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United Kingdom: Tax developments in response to COVID-19

General Information

This page offers an overview of tax developments being reported globally by KPMG member firms in response to the Novel Coronavirus (COVID-19).

The content will be updated regularly. However, due to the fast-moving pace of change, it may not always reflect the most current developments in a given jurisdiction. Please refer to the date of accuracy and refer to the relevant links, under additional information, for original source information.

Date accurate as of: 2 December 2020

Deferral of VAT payments due between 20 March 2020 and 30 June 2020

The UK government announced that VAT payments (including payments on account) due between 20 March and 30 June 2020 could be deferred at the option of the taxpayer.  Where the taxpayer chose the deferral option, the deferred sums must be paid on or before 31 March 2021. No interest or penalties will be charged as a result of deferral and taxpayers did not need to notify or seek approval from HMRC for the deferral to apply.  The deferral did not apply to VAT payments under the Mini One Stop Shop (MOSS) scheme under which VAT is reported and paid on sales of digital services to consumers in the EU or to Import VAT. The deferral was available for all UK VAT registered businesses. VAT repayments were made as usual and should not be set off by HMRC against deferred amounts.

Indirect Tax rates and reliefs

The UK has introduced a temporary reduced rate for the hospitality and tourism sector. A temporary rate of 5% will apply to supplies including food and non-alcoholic drinks from restaurants, pubs, bars, cafés and similar premises across the UK. Hot takeaway food and hot takeaway non-alcoholic drinks are included but not cold takeaway non-alcoholic drinks. In terms of accommodation the reduced rate of VAT will apply to supplies of accommodation (not the TOMS margin on accommodation) and admission to certain attractions across the UK but not sporting events. The rate will apply from Wednesday 15 July and will run until 31 March 2021. We understand from HMRC that non-alcoholic in this context includes low alcohol beverages that are not subject to excise duty, because they have an ABV percentage of less than 1.2%.

Waiver of import taxes on vital medical supplies

On 31 March 2020 the UK Chancellor announced that import taxes would be waived on vital medical supplies and equipment including ventilators, coronavirus testing kits and protective clothing. This relief applies until 31 December 2020. 

Income Tax payment deferral

The Government had confirmed that income tax payments due on 31 July 2020 (payments on account) may be deferred to 31 January 2021, though have since announced in their Winter Economic Plan and subsequently confirmed in updated guidance that enhanced payment arrangements may be available where taxpayers are unable to pay their 31 January 2021 self-assessment liabilities - including the deferred 31 July 2020 payment, balancing payment for 2019/20 and first payment on account for 2020/21 - as a result of COVID-19. Subject to meeting certain criteria, the amount due can be paid in monthly instalments over a period of up to 12 months using HMRC’s “Time to Pay” facility. Interest will accrue from 1 February 2021 until settlement.  In previous guidance on the 31 July 2020 deferral, HMRC highlighted that “The deferment is optional. If you are still able to pay your second payment on account on 31 July you should do so”. Later guidance added that such a deferral is available if the taxpayer is / you are “finding it difficult to make your second payment of account by 31 July 2020 due to the impact of coronavirus”. 

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. 

This is only relevant to 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:
    • who operate a business on a self-employed basis;
    • who are partners in a partnership (including LLPs); and
    • with income tax obligations outside of PAYE.
  • Trustees.
  • Companies subject to income tax.

Business rates reliefs

Business rates or non-domestic rates are a property based business tax which are administered by local authorities in England, Scotland, Wales and Northern Ireland. Rates are charged on most non-domestic properties, like shops, offices, pubs, warehouses, factories, holiday rental homes or guest houses. Business rates may need to be paid if a building or part of a building is used for non-domestic purposes.

The UK Government has increased the Business Rates Retail Discount applicable in England to 100% for the 12 month period beginning 1 April 2020. In addition to increasing the discount to 100% the UK Government has expanded the scope of the relief so it covers retail, leisure and hospitality businesses.  Properties that will benefit from the relief must be occupied and wholly or mainly used for a qualifying purpose.  Where properties have had to temporarily close due to the COVID-19 outbreak they are still treated as occupied.  The Government has issued guidance on what properties in England will qualify for the relief here (PDF 211 KB). The Scottish and Welsh Governments have introduced equivalent non-domestic rates holidays for retail, leisure and hospitality businesses covering the same 12 month period. There is no limit on the rateable value of the properties eligible for 100% rates relief in England and Scotland.  Properties with a rateable value of up to £500,000 are eligible for the Retail, Leisure and Hospitality Rates Relief in Wales.

