Written by Ray Coman
The coronavirus is spreading in the UK and across the globe, causing illness and death. Yesterday, and for an unspecified amount of time, schools, universities, restaurants and other public meeting venues closed. To encourage business owners to stick to the official guidelines and to mitigate the economic impact, a raft of emergency measures were announced on 20th March 2020.
The government has pledged to pay UK businesses suffering due to employees unable to work on account of Covid19. The aim is to encourage employers to retain staff to prevent largescale disruption to employment.
A grant will be available to cover 80% of gross pay per ‘furloughed’ employee, up to a maximum of £2,500 per month. Gross pay for this definition includes employers' NIC and the statutory minimum of pension contributions.
Pay going back to 1 March 2020 will be covered by the scheme. The payment scheme will initially run to 31 May 2020. The reference period for determining gross pay will be the month eneded 28th February 2020. This is to prevent artifical increase of wages post announcement, for the prupose of increasing grant entitlement. Full pay should be made via payroll and would be subject to PAYE tax, NIC and pension contribution liability for both employee and employer.
Affected workers are designated as “furloughed”. This means that they cannot work for the employer but are, nonetheless, retained on payroll. The employer needs to inform the employee in writing that they have been furloughed.
The grant will be applied for via an online portal on the HMRC website. However, at the time of writing (21st March 2020), the application facility has not been made available. HMRC have announced that they aim to have a submission system available by the end of April. With the measures so new, payroll software providers are yet to release updates to accommodate the required ‘furloughed worker’ adjustments.
The sole director of a company can be a furloughed employee. However, a furloughed employee cannot work and therefore the company of the contractor could not have any income during the period of the claim. Inconsistency of work is in the nature of self-employment, and therefore a claim for salary support would be inconsistent with a basis for the company to be taxed outside of IR35. Where lack of work is prolonged, the alternative of becoming a sole trader and relying on the benefits available in that scenario are more tenable. SSP reclaims would apply in some cases to directors out of work due to illness.
For the week commencing 23rd March 2020, new loan types will be available to cover business interruption. Participating lenders will be able to provide loans which are guaranteed by the government. For the first 12 months, interest will be paid for by the government rather than by the borrower. With no interest to pay, the tax effect would be neutral. The scheme will be facilitated by mainstream lenders.
Certain organisations, such as households providing domestic staff and membership organisations will not be eligible.
It has not been possible to reclaim Statutory Sick Pay (SSP) since 2013-14. However, the government has announced that it will reimburse employers SSP for up to 2 weeks where the employee’s absence was caused by SSP. Affcted workers would obtain an 'isolation note' from HMRC. The mechanism for government repayments has not yet been set up on the HMRC website.
Self-employed workers who must stay at home because of Covid19 symptoms would not be eligible for SSP. In this case, a self-employed worker can claim Universal Credit, up to the rate of statutory sick pay and without having to visit the JobCentre. The chancellor also announced a general increase in universal credit allowance by £1,000 lasting twelve months.
Payments on account due by 31 July 2020 can now be deferred until 31 January 2021. No late payment interest applies to 2019-20 second payments on account during the deferral period. This will provide cash flow relief to individuals under self-assessment. The new payment date applies automatically with no need to notify HMRC.
HMRC Time to Pay arrangements will remain in place. A taxpayer struggling to find the cash to settle a liability can contact HMRC directly. An arrangement would spread the tax payments beyond the due date and without suffering late payment penalties that would otherwise apply.
VAT payments normally due in a deferral period can now be postponed. The deferral period is from 20 March to 30 June 2020. Traders will have until 31 December 2020 to settle VAT liability otherwise payable in the deferral period. The deferral applies automatically and does not need to be applied for. The mechanism by which the payments will be collected has not yet been made clear. Any VAT refunds would be processed in the usual timeframes.
The IR35 rules tax place a PAYE requirement on an individual who would be an employee ‘but for’ a company. The rules are an anti-avoidance provision designed to stop employees forming companies simply to avoid national insurance. A new ruling was designed to make it the responsibility of the person hiring to assess whether an individual was employed or self-employed. This new ruling was due to come into force on 1 April 2020. However, the ruling could also have the effect of deterring business from expanding operations with contractors. As a result of the impact of Covid19 on the economy, the new ruling will not come into effect until 1 April 2021.
A business rates holiday for 2020-21 will apply for those worse effected in the sector leisure, retail and hospitality sectors. Businesses do need to make an application. The rates relief is automatically applied.
The scheme provides support of up to £10,000 for affected businesses.
Days in which an individual is required to stay in the UK as a result of 'lockdown' measures will be treated as exception for the purpose of determining tax residence.
The Self-Employed Income Support Scheme was introduced three days after the initial package of support. It is detailed on a separate page found through the link above.