The true impact of coronavirus is not as yet known but the government is introducing further measures to help business continue to trade during this unprecedented period of uncertainty. Following our pre year-end planning COVID-19 update we have produced an easy to follow flowchart for business owners with information of where they can go for help.
The latest measures, announced late on Friday 20 March, include the following:
There is an automatic VAT deferral for payments due from 20 March to 30 June 2020 for all businesses. The VAT deferred will need to be paid on or before 31 March 2021. There will be no penalties or interest for late payment charged during the deferral period.
This deferral will benefit VAT registered businesses including those who charge VAT on property income. For more detail on these measures see our article, Coronavirus: Government financial support for organisations.
A number of announcements have been made with regard to supporting businesses with regard to payroll costs and to time to pay arrangements for PAYE deferral. The detail can be found in our article, PAYE deadlines and support during COVID-19 disruption.
The income tax due by the self-employed on 31 July 2020 has been deferred to 31 January 2021, with no penalties or interest over the deferral period. This is a deferral and will need to be taken into account in your cash flow planning. Although the amount is known, effectively the amount due 31 January 2021 will be the tax liability for the tax year 2019/20 less the 1st payment on account paid 31 January 2020 plus the 1st instalment for 2020/21.
To recap the tax originally due on the 31 July 2020 represented the 2nd payment on account for the tax year 2019/20 and is initially based on 50% of the tax liability for the tax year 2018/19.
If profits are down for the accounting year ending in the tax year to 5 April 2020, then you could consider a reduction claim in respect of the 1st payment on account, that was paid back in January 2020.
There have been few measures to help property owners whose income may be at risk. For those who rely on rental income streams that tenants may no longer be able to afford, there is little support other than a previously announced mortgage payment holiday for those who rely on debt financing, and the opportunity for a claim to reduce the 31 July tax payment as outlined above.
Many tenants are looking for additional help from the government to deal with rent payments that they are due to make, but many property owners rely on the same income to support their spending. It remains to be seen whether landlords and tenants are left to sort this out for themselves.
It is just not profits that may be down but also cash which may be needed to settle future tax liabilities.
With the deferral to 31 January 2021 of income tax liabilities for self-employed people, there is currently no need to seek to agree a time to pay arrangement with HMRC in respect of this tax liability at the moment, but if it is required later, then you will need to be looking at this in December/early January. We do not know what HMRC’s stance will be by then. The UK Government has already announced a multitude of measures to help businesses but many of these have been focussed on smaller entities.
There is however, a tax hotline that can be called to request delays in paying taxes, and HMRC is (we understand) being sympathetic, particularly to businesses with a good payment and compliance record.
HMRC may ask for information to support time to pay requests and that could include business plans, with cash flow forecasts and the narrative showing that other finance options have also been considered. We are able to assist in preparing cash flow forecasts and to model potential scenarios.
In terms of contacting HMRC, we can help but it is often better if the actual call comes from the taxpayer in the first instance.
HMRC has confirmed that all payments on account due on 31 July 2020 may be deferred until 31 January 2021 on an interest free basis, and not just for the self-employed. This is an automatic offer and no applications are required.
This will be welcome news for taxpayers who will be suffering cash flow challenges in the current environment, and particularly those who are not able to benefit from grants offered to the self-employed, such as those who rely on rental income receipts or have profits of more than £50,000.
Contact your usual Crowe contact to obtain the latest advice on lifelines being offered by the government to help people through this period.
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