With the coronavirus restrictions biting hard, many businesses turned to the financial assistance made available by the government. But there are concerns that not all have fully understood the terms and conditions that apply.
HMRC’s approach to charging interest on tax paid late because of the coronavirus varies across the taxes. Businesses should make sure they have read and understood the small print.
PAYE and NICs
Following lockdown many businesses were struggling to meet their immediate costs and large numbers took advantage of the option to defer their PAYE and NIC liabilities for three months. At the time, it was not completely clear whether interest would be charged.
HMRC has belatedly clarified that PAYE and NIC payments that were deferred in March will be subject to interest at an annual rate of 2.6% from the date the payments were originally due. Interest is normally due on late payments of PAYE.
It is perhaps not surprising that HMRC would seek to charge interest on the full period, as it was always anticipated that this would be the case for any time to pay arrangements to spread this unpaid tax over a period from June. However, what was not clear was whether interest would be charged on the initial three-month grace period.
Unfortunately, many businesses may have wrongly assumed that the PAYE and NICs deferral would follow a similar format to the VAT deferral, which was interest free, so this confirmation from HMRC may come as an unwelcome shock.
In addition, HMRC has confirmed that amounts of PAYE and NICs in relation to a coronavirus job retention scheme claim for furloughed staff must be paid and cannot be subject to a time to pay arrangement. Again, this may not have been factored into many businesses’ cash flow projections.
VAT
As part of its coronavirus business support measures, the government also allowed payments due between 20 March and 30 June 2020 on VAT returns to be deferred until 31 March 2021. HMRC clearly stated at the outset that it would not charge interest or penalties on any amount of deferred under this VAT return payment deferral scheme. Last week, HMRC confirmed that the easement will stop as planned on 30 June, ending speculation that the deferral might be extended into a second cycle of quarterly VAT return periods. Although HMRC has also been willing to assist businesses who asked for extra time to settle VAT assessments issued by HMRC officers, those liabilities remain subject to interest.
Self-employed taxes
Many self-employed individuals who have applied for and received a self-employment income support scheme (SEISS) payment may not be aware that the payment is taxable. The payment is referred to as a grant and, although HMRC guidance states it must be declared on the recipient’s tax return, there is a concern that many individuals will not have understood that income tax and NICs liabilities may arise on the payment, and that they need to budget for payment of those liabilities - possibly as late as 31 January 2022.
Qualifying individuals under SEISS still have until 13 July 2020 to make an application for the first taxable grant which could be worth up to £7,500 in total, depending on previous income levels. The government recently announced an extension to the grant, allowing a further grant worth up to £6,570. Applications for this second grant, which is completely independent of the first one and will again be taxable, open in August.
Home >Articles > Covid-19: it pays to understand the small print
Covid-19: it pays to understand the small print
With the coronavirus restrictions biting hard, many businesses turned to the financial assistance made available by the government. But there are concerns that not all have fully understood the terms and conditions that apply.
HMRC’s approach to charging interest on tax paid late because of the coronavirus varies across the taxes. Businesses should make sure they have read and understood the small print.
PAYE and NICs
Following lockdown many businesses were struggling to meet their immediate costs and large numbers took advantage of the option to defer their PAYE and NIC liabilities for three months. At the time, it was not completely clear whether interest would be charged.
HMRC has belatedly clarified that PAYE and NIC payments that were deferred in March will be subject to interest at an annual rate of 2.6% from the date the payments were originally due. Interest is normally due on late payments of PAYE.
It is perhaps not surprising that HMRC would seek to charge interest on the full period, as it was always anticipated that this would be the case for any time to pay arrangements to spread this unpaid tax over a period from June. However, what was not clear was whether interest would be charged on the initial three-month grace period.
Unfortunately, many businesses may have wrongly assumed that the PAYE and NICs deferral would follow a similar format to the VAT deferral, which was interest free, so this confirmation from HMRC may come as an unwelcome shock.
In addition, HMRC has confirmed that amounts of PAYE and NICs in relation to a coronavirus job retention scheme claim for furloughed staff must be paid and cannot be subject to a time to pay arrangement. Again, this may not have been factored into many businesses’ cash flow projections.
VAT
As part of its coronavirus business support measures, the government also allowed payments due between 20 March and 30 June 2020 on VAT returns to be deferred until 31 March 2021. HMRC clearly stated at the outset that it would not charge interest or penalties on any amount of deferred under this VAT return payment deferral scheme. Last week, HMRC confirmed that the easement will stop as planned on 30 June, ending speculation that the deferral might be extended into a second cycle of quarterly VAT return periods. Although HMRC has also been willing to assist businesses who asked for extra time to settle VAT assessments issued by HMRC officers, those liabilities remain subject to interest.
Self-employed taxes
Many self-employed individuals who have applied for and received a self-employment income support scheme (SEISS) payment may not be aware that the payment is taxable. The payment is referred to as a grant and, although HMRC guidance states it must be declared on the recipient’s tax return, there is a concern that many individuals will not have understood that income tax and NICs liabilities may arise on the payment, and that they need to budget for payment of those liabilities - possibly as late as 31 January 2022.
Qualifying individuals under SEISS still have until 13 July 2020 to make an application for the first taxable grant which could be worth up to £7,500 in total, depending on previous income levels. The government recently announced an extension to the grant, allowing a further grant worth up to £6,570. Applications for this second grant, which is completely independent of the first one and will again be taxable, open in August.
