Businesses may qualify for the scheme if they have undertaken the development or improvement of new products and or processes, including any significant spend on internal operational software development and integration.
 
Identifying and claiming the full potential of R&D tax relief can help businesses with the much needed financial support to keep going, offering a life line for businesses during this period of turbulence and uncertainty.  Our process is simple and effective without the need for a face-to-face meeting and we can advise whether the clients have a claim and process that claim, liaising with HMRC to secure much needed tax repayments.

Further assistance

The above are tax measures are aimed at giving some relief to businesses during the Covid-19 economic slowdown and beyond.  HMRC are still working on many details, for up-to-date assistance, please find our contact details here.
 
Our COVID-19 Hub contains a range of information and resources to best support our clients during this difficult time. To receive the latest news and insights by email sign-up here.
Tagged Specialist Tax Consultancy COVID-19
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