On Friday evening, the Chancellor announced two support initiatives for business which are additional to those which we have already highlighted, and which remain available, largely unchanged. Whereas those previous schemes have been available to a fairly limited range of businesses, these latest initiatives are very wide-ranging and will assist all businesses which have employees, pay Vat, and/or pay income tax.
Coronavirus Job Retention Scheme
This headline scheme is being administered by HMRC and involves the payment by the Government of 80% of the pay of employees who you would have had to lay off because of lack of work, but will now be able to keep on despite the fact that they are not working. The 80% will be subject to a cap of £2,500 per month, which I assume means that the maximum grant will be £2,000 per month per employee. The Chancellor used the phrase “furloughed workers” to describe these people. You will need to identify these workers if you have not already done so and inform them that they are being furloughed so that they do not need to work. Clearly most businesses will require to keep some workers in active service, and they will not fall within the scheme – the aim of the initiative as spelled out by the Chancellor is to discourage employers from laying off employees with no pay – it is not expected to be used as a means of obtaining Government funding for staff who continue to work. It is not clear how this is going to be policed, because we only have the bare bones of the rules at the moment. So far we have been told that employers will need to identify the employees concerned, which in the case of some businesses which have been forced to cease trading, will be more easy than for those who are simply anticipating cash flow difficulties ahead and need to cut their staff costs. This action will need to be formally agreed with the employees concerned, and their details submitted to HMRC – we don’t know what the extent of this information will be but it will have to include their name and salary rate (which will be verifiable from the payroll records). An online portal will be provided by HMRC for submission of this information, and it is hoped that grants should start to be made by the end of April. Mr Sunak said that the scheme will be backdated to 1 March, so care will be needed when preparing payroll details for March, if they have not already been done. The difference between a worker’s absence being due to sickness, self-isolation, lack of work or possibly holiday can be quite hard to define in some cases. The Chancellor also stated that the scheme would apply for at least 3 months, and “will be extended if necessary”.
From the scanty details provided so far it would appear that a great deal of trust will be placed on employers to adopt the spirit of the scheme, but from various behaviours exhibited since this crisis started I am worried that this trust could easily be misplaced. We will have to await further details before we know exactly how the scheme will work, but it will be worth employers giving the selection of workers who will be treated as furloughed their immediate consideration. One thing that is apparent is that it will only be pay that is processed through payroll which will be eligible for the grants, not dividend payments or payments to self-employed workers. Xero -hours workers will present a challenge, as will anyone on variable pay – it is likely that there will have to be some sort of averaging calculation required for these people.
According to the guidance, any Vat bills due between 20 March 2020 and 30 June 2020 will not need to be paid until 31 March 2021, and no interest will be payable on the “late” payment. This will generally cover bills for the quarters ending February, March and April 2020 as the May quarter bill falls due for payment after 30 June. This scheme seems to fit in with the Government’s hope that the crisis will be easing within 12 weeks, and anticipates deferral of the last of the “normal” Vat revenues before the effects of the crisis kicked in. Please note the usual warning that this is a deferral, not a grant, and the tax will therefore have to be paid eventually.
Income Tax Deferment
This is also a deferral relief which is specifically aimed at the self-employed, who are able to defer paying the second instalment of their 2019/20 self-assessment tax until 31 January 2021, interest free. Again, please note the word deferral . It would appear from the information available so far that this relief will only apply to self-assessment tax on income from self-employment and not from savings and investment income, i.e. dividends from small limited companies, rental property and investment portfolios/savings accounts. HMRC have never liked the tax savings that are made from taking “remuneration” from companies as dividends, so are unlikely to look kindly on them in this context.
We will need to wait for a couple of weeks for full details of how the Job Retention Scheme grants will be claimed and paid over, but hopefully this process will be fairly straightforward, and the funds will be made available in April – in his speech, Mr Sunak said that “we are aiming to get it done before the end of April”.
The deferral of Vat and self-assessment tax will be much more simple – it will just mean that the tax does not have to be paid on the due dates. The Vat returns concerned will still need to be prepared so that the tax can be collected in March 2021, and the self-assessment tax returns for the year ended 5 April 2019 (which give rise to the payments on account) have already been prepared and submitted in the vast majority of cases.
(20 March 2020)
Author: Peter Hedgethorne, Director