Departures and delays: the tax changes halted by COVID-19

1st May 2020
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Several important legislative and tax changes have been halted by the Coronavirus crisis, postponed to ease the burden on businesses at this testing time. Here, the IRIS Keytime team looks at the biggest measures deferred so far.

Major delays:

Earlier this month, with just two days until the digital transmission of Making Tax Digital for VAT was due to come into force, HMRC announced an 11th hour reprieve. Rules that specified the digital submission of transaction data through the MTD for VAT filing process will now have a year’s grace.

The criteria for the digital links specified that data had to be transferred digitally with no manual intervention, which led to software solutions and bridging tools devised to support accountants and businesses with the changes afoot. While the process has paused, at least the solutions are in place.

IRIS Keytime received an emailfrom HMRC on 30 March, stating, “We understand that the impact of COVID-19 is creating extremely difficult times for all, and we are committed to helping in every way possible all those businesses facing unprecedented challenges.

“Therefore, we are providing all MTD businesses with more time to put in place digital links between all parts of their functional compatible software. This means that all businesses now have until their first VAT return period starting on or after 1 April 2021 to put digital links in place.”

In addition, HMRC is extending the soft-landing period given for digital links applicable to businesses over the VAT threshold, as brought in a year ago. The delays cast doubt over the next wave of more challenging MTD changes due, which were to include income tax and expense updates.

IR35 was the first to be culled as the pandemic panic hit and the Government began its response. The legislation would have taken effect earlier this month, but instead has been postponed by a year until 6 April 2021. IR35 shifts the off-payroll rules for contractors, and the Government rightly identified that contractors – and the clients they service – would be hard hit in the current climate.

Steve Barclay, Chief Secretary to the Treasury, was keen to state that the IR35 changes will happen eventually, “This is a deferral and not a cancellation, and the Government remains committed to reintroducing the policy to ensure people working like employees but through their own limited company pay broadly the same amount of tax as those employed directly.”

Useful deferrals:

As part of the Chancellor’s Coronavirus package of emergency measures, HMRC’s Time to Pay service has been scaled up to allow businesses and the self‐employed to defer tax payments over an agreed period (usually three months and interest is still payable). Initial feedback from applicants is that HMRC is agreeing to the deferral quickly and in most cases.

Tax payments have also been delayed for VAT, through to 30 June 2020 – and it automatically applies. The VAT will be deferred until the 2020/2021 financial year and no interest or default charges payable. And for the self-employed, Self-Assessment income tax payments on account due in July have been automatically deferred to 31 January 2021.

Business as usual:

Some measures and regulations are still due to happen as planned or are carrying on, despite the circumstances. The UK regulatory and judicial system is continuing, albeit with some remote working changing how they operate. Companies House is still accepting paper filings to its Cardiff office. Courts and Tribunals are still taking place, but often based on paperwork and determined remotely.

Also not changing are the Government’s plans to implement the Digital Services Tax on large tech companies and retailers. The DST came into effect in 1 April and despite industry body, TechUK, calling for the Government to look again at the tax given the unprecedented situation we are in, there are no such plans to do so.

Finally, the EU’s mandatory disclosure regime, DAC6, which allows for cross-border arrangements with certain hallmarks, is still on course to happen on 1 July. Entries will need to be filed by 31 October in relation to information from the first quarter from July. The Government has not indicated that these rules will not go ahead, so it is business as usual for this.