We are aware that many of our clients and contacts are awaiting the ‘small-print’ on various aspects of support that are available to businesses which are impacted by the Covid-19 pandemic. We had been hoping to provide a commentary on the detail by now but this is not currently available.
In the meantime we thought that it would be worth summarising the information that we have to date and the various queries that we still have. We will follow up with a detailed commentary and service-offering once the legislation is released which will hopefully take place over the next few days.
We need to see the ‘small-print’ here. Whilst the Chancellor indicated it may apply to some people on these kinds of contracts under PAYE it is unclear how, because they will not have a clear-cut monthly salary.
There is no guidance on how pay will be calculated for the 80% rule. What about pension payments and salary sacrifice arrangements? There has been press speculation that the February pay month may be used for a basis period.
There is no guidance on whether this scheme applies to directors. However a furloughed worker cannot do any work while they are furloughed which may be unrealistic for an employed shareholder. This may not be of great help to many directors (in any event) because they will often pay themselves a relatively low salary and top up with dividends.
HMRC are aiming to get funds flowing ‘before the end of April’ (although anecdotally we have heard May is a more realistic date). Government loan schemes may be a more practical immediate way to assist with cash-flow.
All VAT payments due between 20 March 2020 until 30 June 2020 can be deferred. Therefore quarters ending 29 February, 31 March and 30 April 2020 can all be deferred. This is automatically available and you do not need to apply. HMRC will not charge any interest on this late payment. You must ensure you have paid any outstanding liabilities by 1 April 2021. You still need to submit your VAT return on time as late submission penalties will still apply.
Importantly, the VAT liability which can be deferred is the net VAT liability (Box 5 figure) and NOT the output tax (Box 3 figure). In other words you are not able to reclaim input VAT and then defer payment of output VAT.
All 2nd Payment on Accounts for 2019/20 which are due by 31 July can be deferred until 31 January 2021.
This is automatically available and HMRC will not charge any interest on this late payment.
Importantly, this is only available for the self-employed and therefore this is not available in respect of dividends paid to company directors.
Government Guidance states “If you are self-employed, you are eligible.” Does this mean that if you have any self-employment income this deferment can be enjoyed even if the majority of your payments on account arise from investment income (say)? We suspect not but let’s wait and see.
If you are in financial distress and cannot pay a tax liability you can use HMRC Time to Pay scheme. This is a long standing scheme and we can see no changes proposed although there may now be a log-jam in reaching an agreement. Here interest is still charged on any late payments, although HMRC interest rates are relatively low with the rate falling to 2.6% from 7 April 2020.
Clearly there is no need to seek a time to pay arrangement for payments which are already subject to automatic deferral (above).
We will continue to keep abreast of developments and keep all our clients and contacts provided with insightful analysis as these arise. As always, the devil will be in the detail and will need to be considered on a case by case basis. We hope to be in a position to provide further commentary over the next few days.
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