Businesses that received the retail discount in 2019-20 were to be rebilled by their local authority as soon as possible.  Those businesses eligible for the newly expanded retail discount who were not in receipt of the retail discount in the previous year (or only received it on some of their properties) may need to apply to their local authority to ensure the discount is applied correctly for 2020/2021.  Any enquiries on eligibility for, or provision of, the reliefs should be directed to the relevant local authority.

In Northern Ireland no rates will be charged for the 3 month period ended 30 June 2020 for all business ratepayers excluding public sector & utilities.

It should be noted that distressed businesses may also be able to request Hardship Relief via their local authority.  There are a number of other exemptions and reliefs which can apply.

According to the guidance (as updated on 2 April 2020) the Government’s assessment is that, given the impact of COVID-19 in the sectors receiving the relief, the business rates expanded retail, leisure and hospitality discount 2020-21 is not a state aid.  The Government has considered this matter in discussions with the European Commission and is content with this analysis following those discussions.  This means local authorities can apply the relief to all eligible properties as the EUR 800,000 cap under the EU State Aid Temporary Framework does not apply.

Time To Pay requests to HMRC

For other taxes Time to Pay requests can be made to HMRC to defer tax payments which are due (or overdue) for payment to HMRC.  Taxpayers seeking to defer tax payments should be able to justify why a deferral is needed.  For taxpayers with a Customer Compliance Manager this is likely to be the quickest route to get a deferral agreed.  There is also a HMRC Coronavirus helpline on 0800 024 1222 for other requests.  HMRC’s initial approach was to allow deferral for 3 months, however HMRC are now seeking to put those arrangements on a more formal footing with payment plans (including an up front payment) for liabilities in respect of which deferrals were agreed until the end of June 2020.

Corporation tax payment refunds in ‘exceptional circumstances’

HMRC have confirmed a change in policy designed to help businesses that have made corporation tax payments for the prior year based on an expected tax liability but, due to the impact of COVID-19, are now expecting significant losses to arise this year that will be available to carry back to the prior year reducing or extinguishing the tax liability for the prior period. Customer Compliance Managers and other HMRC officers will now be able to consider claims for repayment of corporation tax before the end of the accounting period in which losses are anticipated to arise where there are 'exceptional circumstances'.

Accounts filing extension and consequential impact tax deadlines

Companies House has confirmed that it will automatically extend companies' accounts filing deadlines by three months where these fall between 27 June 2020 and 5 April 2021 inclusive. In addition, for the same period, the 14 day deadlines for confirmation statements and event driven filings have been temporarily extended to 42 days and the deadline for filing particulars of a mortgage charge have been temporarily extended from 21 to 31 days. The deadlines will revert back to normal from 6 April 2021.

The deadline for submissions of Senior Accounting Officer (SAO) certificates and notifications follow the statutory accounts filing deadlines and therefore those businesses that receive a three month extension from Companies House for filing statutory accounts will also have an additional three months to submit their SAO filings to HMRC.

Corporation tax return filing deadline

HMRC have not formally extended the deadline for filing corporation tax returns but have  provided verbal assurances to some taxpayers impacted by Covid-19, who contacted them close to the filing deadline, that penalties would not be levied.  HMRC have also updated their guidance to state that businesses impacted by Covid-19 who are unable to meet filing deadlines may have grounds to appeal any late filing penalty based on “reasonable excuse”.

