COVID-19 UK Tax Briefing

This briefing provides an outline of crucial tax and financial measures announced by the UK Government for businesses and individuals in the wake of the economic shock caused by COVID-19.  We also summarise certain temporary administrative measures adopted by HMRC to deal with practical challenges that taxpayers are facing during this unprecedented period.

A headline checklist is set out in the table below followed by further  detail in the main section of this note. This briefing covers measures announced up to 9 April 2020.

1.  Government Backed Loans

COVID-19 Corporate Financing Facility ("CCFF")

The CCFF provides funding by allowing eligible businesses to issue commercial paper of at least £1 million and of up to one-year maturity.  The commercial paper will be purchased by Covid Corporate Financing Facility Limited, which is operated by the Bank of England on behalf of HM Treasury.  Businesses materially contributing to the UK economy and capable of issuing commercial paper are eligible.  Businesses must have had an investment grade rating, as at 1 March 2020, or have been viewed equivalent to investment grade by their bank internally.  Terms will be comparable to those prevailing in markets prior to the COVID-19 shock.  The facility will operate for at least 12 months.  Issuers need not be UK resident and therefore foreign withholding tax issues could arise, if there is no equivalent to the UK's exemption for 'short interest'.

Coronavirus Large Business Interruption Loan Scheme ("CLBILS")

Under CLBILS, the government will provide lenders with an 80% guarantee on loans, overdrafts, invoice finance and asset finance of up to £25 million to UK-based businesses with a turnover of between £45 million and £500 million.  Borrowers will remain fully liable for the debt.  To be eligible, businesses must have been unable to secure regular commercial financing and have a viable borrowing proposal to trade out of short to medium term difficulty.  Loans backed by a guarantee under CLBILS will be offered at commercial rates of interest. Further details are to be announced and CLBILS will be launched later this month.

Coronavirus Business Interruption Loan Scheme ("CBILS")

The British Business Bank has launched CBILS with 40 accredited lenders to assist SMEs with access to loans, overdrafts, invoice finance and asset finance of up to £5 million and for up to six years.  Subject to certain caps, the Government will provide lenders with a fee-free guarantee of 80% on each loan.  The Government will also pay for the first 12 months of interest payments and any lender-levied fees through a Business Interruption Payment to benefit smaller businesses with no upfront costs. Borrowers will remain fully liable for the debt. UK-based SMEs with up to £45 million turnover and a viable borrowing proposal to trade out of short to medium term difficulty are eligible.  Access has also now been opened to those who would previously not have been eligible for CBILS because they met the requirements for a standard commercial facility.  Lenders are not allowed to take personal guarantees for facilities below £250,000.  CBILS will initially run for six months.

2.  Other Business Reliefs/ Grants

Business Rates Holidays

The Business Rates Retail Discount will be temporarily increased to 100% for the year 2020–2021 for those in the hospitality and leisure sectors based in England, and will apply regardless of rateable value.  Properties benefitting from the relief will be occupied properties that are wholly or mainly being used:  (i) as shops, restaurants, cafes, drinking establishments, cinemas and live music venues; (ii) for assembly and leisure; and (iii) as hotels, guest and boarding premises and self-catering accommodation.  In the "small print", there are examples of businesses not considered to be eligible, for example casinos, vets and chiropractors.  In addition, nurseries, estate agents, lettings agencies and bingo halls based in England have now also been exempted from business rates in 2020-2021.  Eligible businesses do not need to take any action.  The holiday will be applied to their next council tax bill issued in April 2020.

Reclaiming Statutory Sick Pay ("SSP")

SMEs will be able to reclaim up to two weeks' SSP for each eligible employee who has taken leave due to COVID-19.  UK employers with fewer than 250 employees will be eligible, to be determined by the number of people employed as of 28 February 2020.  Employers should keep a record of staff absences and SSP payments but employees will not need to provide a doctor's note.

Postponement of Private Sector Off-Payroll Working Rules

Planned changes to the private sector off-payroll working rules (IR35) have been delayed one year to 6 April 2021.  Where an individual is providing services to an end client via a personal service company ("PSC") or other intermediary, the new rules intend to shift the responsibility from the PSC to the end client to determine whether that individual is effectively working as an employee rather than on a self-employed basis.  If so, the client or agency paying the PSC must deduct any tax or NICs due, currently the responsibility of the PSC. The Government has stressed that this is simply a deferral of the proposed rule change rather than a cancellation.

