Guidance – Furloughing, VAT and Self-Assessment

I have spoken to dozens of businesses over the past week. For many, the help they will receive from the Government during the Covid-19 outbreak remains unclear.

Having provided guidance around the Coronavirus Business Interruption Loan Scheme (CBILS) last week, here is some further guidance, this time around furloughing employees, and deferring VAT and self-assessment payments.

Furloughing Employees

Furloughing employees and being furloughed has been a significant topic over the past week and HMRC have now provided detailed guidance as to how the system will work.

Whilst this information is predominantly written for the benefit of employers, many employees will find it useful in further understanding the scheme.

Here are the headlines:

• To qualify for the grant, the furlough period must be for at least three weeks.
• Employees cannot undertake any work for the employer whilst furloughed.
• Employees working reduced hours or days or who continue to work on reduced pay are not eligible.
• You will need to write to your employees to confirm that they have been furloughed and keep a copy of that communication.
• Employees hired after 28 February 2020 cannot be furloughed.
• Employees on sick leave or self-isolating will qualify only for statutory sick pay but can be furloughed once they are available for work.
• Employees who are ‘shielding’ in line with public health guidance can be furloughed.
• Employees can undertake training whilst furloughed, for example online training.
• Your grant will be up to £2,500 per employee per month plus employer national insurance and minimum workplace pension employer contributions.
• 80% pay is calculated on actual salary levels at 28 February, excluding fees, commissions and bonuses.
• You can only submit one claim at least every three weeks via an HMRC portal that is being established for this purpose.

Directors:

As we stated in our earlier briefing, the announcement last evening regarding help for the self-employed specifically mentioned that directors can use the furloughing scheme in relation to their PAYE income (not dividends).

How easy this is in practice remains to be seen, as the rules state that the furloughed individual must not work for the employer whilst furloughed. If you are the sole director and employee of your own company, this is going to be very hard to achieve.

The link to the detailed guidance on the government website can be found here.

Deferring Your VAT and Self-Assessment Payments

Two important tax deferrals have been announced recently.

VAT deferral – changes to the VAT payments due between 20^th March 2020 and 30^th June 2020.

HMRC have announced that your next payment of VAT can be deferred. There are some very important issues surrounding this that need to be acted upon now, especially if your last VAT return was for the period to 29th February 2020.

In summary:

• The deferral scheme is automatic – you do not need to apply and you do not need to tell HMRC that you have taken advantage of the scheme.
• Whilst it is automatic, it is not compulsory and so, if you want to pay your VAT as normal, then you are free to do so.
• If you are taking advantage of the deferral scheme you must still file your VAT return, on time.
• Most importantly, if you are using the deferral scheme and usually pay by direct debit, HMRC have advised that you must cancel your direct debit mandate and then reinstate it prior to the payment being due for the next period.
• Any deferred VAT will need to be paid by 5 April 2021. HMRC will issue details as to how to pay in due course.
• If you are due a VAT repayment, this will be paid to you as normal.
• No interest or penalties will be charged on amounts deferred between the normal payment date and 5 April 2021.

You can get more information on the government website here.

Deferral of your July Self-Assessment Tax Payment

The ability to defer your next self-assessment payment, if indeed you have one due, was also recently announced by HMRC. Initially, it only applied to the self-employed, but guidance has been updated to state that it applies to all self-assessment tax payments due on 31 July 2020.

The scheme is straightforward in that, if you wish to take advantage of the deferment, you simply do not need to pay anything by the due date of 31 July 2020 and the tax deferred then becomes due on 31 January 2021.

Again, the scheme is not compulsory so you can pay any liability due by the due date if you wish.

There are no direct debit or payment instructions that need to be cancelled. And interest will not be charged on amounts deferred between 31 July 2020 and 31 January 2021.

Summary

Both deferral schemes are useful to business owners in aiding cash flow in the short term. But think carefully as to whether you should use them as you will need to also plan for the eventual payment of these liabilities.

Remember, deferral is exactly that. The liability doesn’t go away, it is simply deferred to a future date and these needs to be borne in mind when deciding if tax deferment is the right option for you.

That said, if you defer any of the taxes above and have difficulty paying by the new due date, you should be able to contact HMRC and negotiate a ‘time to pay’ arrangement.