COVID-19 Tax-Related Assistance to Ease Financial Hardship
Given the enormous challenge faced by companies and other entities, including charities and development organisations, in the wake of the public health measures adopted to protect against the COVID-19 pandemic, the UK government has taken certain measures to assist companies with their tax bills. The following update sets out the most relevant UK tax measures that have been implemented, in particular: (i) available tax relief options (such as business rates relief) and (ii) the deferral of Value Added Tax (VAT) payments. The update also includes information on the deferral of income tax payments and the use of Her Majesty’s Revenue & Customs (HMRC) ‘Time to Pay Service’.
There are currently no COVID-19 related UK tax measures available specifically to charities. Charities and non-profit organisations are treated in the same manner as businesses for the purposes of the COVID-19 related tax measures covered in this update.
Currently, the only UK tax relief introduced directly as a result of COVID-19 is a business rates holiday. Administered and levied by local authority councils every February-March, business rates are calculated based on the ‘rateable value’ of office premises. This is the open market rental value, based on an estimate by the Valuation Office Agency (VOA). Organisations can calculate their business rates using the UK government’s website.
At the outset, it should be noted that the newly introduced business rates relief measure applies equally to charities and social enterprises in the same way it applies to any other business. However, only organisations that fall under the most heavily-impacted sectors (listed below) can access the tax relief. The business rates holiday amounts to a 100 per cent discount on the rates due on an organisation’s eligible property for the 2020-21 tax year. As currently drafted, this relief is only available in respect of businesses and charities based in England that are:
(i) Within the retail, hospitality and leisure sectors (further guidance on the types of businesses and properties which can avail themselves of the relief is available in the UK government’s Business Rates Expanded Retail Discount guidance document). This includes charity shops, to the extent that they currently pay business rates.
(ii) Nurseries (further information is available in the UK government’s Business Rates Nursery Discount guidance document).
No action is required from business owners or charities to access this relief. As the relief is automatic, local authorities will instead reach out to organisations with a revised rates bill, evidencing the 100 per cent discount. There is no rateable value limit on the relief and ratepayers that occupy more than one property are entitled to the relief for each of their eligible properties.
The impact of this COVID-19 related measure on charities is likely to be minimal as charities already benefit from relief of up to 80 per cent of business rates payable for the year. Some local councils will also confer a discretionary relief of 20 per cent for charities to top up the standard discount.
Deferral of Tax
In addition to the business rates relief, the only other tax-related assistance in response to the COVID-19 crisis is in the form of tax deferrals. There are currently three available options to defer payment of UK tax:
• deferral of VAT
• deferral of income tax payments
• HMRC ‘Time to Pay Service’
It should be noted that the above three measures are not tax reliefs or payment holidays, but rather deferrals of payment.
Deferral of VAT
UK VAT-registered businesses or third sector organisations are eligible for the VAT deferral if they have:
• quarterly and monthly VAT returns due for the periods ending February, March and April 2020
• payments on account due between 20 March and 30 June 2020, or
• annual accounting advance payments due between 20 March and 30 June 2020
Organisations that meet the above criteria have the option to either:
• defer any such VAT payments (whereby HMRC will not charge any interest or penalties on those amounts), or
• continue to pay the VAT due as normal
The option to defer VAT payments applies automatically, without a requirement to inform HMRC or undertake any application process. If payments are normally made by direct debit, organisations should contact their bank to cancel their direct debit as soon as possible, and in any event, before the money is due to be collected, as HMRC will otherwise proceed with collecting payment.
Following the deferral period, all outstanding VAT payments that have accumulated must be made on or before 31 March 2021. Organisations should therefore remember to reinstate their direct debit mandates at that point.
It is important to note that, regardless of whether VAT-registered organisations decide to defer payments or not, they must still submit their VAT returns to HMRC on time. It is possible for organisations that do not currently make monthly VAT payments, to apply online to move to monthly returns to improve their cashflow (if they are in a repayment position) and HMRC will continue to process VAT reclaims and refunds as normal during the deferral period.
If the amount being deferred is a payment on account, due between 20 March and 30 June 2020, but there is an additional balancing payment due from outside these dates, the balancing payment must still be made.
Deferral of Income Tax Payments
An individual normally makes two self-assessment payments per year: one on 31 January and the other on 31 July. Each payment on account is half of their previous year’s tax bill, with any balancing payment required for the previous tax year also added to the January payment. Due to COVID-19, this second payment no longer needs to be paid on 31 July 2020. Instead, it can be paid on 31 January 2021 (this is only a deferral, the tax still has to be paid and in the same amount as would have ordinarily been paid by 31 July 2020).
This measure relates to any income received by an individual, where tax is accounted for under the self-assessment method. Therefore, it relates to personal income (which would include for example, investment rental income), as well as business profits that are received by self-employed individuals. No penalties or interest for late payment will be charged on any such deferred amounts, and no application for this deferral is required by HMRC. Whilst deferral of income tax payments is optional, HMRC encourage individuals who are in a position to make a payment to do so. Where an individual considers that a deferral is required, it is possible to set up a budget payment plan with HMRC. This will assist individuals to ensure they have paid any deferred amounts by the revised due date (31 January 2021) (see specific guidance on budget payment plans on HMRC’s website).
HMRC Time to Pay Service
Any UK business, third sector organisation or self-employed individual that pays tax to the UK government may be eligible to reach a formal agreement with HMRC to enable their tax payment obligations to be spread over a longer period than would be the case in the absence of the agreement. This is the case where such persons or organisations have outstanding tax liabilities and are in financial distress.
HMRC’s Time to Pay service entitles organisations or individuals to receive support in respect of their tax affairs, in various forms, for example:
• deferrals of Corporation Tax, PAYE and/or National Insurance Contributions
• waiver of any late payment penalties and interest
• a suspension of debt collection proceedings
These arrangements enable those who are eligible to pay off their debts to HMRC by instalments over a period of time, delaying the first payment for up to three months.
Such arrangements are agreed on a case-by-case basis and will be dependent on individual circumstances and outstanding liabilities. A justifiable case will need to be made to HMRC explaining why a deferral is required and appropriate in all the circumstances. For example, an organisation will likely have to show HMRC all the measures that it has already taken to try to meet its obligations (such as cutting costs or drawing on available facilities), and therefore illustrate that the organisation has a short-term cash flow issue, which is preventing it from being able to make the tax payment.
If an eligible person or business has missed a tax payment, or is at risk of missing their next tax payment due to COVID-19, they should contact their HMRC Customer Compliance Manager (to the extent they have one), or alternatively, call HMRC’s dedicated COVID-19 helpline on 0800 024 1222. If such an organisation is concerned about a future payment, they should make contact nearer to the time that the payment is due.
Information in this update has been provided by A4ID’s Legal Partner Kirkland & Ellis (International) LLP and does not constitute legal advice. If you require specific legal advice arising from the matters outlined in this update please contact the Pro Bono Legal Services Team at [email protected].