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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.

20th Mar 2020
Practice Editor AccountingWEB
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The Chancellor meets with representatives of business groups and trade unions
HM Treasury

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.

VAT holidays

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.

Previous announcements

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.

Community reaction

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:

  1. Will I still have to submit on time?
  2. If I am late submitting will the normal surcharges regulations apply?
  3. I get refunds, will they still come at the expected time (like normal)?
  4. I pay by direct debit, do I cancel it and have to reset it up again after?
  5. 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.

Replies (36)

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By SXGuy
21st Mar 2020 17:26

Deferring July payment is a little help but delaying vat did nothing for me.

Im lucky enough to fall in to the sbrr bracket so at least my rent could be covered but it's done nothing to protect my wages.

Ssp as we know doesn't even come close to the average wage. Interest free loan for 12 months seems good but if there money isn't there to repay it in 12 months time what is the point.

I can only hope more measures come next week.

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Chris M
By mr. mischief
21st Mar 2020 18:16

Whatever your politics, this guy was thrown in at the deep end by all the back-stabbing and has stepped up to the plate. He looks more Prime Ministerial to me than the Prime Minister. The "let's get a tame poodle in number 11" strategy is already down the pan.

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By justsotax
23rd Mar 2020 09:17

lets just hope that he has got a grasp that many businesses have agents, and as such making applications for any loans/grants should be enabled on this basis.

He appears far more competent and exudes much more confidence than Boris, but lets see how easy it is to access the money promised (hopefully he has learnt that repeating a tagline multiple times in an announcement should be reserved for party conferences and budget day.....know your audience....other than that he seems to have a clue!)

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By Bill H
23rd Mar 2020 10:28

How will the VAT holiday work? I have just filed a VAT return for the Quarter ended 29th February payment due on the 14th April. Will this be included and presumably that for the 14th May but not for the 14th June. The payments will be paid by DD so does the client have to contact the bank and cancel the DD???

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Replying to Bill H:
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By Andy Reeves
23rd Mar 2020 10:38

The guidance says it is automatic - see below. Stopping the direct debit may cause problems with refunds in future quarters.

Government guidance: 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.

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Replying to Andy Reeves:
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By Rgab1947
23rd Mar 2020 10:56

My policy is never to give a Gov a debit order. Its asking for trouble.

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Replying to Andy Reeves:
John Stokdyk, AccountingWEB head of insight
By John Stokdyk
26th Mar 2020 18:28

Just got word in from HMRC that businesses WILL have to cancel their DD mandates to prevent payments going out during the deferral period. But don't forget to set them back up when it's over! More answers to questions raised on this thread here: https://www.accountingweb.co.uk/tax/business-tax/hmrc-answers-vat-paymen...

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By Mark Garrett T and A
23rd Mar 2020 10:31

Self assessment tax deferral may be of some use but why has this not been extended to SME corporation tax payments? Although the liability is based on profits already earned, many SMEs will now be in a lossmaking position making loss relief claims likely in the next twelve months. We all know how rapidly HMRC deal with those!

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Replying to Mark Garrett T and A:
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By pauljohnston
23rd Mar 2020 10:37

Thanks Mark Garrett but you must not use rapid and HMRC in the same sentence. This can confuse posters in thinking that you are talking about a different entity.

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Replying to Mark Garrett T and A:
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By Rgab1947
23rd Mar 2020 11:00

Told one client tell HMRC they can whistle for the money.

Just cannot see how you can ask for a CT payment when delaying VAT. Its a bit like I wonh knock you down with my right hand but will do it with a my left.

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Replying to Mark Garrett T and A:
John Stokdyk, AccountingWEB head of insight
By John Stokdyk
26th Mar 2020 19:48

Hi Mark, HMRC addressed that point to in the Q&A they sent back here: https://www.accountingweb.co.uk/tax/business-tax/hmrc-answers-vat-paymen...

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By Cruncher Alan
23rd Mar 2020 10:32

Can you claim the 80% job retention against a directors salary if the company has suspended trading?

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Replying to Cruncher Alan:
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By Andy Reeves
23rd Mar 2020 10:37

I don't see why not as they will be included on the RTI returns. One director client has asked if they can increase their salary and claim 80% of the higher amount as they are on the standard low salary/high dividend package. I anticipate that this will not be possible as I would think HMRC would look at recent RTIs to assess salary levels.

