Even with Government delaying some reforms, such as IR35 roll-out, there’s still a lot going on in tax at the moment.
Here’s a run-down of the most important changes.
1 Indirect tax
Beyond the key VAT deferral scheme, RSM VAT tax partner Philip Munn notes several other VAT and indirect tax measures that eligible organisations should be aware of:
With lockdown likely delaying shipments of goods, HMRC has temporarily waived export time limits so that the VAT zero-rate can still be applied to goods that are sent outside the EU if other export conditions are met.
HMRC will agree to a three-month extension to the usual 30-day deadline for appealing or requesting a reconsideration of an HMRC decision (including VAT assessments).
Temporary VAT and duty reliefs have been announced on a variety of personal protective equipment.
Import VAT and duty deferment account holders have been offered the opportunity to apply for extra time to settle amounts owed.
2 Tax policy consultations
EY partner and UK tax policy leader, Chris Sanger, feels there’s an unsung element in the raft of Covid-19 measures – the timing of tax policy consultations, whereby the Treasury and HMRC have provided an extra three months for most consultations.
“This was a welcome decision, as consultations cover important issues upon which the government will benefit from taxpayer input,” says Sanger.
“Given the current environment, without an extension, that input would likely have been sparse, as attention will naturally and rightly be focused elsewhere. The extension should allow for engagement, while still enabling the government to deliver important tax policy changes within the current fiscal timetable.”
3 What’s happening at HMRC?
The Treasury and HMRC are doing their level best to keep the budget and finance bill process on track, says Bill Dodwell, tax director at the Office of Tax Simplification (OTS). “Since there were no budgets in 2019, there are expected to be two in 2020. The finance bill is going through parliament as usual, subject of course to debates and committee hearings taking place through video conferencing.”
There has, however, been an important deferral, says Dodwell: “The implementation of the off-payroll working rules is now intended to take effect from April 2021 instead of 2020. The government has rejected calls to defer the measure beyond 2021.”
The Construction Industry Reverse Charge VAT scheme has also been deferred until 1 March 2021.
While HMRC has introduced a number of tax-payer supportive easements – including allowing a deferral to the digital links requirements for MTD for VAT – other changes, such as the new 30-day reporting for taxable gains from residential property and changes to the main residence exemption, are going ahead as originally planned, says Dodwell.
4 Consequences of self-employed deferrals
Mark Lee, business coach and chairman of the Tax Advice Network, warns of the law of unintended consequences in reference to HMRC’s deferral of self-employed income tax payments from July 2020 to January 2021. The self-employed pay tax in three instalments each year – two in January and one in July. This means that the tax bills in January 2021 will be even higher than usual, as three instalments will be due.
“This will cause cash flow problems for the self-employed next January,” he explains “So I anticipate a further announcement to allow the tax payable in January 2021 to be paid in six instalments.
“One of the challenges for accountants will be whether to raise clients’ hopes that the January 2021 income tax payments will be payable over six months or monthly ahead of any official announcement. This will be relevant, for example, when preparing cash flow projections and/or assisting clients to obtain funding for the big tax bill.”
5 What will the Chancellor do next?
“I think the Chancellor has a real balancing act in front of him,” says Guy Smith, senior tax manager at inTAX. “How and when to inevitably raise taxes without jeopardising economic recovery. His priority will be to kickstart the economy and then monitor societal habits adopted during the lockdown, for example, home working and e-commerce.”
But when tax increases do happen, Smith would recommend the Chancellor avoids big promises to reduce the deficit in a set timeframe, à la George Osborne, and to certainly avoid the “A” word (austerity).
“Instead, we are likely to see lots of fiscal drag, with personal allowances being frozen or very limited rises and the same action being taken with the tax bands. I doubt he will want to increase duty on alcohol with pubs and the hospitality trade being so badly hit by the virus, but he may look to increase duty on petrol after years of no increases, especially as the price on the forecourts is so low.”
Smith expects a ramping up of tax investigations, as happened in the wake of the global financial crisis.
“The emphasis this time might be on fraudulent furlough claims, which Jim Harra has already suggested will be considered by HMRC as a criminal act rather than civil offence. Offshore tax-related enquiries are also likely to be higher, especially as HMRC now has access to more data than it ever has before.”
6 Employment watch
Beyond the well-publicised furlough provisions, or Coronavirus Job Retention Scheme (CJRS), there are a number of other areas where Covid-19 has affected tax legislation and rules applying to employers and employees, says Susan Ball, tax partner at RSM:
- Repaying employers for statutory sick pay paid to employees, which was last seen in 2014.
- Postponing the off-payroll working reforms due to come in for the private sector by 12 months to April 2021.
- HMRC has published guidance – How to treat certain expenses and benefits provided to employees during coronavirus (COVID-19).
- P11D and PAYE Settlement Agreement (PSA) deadlines are unchanged. But HMRC has extended the deadline for filing PAYE returns and paying tax due in regard to Short-Term Business Visitors (STBV) to 31 May 2020 in relation to the 2019-20 annual return.
- Covid-19 will potentially be regarded as a reasonable excuse for missing some tax obligations, including the late submission of P11Ds and PSAs.
- Businesses with outstanding tax liabilities (PAYE, NIC, VAT, corporation tax) may be able to defer payment through HMRC support, which will be reviewed on a case by case basis.
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Neil Johnson is a freelance business journalist who contributes regularly to trade publications and member organisations, covering employability, recruitment, business trends and industrial analysis.