Tax payments deferred as Chancellor protects jobs
VAT and self assessment tax payments have been delayed as the government launched a new HMRC-administered coronavirus jobs retention scheme to cushion the economic blow of COVID-19.
Chancellor Rishi Sunak joined the Prime Minister again on Friday evening for the latest Downing Street press conference, where he deferred VAT and income tax payments and announced measures to prevent coronavirus-hit businesses from letting staff go.
Coronavirus jobs retention scheme
In his headline measure introduced as “unprecedented for a government of this nation”, Sunak announced a new a grant from HMRC to employers to cover furloughed workers and keep people kept on payroll rather than laying them off. The coronavirus job retention scheme would pay up to 80% of employees’ salary to a maximum of £2,500 a month.
The job retention scheme will be backdated to 1 March, with no limit on the amount of funding, and Sunak said it will be open initially for “at least three months” but didn’t take off the table the option to extend the scheme for longer if necessary.
“I can assure you that HMRC are working night and day to get the scheme up and running and we expect the first grants to be paid within weeks – and we’re aiming to get it done before the end of April,” said the Chancellor.
The government’s rebate to cover staff wages came as the Prime Minister announced the closure of pubs, restaurants, theatres and leisure centres to curb the spread of the coronavirus.
To bring rapid cashflow relief to businesses, Sunak announced a VAT holiday from now to June. The Chancellor said the deferral is “a direct injection of £30bn of cash to employers, equivalent to 1.5% of GDP”. Struggling businesses until the end of the tax year to pay.
The official COVID-19: support for businesses document explains: “This is an automatic offer with no applications required. Businesses will not need to make a VAT payment during this period. Taxpayers will be given until the end of the 2020 to 2021 tax year to pay any liabilities that have accumulated during the deferral period. VAT refunds and reclaims will be paid by the government as normal.”
It’s a policy the Labour government adopted in 2001 for the farming sector during the foot-and-mouth disease and one that Avalara’s Richard Asquith lobbied for before the Budget on 11 March.
“Delaying VAT due is one of the quickest ways to give business a much-needed cashflow boost. It leverages the ability of the government to borrow a historic low rates to help companies through this difficult time,” he said.
While a VAT holiday only kicks the payment down road, Asquith prefers this option because it’s “simple to adopt” rather than cutting rates, which he says is “complex business” for mid-sized and larger companies.
“Adjustments to inter-linked accounting, purchasing and invoicing systems means even simple VAT rate changes require huge amounts of calibration and testing," added Asquith.
Self employed support
VAT wasn’t the only deferral announced by the Chancellor. Sunak also delayed the next round of self-assessment payments, which were originally scheduled for 31 July 2020, until January 2021.
In another move to support self-employed workers, the Chancellor removed the minimum income floor for universal credit which means self employed workers can access benefits equivalent to SSP for employees.
Business loan scheme
Acknowledging that “businesses are hurting now”, Sunak outstripped measures he pledged on Tuesday and expanded the coronavirus business interruption loan scheme from six months interest-free to 12 months interest-free. The Chancellor revealed that these loans will be available from Monday.
Sunak advised businesses to expect more announcements in the coming days. “I will announce further measures next week, on top of those the [Bank of England] governor and I have already taken to ensure that larger and medium-sized companies can also access the credit they need,” he said.
This is the second time Sunak has appeared at the Prime Minister’s daily coronavirus press conference.
In his first stint, Sunak pledged a £330bn rescue package to support businesses through the economic impact caused by the virus, with initiatives such as the new Business Interruption Loan Scheme and a 12-month business rates holiday for all businesses in the retail, hospitality and leisure sector.
In addition to overhauling his Budget, Chief Secretary to the Treasury Steve Barclay also surprised many by postponing the April 2020 IR35 in the private sector start date until 2021.
Michael Izza, the chief executive of the ICAEW, welcomed the Chancellor’s intervention. “The real battle now is for public confidence: if we can sustain that, the economics will follow.
“The chancellor’s announcement of direct action by government to keep people in employment is a really good start. This should make a difference to how people feel, and keep them working and spending.”
Meanwhile, in such a fast-moving time with little policy papers to study, Sunak’s measures are already raising questions on AccountingWEB’s forums. Shortly after the Chancellor finished his speech, Charlotte Garton from Duncan & Toplis posted on Any Answers a pre-emptive FAQ for when clients pitch questions on the VAT deferral, such as:
- Will I still have to submit on time?
- If I am late submitting will the normal surcharges regulations apply?
- I get refunds, will they still come at the expected time (like normal)?
- I pay by direct debit, do I cancel it and have to reset it up again after?
- I want I pay my VAT can I still do that?
Although the official COVID-19: Support for business page answers the majority of these questions, the AccountingWEB community still has some unanswered questions.