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Replying to Andy Reeves:
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By meadowsaw227
23rd Mar 2020 10:51

I've had a director asking if he and his employee wife can say they were laid off on the 1st March.
An unequivocal no from me .

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Replying to meadowsaw227:
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By Rgab1947
23rd Mar 2020 10:58

But what if they had to close the doors because of the virus? They are presumably on the RTI payroll?

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Replying to Cruncher Alan:
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By janniehr
23rd Mar 2020 13:07

The rules suggest that in order to claim the employee must have stopped working completely - not many directors I know can do this. Surely even putting in the claim is doing some work (as is instructing your accountant to put in a claim), therefore I doubt many directors can claim.

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By johnjenkins
23rd Mar 2020 10:37

It's ok deferring vat payments but if there is no one in the office to do the vat return, what then. HMRC 's official stance is to say that returns are due and if not submitted will be subject to penalties. I'm pretty sure that a tribunal will uphold good reason if Customs don't realise their mistake. I'm not sure if the treasury realise what is happening in the business world at the moment. Although I admire the £330b but the final bill will be at least 5 times as much. The 80% wage to all employees not working is supposed to be on a rebate scheme. As a lot of business will be in total shutdown, HMRC will be paying out an awful lot of money for the next 3 months. Then you have the loan scheme. Does the government really think that enough profit will be generated to pay for these loans.
The task is vast. It comes down to the fact that if we want to save lives it will cost a lot of dosh, but well worth it. Perhaps our NHS might now be put on a footing that it should be and further ring fence the improvements that will be made once this virus is sent packing. Let's get it done Boris.

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By pauljohnston
23rd Mar 2020 10:40

No comment on the 31 December deadline for leaving the EU. Although as all the Civil Servants are working from home and cant have all those meetings perhaps the 31 Dec deadline is now doable.

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Replying to pauljohnston:
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By johnjenkins
26th Mar 2020 09:30

My view is that Boris won't change the 31st December deadline. However December seems to be the start of the flue season (how many people get ill at Christmas and New Year?). The world seems susceptible to virus attacks these days so there is no guarantee that "lock down" might come late this year or early next year. At least our NHS will be suitably prepared. My thinking has come from watching seemingly ordinary illnesses turn into killer viruses over the last few years. Perhaps now is the time for the WHO to really get hold of what is going on and do something about it.

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Chris M
By mr. mischief
23rd Mar 2020 11:07

Several clients of mine have been told by HMRC staff on phone to cancel VAT direct debits, then resume after this is over.

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By AJGeach FBP
23rd Mar 2020 11:07

Job Retention scheme - "HMRC will reimburse 80% of furloughed workers wages costs, up to a cap of £2,500 per month"

I read this as HMRC pays 80%, employer pays 20% but I have heard that some businesses are telling their employees that they will only be receiving 80% of their pay, as this is funded by HMRC. Presumabley expecting not to have to pay the remaining 20% themselves.

Any thoughts?

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Replying to AJGeach FBP:
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By Cruncher Alan
23rd Mar 2020 11:24

I read on HMRC that it is up to the employer whether they pay the other 20% but they do not have to pay it

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Replying to Cruncher Alan:
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By AJGeach FBP
23rd Mar 2020 13:07

Must be dependent on the employment contract?

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Replying to AJGeach FBP:
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By Summerjosh
25th Mar 2020 14:55

Everybody has different view points on this - They way I understand it as directly taken from COVID-19: support for business:
"HMRC will reimburse 80% of furloughed workers wage costs, up to a cap of £2,500 per month."

Couldn't be any more clearer than that. Sunak mentioned in isolation that the Employer could top up if it was to be "beyond £2,500 per month" - But I feel that what ever is payrolled: HMRC will only give back 80%.

ie: So if you furlough at a rate of 80% then HMRC will only give a grant for 80% of that?

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By birdman
23rd Mar 2020 11:21

Am I correct in telling investment-holding clients (BTL etc) that the SA July payments are only deferred for the self-employed, not for them? That's how HMRC advice reads to me. Also one-man Co directors are classed as "self-employed" so often these days I wonder if they are included for the 80% grant or not - they must need an employment contract as they cannot be "laid off" as Directors without breaching Co law.

