Can HMRC cope with the pressure of Covid-19?

Unprecedented events bring unprecedented scenarios. HMRC is at the sharp end as they attempt to deal with the needs of business owners and employees affected by coronavirus (Covid-19) – all of whom need help quickly.

So what’s the current state of play – and is HMRC in a position to respond swiftly and effectively?

There’s no question that HMRC is going to be under pressure. Look at other Government departments and you will see that over 500,000 people have applied to the DWP for benefits in the ten days up to 25 March, with numbers rising all the time.   

What is being planned, and what is HMRC’s role?

The newly announced Job Retention Scheme “allows employers to access financial support to continue paying their employee’s salary for those who would have otherwise been laid off (i.e.made redundant) during this crisis,” according to Selena Baker, Associate Director of business law firm Greenaway Scott.

In practice, employees will receive 80% of their net earnings up to a cap of £2,500 a month, to protect workers from being made redundant. The scheme will be administered by HMRC and will work via a new online portal. To confirm eligibility, employers must:

  • Designate their employees as furloughed. This means they must not work for the company during the period claimed for. 
  • Notify employees of the change. Changing employees’ status remains subject to employment law. It may be subject to negotiation depending on the details of the employment contract.
  • Submit information to HMRC via the portal. Further information to be announced. 

Is HMRC sufficiently well-placed to handle this?

Brian Palmer is Tax Policy Adviser at AAT. “This is a huge challenge for HMRC, but behind the scenes, it is re-engineering itself to deliver.”

Consider the large numbers of staff who were deployed to deal with Brexit, Palmer says; “some of those will be freed up to transfer immediately to the situation we have now.” There is “no doubt” about this, Palmer says, “and some of the ‘business-as-usual’ elements of HMRC’s work will be allowed to slip a little in order to deliver. It is a Government priority and they will do their best.”

Will businesses be allowed time to defer payment of taxes? “Yes. The VAT side should be automatic and immediate; anything between 20 March and the end of June will be automatically deferred.” However, you must apply for this deferral, and the application must be before your filing deadline.

VAT registered businesses do not have to apply to defer the VAT payment but that they are still required to submit VAT returns. The details can be found in HMRC guidance here https://www.gov.uk/guidance/deferral-of-vat-payments-due-to-coronavirus-covid-19

Palmer believes that HMRC will act sympathetically. “If you look at the experiences a few years ago during the Somerset Levels floods, they were sympathetic then. There is a track record for this kind of thing, although of course nothing of this scale and magnitude.” 

Are there any differences in the regions that people should be aware of? “HMRC has been reconfiguring itself to be more consistent over the last few years; it no longer has the regional network that it once had, so there shouldn’t be differences.”

When will businesses receive their grants?

“The first grants should be paid within weeks,” Selena Baker says, “and will apply in respect of all employees on PAYE, including those on casual or zero hours contracts.” According to Business Support, “the Job Retention Scheme will cover the cost of wages backdated to March 1st and is initially open for 3 months, but will be extended if necessary.”

As of 17 April, the Coronavirus Job Retention Scheme has now been extended to run until the end of June, and may be extended again if necessary.

What if companies have urgent cash flow problems?

There is a Business Interruption Loan Scheme for interim cash flow. This will support SMEs (UK-based, turnover within £45 million per year). It will help access loans, overdrafts and finance of up to £5 million, for up to six years. Eligible organisations should also benefit from a Business Interruption Payment for the first year of interest payments. This scheme is offered via banks. 

Q&A around the job retention scheme

Q: Are all employers eligible?
A: All UK employers with a PAYE scheme will be able to access support to continue paying part of their employees’ salary for those that would otherwise have been laid off. This includes public sector, local authorities, and charities.

Q: Will companies have to pay back the Job Retention Scheme monies?
A: No. It is a grant, not a loan. If you apply for the Business Interruption Loan Scheme, this will incur interest, but at a favourable rate.

Q: Whose decision is it about whether or not an employee is furloughed?
A: The employers.

Q: What about NI and pension contributions?
A: The 80% or £2,500 (whichever is the lower) is intended to include NI and pension contributions. 

Self-employed now included

Self-employed people have been added to the scheme after some criticism of the Government’s initial decision to exclude the UK’s five million self-employed workers. Whilst the same package is on offer – a grant of 80% of earnings up to £2,500 net – there is a delay until June for those eligible to receive the money. 

The long-term result of this for HMRC is likely to be an increase in NICs for the self-employed to bring parity with employees, from 9% to 12%.

“The issue is in how to make this work,” comments Brian Palmer. “If HMRC is to handle this effectively, it cannot be too complex. The focus should be on hearts and minds and ensuring the spirit of this in the right place. It’s about getting the gestures right now – rather than penny-pinching.”

Exclusions for self-employed

  • The grant will only apply if workers’ annual earnings are under £50,000 and if they make the majority of their income from self-employed work. It will be back-dated to March and 3.8 million people are expected to receive the grant. HMRC will contact those affected directly.
  • It excludes self-employed people who operate as limited companies, a significant number of people. Also excluded are those recently self-employed who did not file a tax return by January 2019.
  • It will be based on average monthly profits over three years. Workers will need to prove they have been affected by Covid-19, but it is a flat-rate grant so the amount is the same regardless of whether the worker has lost 10% or 80% of their business.

Note: All information is correct and up-to-date as of 27 March 2020. As the situation is ongoing and changing daily, some information may change.

Further reading:

Mark Blayney Stuart is Business Journalist of the Year, Wales Media Awards 2017 and Former Head of Research at the Chartered Institute of Marketing.

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