DAC 6 reporting deadlines deferral

HMRC have announced that the first reporting deadlines under the UK implementation of the EU mandatory disclosure rules (DAC 6), which come into force on 1 July 2020, will be deferred by six months in order to provide taxpayers and intermediaries dealing with the impacts of COVID-19 additional time to ensure they can comply with their obligations. The reporting dates will be deferred as follows:

  • Arrangements where the first step was implemented between 25 June 2018 and 30 June 2020 (i.e. the look back period) must now be reported by 28 February 2021 (originally 31 August 2020);
  • For arrangements made available for implementation, ready for implementation, or where the first step in the implementation takes place between 1 July 2020 and 31 December 2020, reports must be made by 30 January 2021 (originally this was within 30 days of the relevant trigger point after 1 July 2020);
  • For arrangements in respect of which a UK intermediary provides aid, assistance or advice (i.e. secondary intermediary) between 1 July 2020 and 31 December 2020, reports must be made within the period of 30 days beginning on 1 January 2021 (originally this was within 30 days of the of the aid, assistance or advice being provided);
  • Arrangements which become reportable on or after 1 January 2021 must be reported within the 30 day window as originally proposed; and
  • Where periodic reports are required in relation to marketable arrangements, the first such report must be made by 30 April 2021.

Government actions taken in relation to potential tax issues arising from changing working practices of internationally mobile workers

Over the past few months, businesses have had to make rapid changes to their working practices in order to keep their employees safe, while continuing to operate and, due to government imposed lockdowns and flight restrictions, many employees are now working in a territory different to their normal place of employment.

Changes to published tax authority guidance

The UK tax authority, HM Revenue & Customs, has made a number of changes to its published guidance to address concerns raised by businesses in relation to the following areas:

  • Additional guidance on company residence was published in response to concerns that where a company’s directors (or other people responsible for the management and control of the company’s business) cannot travel this may result in an unintended change in the company’s tax residence status.
  • Additional guidance on permanent establishment was published in response to concerns that the fact that people who usually work abroad may be temporarily working in the UK causing the company they work for to unintentionally establish a permanent establishment in the United Kingdom.
  • Additional guidance on the statutory residence test for individuals was published in response to concerns that restrictions to individuals ability to move freely to and from the UK or, being required to remain unexpectedly in the UK may risk becoming unexpectedly UK resident as a result of the application of the statutory residence test and questions regarding whether days spent in the UK can be disregarded due to ‘exceptional circumstances’.
  • Further ‘Q&A’ guidance was published by HMRC which provides further clarity on how the SRT applies to employees displaced by COVID-19. This guidance clarifies how the SRT applies to individuals who have been unable to leave the UK, and confirms that HMRC will not be making any legislative changes to the SRT.
  • Additional guidance on the taxation of unplanned UK workdays has been published. This guidance confirms that where a non-resident individual is ‘stuck’ in the UK, the UK would not look to tax their UK workdays on the condition that these workdays are taxed in their home country, and the individual leaves the UK as soon as possible.

As a separate matter and with limited application to a specific group of individuals meeting the definition of working on “COVID-19 related activities” the Government has made legislative change in Finance Act 2020 to the SRT to ensure that any period or periods between 1 March and 1 June 2020 spent in the UK by individuals working on “COVID-19 related activities” will not count towards the residence tests.

Customs procedures

HMRC have implemented an automatic extension scheme on all UK authorized customs special procedures.

Other measures

Our understanding is that there is a priority for movement of goods - medical or scientific supplies etc. -  to be as quick as possible across the UK border. Border Force and HMRC are introducing a combined coordination unit, pulling information in from across Government to collate all border issues and smooth the border process.

Temporary Stamp Duty Cut 

  • Stamp Duty is a tax on residential house purchases in England and Northern Ireland. Scotland and Wales have equivalent tax regimes via their Land and Buildings Transaction Tax and Land Transaction Tax, respectively. 
  • On 8 July 2020, the Chancellor announced a temporary cut in stamp duty for home buyers in England and Northern Ireland. 
  • Effective from 08 July 2020 until 31 March 2021, the rate is temporarily cut to zero on purchases of homes of up to £500,000 in England and Northern Ireland. 
  • The devolved administrations in Scotland and Wales also raised their respective minimum thresholds on which stamp duty is liable.
  • In Scotland, the threshold was increased from £145,000 to £250,000, with this increase being effective 15 July 2020 until 31 March 2021. 
  • In Wales, the threshold was increased from £180,000 to £250,000, with this increase being effective 27 July 2020 until 31 March 2021.

Additional Information