Coronavirus (COVID-19) Tax implications for the UK

/ Individual, UK Tax

The recent pandemic of COVID-19 has impacted everyone from individuals to small businesses to large corporations. However, the UK government, like others, has put in place measure to aid those during this pandemic.

With regards to tax measures, the government have announced a number of measures to aid businesses, employees and the self-employed with payment of taxes and a number of relief measures such as government backed loans.

Ingleton Partners assists clients with UK and US personal taxes but this piece sets out the wider range of assistance offered by the government. We will help clients with all the aspects we can, generally limited to tax, but hope bringing all these provisions together will be helpful.

Statutory Residency Test-Days in the UK

The UK’s Statutory Residency Test determines if an individual is a UK resident for tax purposes.

One factor the test takes into consideration is the amount of days the individual has been present in the UK. Her Majesty’s Revenue and Customs (HMRC) have disclosed that an individual may exclude up to 60 days under exceptional circumstances and has issued further guidance on how COVID-19 may result in being considered as an exceptional circumstance.

The nature of exceptional circumstances will differ based upon personal circumstances but HMRC have outlined the following guidelines. You may exclude days if you find yourself:

  • Placed under quarantine or advised by a health professional or public health guidance to self-isolate in the UK due to COVID-19.
  • Advised by official government advice not to travel from the UK as a result of COVID-19.
  • Unable to leave the UK as a result of closures of international borders or
  • Asked by your employer to return to the UK as a result of COVID-19

Tax deferrals and Time to Pay

This measure is aimed at all businesses, who will no longer need to make Value Added Tax (VAT) payments for the period 20th March – 30th June 2020. Businesses will be given until the 31st March next year (2021) to pay the accrued liabilities they have deferred. No interest or penalties will be accrued on the deferred payments.

VAT returns will still need to be completed and submitted on time (the deadline has not been extended). Any refunds and reclaims will be paid as normal.

If you are self-employed, any self-assessment payments that were due on 31st July 2020 will now be deferred until 31st January 2021.

The time to pay agreement, is for business who are unable to pay their tax bills on time due to the impacts of COVID-19. This is not available to all and businesses are strongly advised to contact HMRC to see if a time to pay agreement can be made.

If successful, the business will be able to pay their tax bills in instalments which will be specifically tailored to the finances and circumstances of the business, as well have debt collection proceedings suspended. This will also mean interest and penalties will not be assessed if the business has any.

It must be noted, despite talks, the rate of corporation tax will remain at 19%.

If there are concerns that businesses have regarding tax, they are able to call the dedicated HMRC helpline on: 0800 0159 559

Business Rates and Grants

This applies to businesses in the hospitality and retail sectors who have been seemingly, hardest hit. As a result, businesses such as pubs, cinemas and retail stores will not have to pay business rates for the next 12 months. This is regardless of size and value.

Also available to small businesses will be a cash grant of £3,000 providing the rateable value of the business is under £15,000.

Measures for Self-employed individuals

The government has launched the Self-Employment Income Support Scheme which will allow a grant to be provided that will be worth 80% of their profits, with a cap of £2,500 per month.

To calculate the size of this grant, HMRC will look at the individuals tax returns from 2016/17, 2017/18 and 2018/19, to work out the average profit and provide 80% of that as the grant. This will be paid in one instalment directly into your bank account. If there are less than three years of accounts available then the average will be on the information available.

The scheme is open, initially, for three months and to those who have a majority of their income from self-employment (with profits less than £50,000).

If, however, you are have become self-employed in the 2018/19 tax year, and therefore not filed a self-assessment tax return to report your self-employment you will not be eligible for this grant. The grant will also not cover those who are self employed contractors operating via limited companies.

The criteria to meet for this grant is as follows:

  • A self-employed individual or member of a partnership and:
  • Submitted your tax self-assessment tax return for 2018/19.
  • Have traded in the 2019/20 tax year.
  • Are currently trading, or would be if it wasn’t for COVID-19.
  • You intend to keep trading in the following tax year (2020/21).
  • Have lost profits from trading or partnerships as a result of COVID-19.
  • A self employed induvial with less than £50,000 profits and more than half your income is from self-employment.

Coronavirus Job Retention Scheme

This is open to all employers and is due to last for at least three months, starting 1st March 2020. It enables employers to claim 80% of a furloughed employee’s monthly wage costs up to £2,500 per month, per employee. This will also include Employer National Insurance contributions paid on the wages and minimum automatic enrolment employer pension contributions.

If eligible the grant will be paid via BACS payment into a UK bank account.
The wages must be their actual salary before tax. This will not include any fees, commissions or bonuses.

Furloughed employees are those on a leave of absence.

To claim this, you need to be a UK organisation with employees, which includes:

  • Businesses
  • Charities
  • Recruitment Agencies (agency workers paid through Pay As You Earn)
  • Public Authorities

Many public sector organisations may choose not to use this as the majority of the employees in the public sector are continuing to provide essential public services during the COVID-19 pandemic.

For those who do not access and use the scheme, it is expected that they continue to pay their employees as usual and accordingly do not furlough them. If you do furlough employees, please ensure you write to them detailing this and keep a record of the communication as proof to be eligible for the subsidy.

As an employer you can claim this for furloughed employees (they must be on payroll on the 28th February 2020) on all contracts including:

  • Full time
  • Part time
  • Agency contracts
  • Zero-hour contracts

This also covers any employee made redundant since 28th February 2020, so long as they are rehired. Employees that have been hired after 28th February 2020y cannot be furloughed or claimed for in this scheme.

However, to be eligible an employee on furlough can not be undertaking work on behalf of the organisation including any services that will generate revenue. While on furlough the wages received by employees will be taxed as normal.

Similarly, if the employee is working reduced hours or on reduced pay, they will not be eligible to be claimed for. You must keep paying their wage via payroll on the agreed contracted terms.

If employees are on unpaid leave they cannot be furloughed, unless they were placed on leave after 28th February 2020.

Statutory sick play must be paid for those on sick leave or self-isolating. They can be placed on furlough after this. As can those who are shielding and staying home as part of public health guidelines.

If employees are partaking in volunteering work or training, they can continue to work as long as they are not generating revenue.

If employees need to complete online training courses while they are furloughed, they must be paid at least the National Minimum or National Living Wage for the time spent training, even if this is more than 80% of their wage.

Support packages for individuals

The government has also set out measures to aid individuals not just businesses, that have been affected by COVID-19.

If you are experiencing financial difficulties due to the outbreak and are unable to make payments for mortgages you could be entitled to a three-month repayment holiday and will not face eviction for failure to pay.

If an agreement for a payment holiday is reached and agreed upon, the lender should record this in writing in such a way it will not be used to affect your credit score.

The offer for a payment holiday may be offered to those who are up to date with payments, not those in arrears.

The government have also announced a package of measures to protect renters and landlords affected by coronavirus. As a result, no renter in either social or private accommodation will be forced out of their home during this difficult time.

Emergency legislation will be taken forward as an urgent priority so that landlords will not be able to start proceedings to evict tenants for at least a 3 month period. As a result of these measures, no renters in private or social accommodation needs to be concerned about the threat of eviction.

Once the three-month period has ended it is expected for landlords and tenants to work together and form an affordable repayment plan, taking into consideration the circumstances of the tenant.

If there are difficulties in repaying credit card bills or personal loans the following will apply the Financial Conduct Authority (FCA) have called lenders to use an element of flexibility built into their existing rules, which considers the customer’s individual circumstances.

Comments are closed.