Deferrals / Extensions

• Time to Pay

HMRC has expanded its pre-existing "Time to Pay" service and set up a dedicated helpline - 0800 024 1222 - to assist businesses and the self-employed, experiencing financial difficulties because of COVID-19, in meeting outstanding tax liabilities.  Any arrangement (for example, paying in instalments or suspending debt collection proceedings) will be provided on a case-by-case basis and tailored to specific circumstances and liabilities.  The Government has indicated any late payment penalties and interest will be waived where a business experiences administrative difficulties in paying taxes due to COVID-19.

• VAT

VAT payments due between 20 March and 30 June 2020 can be deferred by VAT-registered UK businesses until 31 March 2021.  No penalties or interest will be due on deferred amounts.  Businesses need not apply but HMRC will not be cancelling direct debits.  Businesses will need to take their own action to ensure they do not continue paying.  The deferral does not apply to VAT MOSS payments (on sales of digital services to consumers in the EU) or to import VAT.  VAT returns must still be submitted in the usual time frame.  The Government will still pay VAT refunds and reclaims as normal.

• Income Tax

Individuals due to pay their second self-assessment payment on account on 31 July 2020 can defer that payment until 31 January 2021.  There is no requirement to be self-employed.  While deferment is optional, individuals are encouraged to pay if they are able to do so.  As with VAT, no penalties or interest will be due on deferred amounts but businesses with direct debits should contact their banks if they intend to defer.

• Filing Accounts

Companies may apply for a three month extension for filing their accounts at Companies House. Those citing COVID-19 issues will be automatically and immediately granted an extension.

Reduction in Late Payment Interest Rates

In line with the Bank of England's base rate decreases, interest rates charged on underpaid corporation tax quarterly payments were reduced from 1.75% to 1.25% from 23 March 2020 and further to 1.10% from 30 March 2020.  Interest rates for late payment of non-quarterly instalment payments (for example, income tax, capital gains tax, SDLT, stamp duties, VAT and non-quarterly corporation tax payments) have been reduced from 3.25% to 2.75% from 30 March 2020 and further to 2.60% from 7 April 2020.  Repayment interest rates remain unchanged.

Company Residence and Permanent Establishments

HMRC has published guidance stating that a company will not necessarily become resident in the UK (by virtue of its place of central management and control being in the UK) because a few board meetings are held, or some decisions are taken, in the UK over a short period of time.  Each case will be considered on its own facts. 

In relation to permanent establishments, a non-resident company will not automatically obtain a taxable presence in the UK during the COVID-19 period, because "a degree of permanence is required".  Cases will also need to be considered on their circumstances to see if the conclusion of contracts would create a dependent agent permanent establishment in the UK, noting that there would need to be "habitual conclusion" of contracts for this to be an issue. The usual guidance remains in place for attributing profits to a UK permanent establishment in any case, meaning that were such an attribution required, the level of activity in the UK as well as its relative value would need to be considered before profits became taxable in the UK.  Whilst this is a helpful recognition of the exceptional circumstances which may arise, non-resident companies will still need to pay close attention to these issues.

The Retail and Hospitality Grant 

Businesses in the retail, hospitality and leisure sectors based in England with a property of a rateable value of up to £15,000 may be eligible for a £10,000 grant.  Businesses in these sectors with a property of a rateable value of over £15,000 and less than £51,000 may be eligible for a £25,000 grant.  Eligible properties in these three sectors are set out above in Business Rates Holidays. The relevant local authority is in the process of writing to eligible businesses. 

Businesses claiming small business rates relief or rural rates relief

Businesses based in England that occupy property and are receiving small business rate relief or rural rate relief as of 11 March 2020 will be eligible for a £10,000 grant to help meet ongoing business costs. The relevant local authority will write to eligible businesses.

