Coronavirus: implications for UK tax payments

Out-Law Guide | 23 Mar 2020 | 11:36 am | 3 min. read

As the coronavirus pandemic continues to impact on businesses and the economy, many businesses will be concerned about the implications if they do not pay their taxes on time.

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 the end of the 2020 to 2021 tax year to pay any liabilities that have accumulated during the deferral period.

This applies to all businesses, regardless of size and it applies automatically so businesses do not have to apply for the deferral. VAT refunds and reclaims will be paid by the government as normal.

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 agree, they 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. 

Collins Jason

Jason Collins

Partner, Head of Litigation, Regulatory & Tax

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

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."

"There are calls for the government to introduce a tax payment holiday. It remains to be seen whether this will happen," he said.

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.

Sick pay

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. 

IR 35

The government has also 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.

Travel

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.