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Coronavirus related tax measures – a snapshot

CJRS and SEISS

Much has been published about these support schemes for employers and the self-employed.

New legislation is being introduced in relation to the tax treatment of these payments:

  • The payments received are generally subject to tax (income tax or corporation tax as a trading receipt)
  • HMRC can ‘claw back’ payments made by making an income tax assessment where:
    • The recipient was not entitled to the payment; or
    • The CJRS payment was not used to fund employee costs
  • The taxpayer has an obligation to notify HMRC if it believes it has incorrectly claimed the payments under either scheme

Businesses will need to carefully monitor the detailed rules of the schemes to determine whether they have been fully compliant and whether they may be liable to tax under these rules.

Corporate business taxes

Residence and permanent establishment: There could be more of a risk that companies are regarded as resident in the UK or as having a PE here because of directors/employees being stuck in the UK. HMRC have issued guidance on this with the overall message that if decisions or actions are taken in the UK over a relatively short, temporary period of time, that will probably not be enough for the company to be regarded as resident or as having a PE in the UK.

R&D:  There are a number of implications for R&D claims as result of COVID-19. 

In brief:

  • A question of whether the ‘going concern’ requirement is met in relation to businesses whose operations have been severely affected.
  • Certain of the government support schemes such as Bounce Back Loans and other state loans are ‘state aid’ which could potentially prevent a claim for SME relief. HMRC have indicated this will only be the case where the loan is taken out for the R&D project (rather than general support)
  • Questions over whether R&D credits due to a company can be offset against certain other tax liabilities owing to HMRC. Broadly, HMRC won’t set them off against VAT deferred under the VAT deferral scheme (see below) but there are no other specific relaxations.

Crisis-driven changes to trading activities: HMRC have published guidance on how they will treat certain changes in trade and activities for tax purposes (e.g. commencement of a new trade; providing discounted goods).

QIPs:  HMRC has stated that companies can, in exceptional circumstances, make earlier claims for repayment of quarterly instalment payments

VAT

Deferral of VAT payments: payments arising from returns due to be paid between 20 March 2020 and 30 June 2020 can be deferred until 31 March 2021. This includes periodic and annual payments due.  Ad hoc payments can be made before the deadline, and taxpayers must make their own arrangements to pay. Returns must still be submitted on time.

Other measures:

  • PPE: a temporary zero-rating of PPE for supplies between 1 May and 31 July 2020; the government will donate an equivalent of the VAT collected on business gifts of PPE to healthcare charities
  • Construction services reverse charge: deferred until 1 March 2021
  • Zero rating for certain e-publications brought forward until 1 May 2020
  • Temporary extension to the time limit for notifying an option to tax (usually 30 days and now extended to 90 days for decisions to opt made between 15 February and 31 October 2020)

Employment taxes

Coronavirus Statutory Sick Pay Rebate Scheme: introduced to reclaim employees’ SSP if they are sick due to coronavirus

HMRC has published:

  • Guidance on how to treat certain expenses and benefits provided to employees during coronavirus
  • Guidance on temporary changes to some pension processes
  • An extension for filing PAYE returns and paying tax in relation to some Short Term Business Visitors
  • Employer Bulletin June 2020 containing a summary of these measures and others

New IR35 rules: delayed until April 2021, which will be a welcome temporary relief for many businesses.

Share schemes

Employment related securities bulletin 35 provides various updates on the impact of coronavirus on share schemes e.g.

  • SAYE: payment holiday terms will be extended for employees on furlough/unpaid leave;
  • SIP: contributions can be deducted from payments of CJRS to employees
  • CSOP: options will remain qualifying for employees/full time directors who have been furloughed

EMI and furloughing: an amendment to the Finance Bill 2020 will be introduced to ensure that furloughing does not give rise to a disqualifying event for EMI options (in connection with the working time requirement).

Stamp taxes

SDLT refunds for 3% additional rate: HMRC have issued guidance to say that where the taxpayer has not been able to sell their main residence within the required 3 year period due to exceptional circumstances as a result of COVID-19, they may still be able to claim a refund. HMRC will assess applications made on a case by case basis.

Stamp duty: a temporary electronic process has been introduced, meaning no documents are physically stamped, and everything is dealt with by email via stampdutymailbox@hmrc.gov.uk (post should not be sent to the Birmingham Stamp Office).  (This contrasts with any correspondence to be sent in relation to SDLT, which must still be posted).

Personal taxes

Income tax: Payments on account due on 31 July 2020 may be deferred until 31 January 2020 (this applies to all taxpayers within self-assessment, not just the self-employed)

IHT: HMRC published a Trusts and Estates Newsletter on 12 June 2020 containing updates including:

  • Confirmation that the deferral of July 2020 payments on account to trusts
  • Temporary email contact addresses and electronic submission of IHT forms

Statutory residence test: temporary changes have been made to this test so that time spent in the UK on COVID-19 activities between 1 March and 1 June 2020 will not count towards the residence tests. HMRC have also published guidance stating that a number of COVID-19 related circumstances will be regarded as exceptional when deciding whether days in the UK can be disregarded.

Administration

Extension of time limits:

  • HMRC have confirmed that missing a payment or filing deadline because of coronavirus will be a ‘reasonable’ excuse. An explanation of the circumstances will need to be given
  • HMRC will allow taxpayers more time to seek a review or appeal against a decision if they are affected by coronavirus
  • Businesses which fail to meet filing deadlines in relation to the Common Reporting Standard or Country by Country Reporting because of difficulties due to coronavirus should be able to claim reasonable excuse

DAC6 new mandatory disclosure rules relating to tax avoidance: Following the recommendation from the European Commission, HMRC will extend the deadline for the first reporting requirements under these disclosures rules (due 1 July 2020) by six months.

For more information on the article above please contact Nicola Manclark.

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