Tax Insight - Keeping up with COVID-19

posted 22 May 2020 5 mins

This Insight provides an update on the measures announced by the government to support individuals and businesses facing difficulty because of the COVID-19 pandemic. We expect support measures will continue to evolve as time passes and recommend taking advice before making a claim.

Extension of the Coronavirus Job Retention Scheme (CJRS) 
The Treasury has reported that over 7.5 million jobs have been furloughed since the scheme was introduced; this has cost  £10.1 billion to date and it was announced on 12 May that the scheme would be extended until the end of October. 

The Chancellor has guaranteed that those furloughed will continue to receive 80% of their current salary up to £2,500 per month. After July, however, employers may be asked to contribute in cases where employees work part time. 

Support for owner-managed businesses 
Approximately two million business owners operate their business through a limited company. For those seeking more clarity on their entitlement to government support, we offer the following pointers:

1.  A business owner operating through a company is not entitled to help under the SEISS since this cash grant is only available to the self-employed. A business owner may consider themself self-employed but, as a director, they are an employee of the company. 

2.  Owners can be put on furlough and their company can make a claim under the CJRS to cover 80% of their salary up to £2,500 a month. Please note, however, that dividends are not included in this calculation.

3.  Under CJRS rules, furloughed employees are not allowed to carry out tasks for an employer.  However, furloughed directors may undertake duties required to fulfil the company’s statutory obligations. 

Coronavirus Bounce Back Loan 
Small to medium-sized businesses (SMEs) affected by the COVID-19 crisis may be entitled to a loan of up to £50,0000 through the Bounce Back Loan scheme introduced on 4 May. The government has agreed to guarantee 100% of the loan and no repayments, fees or interest are due for the first year. Lenders have agreed a flat rate of 2.5% interest on these loans.  To be eligible for a Bounce Back Loan, businesses will need to demonstrate that they have been negatively affected by the coronavirus and that they were not in difficulty on 31 December 2019. Sole-trader and incorporated businesses can apply for this loan, and the funds should be available within days.

Opening date for Coronavirus Statutory Sick Pay Rebate Scheme announced 
The government announced in the Budget that businesses with fewer than 250 employees would be able to reclaim the costs of paying Statutory Sick Pay (SSP) because of employees’ absence related to the coronavirus. The government has announced that employees will be able to make their claims from 26 May via a new online service. 

Tax resident?
Tax residence in the UK has been determined since 2013 by the Statutory Residence Test. The test determines whether a taxpayer will be considered UK tax resident based on their circumstances each tax year (i.e. their ‘ties’ to the UK and the number of days they spend in the country). Where a taxpayer is prevented by ‘exceptional circumstance’ from leaving the UK, HMRC allows 60 such days in each tax year to be ignored when determining tax residence. This has been extended to include cases where a taxpayer is unable to leave the UK because of COVID-19; it should however be noted that close attention is paid to the motive for extended stays. For instance, where a taxpayer’s flight is cancelled or they have contracted the virus, it is likely HMRC will accept this as ‘exceptional circumstances’; if someone can travel, but decides not to, then HMRC may not be so lenient. We expect HMRC’s guidance in this area to evolve as the crisis continues.  

Extension to tax appeal deadline
Taxpayers in dispute with HMRC usually have 30 days to make an appeal against a tax decision. In light of COVID-19, rules have been relaxed to give taxpayers an extra three months to appeal decisions made after February 2020.  

Withdrawal charge reduced on Lifetime Isa (LISA)
To support investors struggling because of the COVID-19 crisis, the 25% early-withdrawal charge has been reduced to 20% until 5 April 2021. Exemptions continue for investors who are terminally ill or who are purchasing a first property.

0% VAT for e-publications 
After announcing in the Budget that VAT on certain e-publications would be cut from 20% to 0%, the Chancellor has accelerated this change to take effect from 1 May. This aligns the rate for soft copies of books, newspapers, magazines and academic journals (now increasingly in demand) with their hard-copy counterparts. 

Relaxed Gift Aid rules for cancelled charity events
Updated government advice to charities in regard to events cancelled because of COVID-19 means charities can still, subject to certain conditions, claim Gift Aid on ticket costs. (Previously, individuals could only re-donate the amount once the charity had refunded ticket price.) The rule has been relaxed for cancelled events only and does not apply to postponements.  

If you have any questions about the government’s measures and how they may affect your personal or business affairs, please do not hesitate to contact one of the Tax team.