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By Arbitrary
23rd Mar 2020 11:28

As regards the job retention scheme, what will happen where, for example. directors do not have a contract of employment?

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By Cruncher Alan
23rd Mar 2020 12:28

Job Retention Scheme:

What happens about Employers NIC? Will this still need to be borne by the employer?

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Replying to Cruncher Alan:
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By johnjenkins
23rd Mar 2020 13:31

The 80% will still be subject to the normal PAYE rules. HMRC are hoping that the 80% will just come off the normal monthly PAYE payments but this, of course won't happen. In the end HMRC will have to pay the business and then the business will have to pay the employees who are not supposed to be working. So no office staff to do the payroll. makes sense.

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Mark Lee 2017
By Mark Lee
23rd Mar 2020 13:31

Deferral of self employed income tax payments from July 2020 to Jan 2021. And the law of unintended consequences.

Even though I left practice in 2006 I still remember a few basic facts about the tax rules. For example:

- The self employed pay tax in 3 instalments each year (tho tax is only payable on 31st July and 31st Jan).

- Tax payments are generally higher in Jan than in July. This is because 2 instalments are due in Jan each year. That is, the balance of tax due for the previous year and the first payment on account for the current year.

The Chancellor’s announcement last week means that the tax bills in Jan 2021 will be even higher than usual as 3 instalments will be due at once. That is - the deferred July instalment plus both instalments due anyway in January.

This will cause cashflow problems for the self-employed next Jan. So I anticipate a further announcement to allow the tax payable in January 2021 to be paid in 6 instalments.

And if you want a purely speculative consequential suggestion then maybe this will lead to monthly payments of income tax (even on a voluntary basis) throughout 2021 ahead of the introduction of MTD for income tax!

But frankly all bets are off at the moment and I doubt anyone can make reliable predictions about future tax changes!

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Replying to bookmarklee:
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By johnjenkins
23rd Mar 2020 14:12

Spot on Mark. I foresee massive debt problems for business with VAT, Income Tax, Corporation Tax and monthly PAYE bills. That's without bank loans. The £330b will more than likely turn into £1500b or £1.5T. I cannot see, (because of the total loss of turnover but still the outgoings) this crisis together with the floods, business being able to pay it all back, especially not this or next year.

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Replying to johnjenkins:
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By Moo
23rd Mar 2020 16:27

Incorporated businesses will go bust owing vast sums to the Exchequer.
Self employed will go bust and lose their homes.

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By blox
23rd Mar 2020 14:18

Quote:
The rules suggest that in order to claim the employee must have stopped working completely - not many directors I know can do this. Surely even putting in the claim is doing some work (as is instructing your accountant to put in a claim), therefore I doubt many directors can claim.

What about a director that works 2 hours per day as director and 5 hours per day based on Contract of Employment. No payment for director duties. RTI done for 5 hours/day, taking all hours and monthly salary, the 5 hours is above minimum wage requirements. Now all work for 5 hours/day gone.

I think this setup should qualify for 80% from HMRC

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By optimist
23rd Mar 2020 15:18

I have questions on the job retention scheme:

a) Is the £2,500 of support gross or net?
b) Is the £2,500 of support 80% or 100%?
c) Is employer's NI due on this?
d) Does holiday pay accrue for furloughed staff?
e) What about pension contributions?
f) Can you rotate furloughed staff such that they are furloughed one month, working the next?
g) What about non-self-isolation sick pay?

My initial thoughts were that up to £2,500 of net pay will be supported, and that none of this pay will generate PAYE or NI due to the government as this is meant to solve the burden of redundancies, would seem harsh to charge PAYE/NI on businesses maintaining employment.

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By POLODOG
23rd Mar 2020 17:55

How long will it be before the HMRC have set up a system for furloughed employees.
I have today spoken to Sage, my accountant etc., No one knows when the system will be in action.

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Replying to POLODOG:
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By GHarr497688
23rd Mar 2020 19:17

well it takes them on average six months to answer a letter......

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Replying to POLODOG:
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By johnjenkins
24th Mar 2020 09:02

It's supposed to be set up this week through an HMRC portal.

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