3.  Individuals/ Self employed

Coronavirus Job Retention Scheme

This scheme supports businesses with employees' salaries where otherwise they would be laid off.  Employees who stop working but are kept on the payroll (known as "furloughed workers") are eligible, provided they were on that business' PAYE payroll on 28 February 2020 (employees made redundant after that date are eligible if rehired).  Businesses can claim from HMRC 80% of their wages, up to £2,500 a month, plus employer NICs and minimum auto-enrolment pension contributions on the granted amount.  Businesses cannot claim for additional employer NICs or pension contributions made because they have chosen to top up their employees' salaries.  Wages will be subject to income tax and National Insurance as usual.  Companies in administration can use the scheme.  The scheme is backdated to 1 March 2020 and open initially for three months, to be extended if necessary. There is to be no limit to the overall funding. HMRC expects the scheme to be operational before the end of April.

Self-Employment Income Support Scheme

A self-employed individual or a member of a partnership who has lost income due to COVID-19 can claim a taxable grant worth 80% of their trading profits up to a maximum of £2,500 per month for the next three months, to be extended as required.  To be eligible, last year's trading profits or the average of the last three years' trading profits must be below £50,000 and the individual must be receiving more than half of their income from self-employment.  Unlike furloughed workers, the self-employed can keep working.  HMRC will contact eligible individuals when the scheme is operational.  

Statutory Residence Test

Days spent in the UK self-isolating or due to closed borders will be treated as an "exceptional circumstance" and can be disregarded when assessing whether individuals are UK resident for tax purposes.  To exclude quarantined days, individuals must leave immediately upon restrictions being lifted.  The maximum number of days spent in the UK in any tax year that may be disregarded due to exceptional circumstances remains 60.

4.  Administrative support

Tax Tribunals:  Proceedings / Hearings

• First-tier Tribunal

All proceedings in the First-tier Tribunal have been stayed for 28 days from 24 March 2020 and all time limits in any current proceedings have been extended by the same period (at a minimum).  Any party can apply for these directions to be amended, suspended or set aside or for further directions in their proceedings.  All applications and substantive appeals will be dealt with on paper as far as possible; otherwise a video or telephone conference will be arranged.  Where unsuitable, the case will be listed for a future date when a physical hearing is safe.

• Upper Tier Tribunal

Similarly in the Upper Tier Tribunal, revised procedures are in place.  In the case of hearings, the default position is that hearings listed during the ongoing lockdown period should take place remotely via Skype, unless a party objects and in which case the hearing can be adjourned, held by telephone, or in exceptional circumstances continue in person.

Stamp Duty Measures

Stamp duty must be paid electronically using Faster Payment, BACS or CHAPS. Cheques will not be processed.  Details of the transaction, including an electronic copy of the documents which would otherwise have been stamped, must be emailed to stampdutymailbox@hmrc.gov.uk (i.e. not posted).  STFs must be fully completed, signed and dated (using a power of attorney if necessary) and e-signatures can be used while the temporary measures are in place.  If the STF has already been posted, it should be resubmitted to the above email address and any details of associated payments included, otherwise the STF will not be assessed or returned until these measures end.  Claims for stamp duty relief and applications for confirmation of whether the court order sanctioning a scheme of arrangement needs to be stamped should also be sent to the above email.

Clearances

Non-statutory clearance applications must be submitted using the email address in the relevant Annex.  If concerned about sending sensitive information, a short email without sensitive data and with contact details should be sent to HMRC, who will respond as soon as possible to arrange an alternative.

Options to Tax

HMRC has confirmed that e-signatures are being accepted for options to tax in the current circumstances.

SDLT

There has been no official guidance published by HMRC regarding any administrative changes to SDLT processes.  Land transaction returns should be submitted and payments sent electronically (as is usually the case for commercial transactions).  Documents usually sent by post, such as deferment applications, should be sent by post as normal.  Unlike with stamp duty, there is not yet an email address to which hard copy documents can be sent although the Government's website should be checked regularly for updates.  Any issues or delays with printing and/or posting documents will be looked at on a case by case basis and any particular circumstances should be discussed with HMRC and set out in writing as directed by HMRC.

This briefing is intended to provide a high level overview of the key COVID-19 measures.  Please do not hesitate to contact us to discuss your specific circumstances, or any of the above measures in more detail.