Product Manager IRIS Software Group Ltd
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The tax casualties of Covid-19 and what the future may hold

As firms fight back against the coronavirus crisis, the team at Taxfiler takes stock of the recent tax changes and sheds light on new developments during the lockdown.

28th May 2020
Product Manager IRIS Software Group Ltd
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New IR35 rules 

The new IR35 rules were culled just as they were due to come into effect. Plans put on pause; the legislation has been postponed by a year until 6th April 2021. The new off-payroll rules have significant repercussions for contractors, and the government saw that the current economic climate would be challenging enough to weather without the extra strain.

The Treasury was at pains to state, “this is a deferral and not a cancellation and the government remains committed to reintroducing the policy.” Yet recent developments have cast doubt over IR35, potentially jeopardising the proposed changes.

A House of Lords sub-committee has urged the government to “completely rethink” the legislation. The accompanying report was damning, rejecting the legislation as flawed and in need of an overhaul, raising concerns about blanket rulings by businesses at the cost of contractor livelihoods, and flagging issues with the reliability of the CEST tool.

IR35 in the Finance Bill

A further blow was dealt with by an error that failed to include a delay to IR35 in the Finance Bill, causing more parliamentary headaches. Will the run of bad luck change by next year? With many businesses having already brought in irreversible changes to comply ahead of the former deadline last month, it seems likely the government will press ahead with the tax change one way or another. However, the House of Lords’ feedback may prompt some refinements.

Making Tax Digital for VAT

Another Coronavirus casualty was the digital transmission of Making Tax Digital for VAT. Just two days before it was due to come into force, HMRC pulled the plug, giving a year’s reprieve for the digital submission of transaction data through the MTD for the VAT filing process.

HMRC was quick off the mark to issue communications at the end of March, saying, “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 1st April 2021 to put digital links in place.”

The requirement is to transfer data digitally and with no manual intervention. The software solutions and bridging tools are in place now, so even though this element of MTD has been halted, solutions do exist. Taxfiler has MTD support in place to guide users through the process of retrieving VAT Obligation Periods, a history of VAT Payments and VAT Liabilities, and submissions of Making Tax Digital VAT returns to HMRC using the new Making Tax Digital Agent Credentials.

Time to Pay 

Other notable tax delays and changes have been well publicised as part of the Chancellor’s Coronavirus package of emergency measures. Many of your clients will already be benefiting from them, probably with your help and guidance. HMRC’s Time to Pay service has been scaled up to allow businesses and the self‐employed to defer tax payments.

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

An important, if unpopular, role for you will be in reminding clients that these deferrals will end, and payments will need to be settled. Avoiding lumpy payments now undoubtedly helps cash reserves, but prudence and planning will be needed to honour future payments when the grace period ends. Some businesses have opted for monthly repayments as not to store up trouble for later.

Brexit

Finally, another problematic deadline on the horizon is that of Brexit. It seems like a distant memory after the events of the last few months, but a major summit is due to happen, and the 30th June deadline is starting to loom large. This is the cut-off point for a transition extension that would buy another 1-2 years. With the clock ticking, ministerial attention elsewhere, and negotiations happening on a video call, it is hard to imagine that the government will not opt for more time.

Something that had been such a major UK issue for years has been knocked off the top spot by the pandemic. The framework of any future Brexit deal is still unknown, let alone the sector-by-sector agreements that will be vital. It seems unimaginable that major announcements, trade deals, changes to legislation, and tax are on the way, but Brexit will no doubt return to the fore eventually. For now, there is nothing to do but watch and wait. And, of course, stay alert!

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