In light of COVID-19 this article sets out how businesses facing cash flow difficulties may be able to defer tax payments.
As a result of the ongoing disruption caused by COVID-19 many businesses and individuals are facing significant cash flow difficulties. In light of this the Government has made specific announcements regarding the deferral of certain VAT and income tax payments and HMRC have also been allowing businesses impacted by COVID-19 to defer payment of other taxes under time to pay arrangements. This article sets out which payments may be deferred and the process for this. Taxpayers not in difficulty should continue to make their payments to HMRC in line with their usual deadlines.
Following their initial announcement, HMRC have issued guidance which confirms that UK VAT registered businesses with a VAT payment due between 20 March 2020 and 30 June 2020, have the option to:
Please note that this does not cover VAT Mini One Stop Shop (MOSS) payments or import VAT.
Limited details were initially provided in the original deferral announcement. One area of confusion was the original reference to UK businesses which raised the question as to whether the deferral applied to non-established businesses. This guidance confirms that this deferral option does apply to all UK VAT registered businesses with the exception of those registered under MOSS. The guidance also confirms there will be no penalties or interest charged on the deferred VAT. Direct debits need to be cancelled if a business paying by direct debit wishes to defer VAT. VAT returns should still be submitted as normal.
We anticipate further guidance will be issued to deal with other questions, such as whether disclosures and assessments in the period are included and how the deferral will interact with bad debt relief (BDR). We should stress that there is no indication that it will cover anything other than return liability payments or payments on account/advance annual accounting payments falling due in the deferral period, or that there will be any changes to the BDR VAT law as a result of the deferral.
The Government has confirmed that income tax payments due on 31 July 2020 ('payments on account') may be deferred until 31 January 2021 and HMRC will not automatically charge penalties or interest for late payment.
The deferment is optional. Those who are still able to make July payments are encouraged to behave as 'good citizens' and pay the tax they owe on time thereby helping the Government.
This measure could impact taxpayers within the income tax regime; which would typically be those not operating via a company structure within the charge to corporation tax such as individuals, trustees, partners in a partnership (including LLPs), and companies subject to income tax.
Payments on account normally apply to income that has either not been accounted for through the PAYE system, or has not had sufficient tax deduction through PAYE including business profits, property rental income and dividend income.
Other taxes including corporation tax and PAYE
Businesses facing difficulty making other tax payments may request a time to pay (TTP) arrangement with HMRC to defer payments which are due (or overdue).
Taxpayers with a Customer Compliance Manager (CCM) should contact their CCM in order to make such an arrangement. Other taxpayers should contact HMRC via the dedicated Coronavirus helpline on 0800 024 1222 to make a request.
HMRC have been responsive to time to pay requests from businesses who are able to justify why a deferral is needed and three month deferrals have generally been agreed in such cases.
Quarterly instalment payments
Additionally, businesses within the quarterly instalment payment regime may have already made instalment payments of corporation tax to HMRC based on profit forecasts made prior to the outbreak of COVID-19. Such companies may be entitled to a repayment of overpaid quarterly instalment payments under Regulation 6 of SI 1998/3175.
The regulation applies where a large or very large company has made an instalment payment or payments and “subsequently has grounds for believing that, by reason of a change in the circumstances of the company since the payment or payments were made the amount of its total liability for that period is likely to be less than previously calculated, and the aggregate amount so paid exceeds the aggregate amount (‘the revised aggregate amount’) that would have been treated as becoming due and payable by the relevant date having regard to the revised calculation of that liability.”
In order to request a repayment the company should give notice to HMRC of the amount which the company considers should be repaid, as well as the grounds referred to above. The main challenge businesses face at present is reforecasting current year profits reliably in view of the uncertainties around COVID-19 but our experience to date is that HMRC are being sympathetic and responsive to requests from businesses experiencing cash flow difficulties.
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