Cash remains king even with COVID-19, so minimise current tax leakage

7th April 2020

COVID-19 has presented charities and other NFP entities, particularly those in business, with a number of, currently unanswerable, questions: How long will the lockdown last? How will the lockdown be relaxed? Will my customers still be in business? Will my customers and tenants be able to pay? Will my supply chain still be intact? What will the economic environment look like? What will ‘normal’ look like afterwards? However, despite these unknowns, the old adage ‘cash is king’ has never been more important than now.

This pandemic will end, and when it ends you will need to be solvent to take advantage of the opportunities that will arise. For those that have cash constraints, cash leakage mitigation strategies should already have started, because once the cash has gone, it’s gone. However, it is not too late to start.

In this article we look at some of the ways to minimise cash leakage from tax and our recent experiences which can help your charity remain financially fit for the recovery.

HMRC COVID-19 helpline

HMRC has set up a new dedicated COVID-19 helpline (0800 024 1222 or 0800 0159 559) to assist any business or self-employed individual providing advice, support and agreeing tax instalment arrangements.

Lengthy delays have been experienced calling the helpline and, our experience is, it is taking approximately one hour to speak with a call handler. If you are looking to discuss a tax liability with HMRC, please make sure you have the following information to hand:

  •  CT reference number
  •  VAT reference number
  •  PAYE reference number
  •  PAYE accounts office reference number
  •  UTR number for self-employed individuals
  •  Bank account number and sort code for the tax payment/direct debit

You will only require the references if you need to discuss each separate tax. HMRC are just as receptive to requests/pleas from the taxpayer as they are from their agents.

Instalment arrangements should be agreed in advance of the payment due date(s) in order to avoid late payment penalties; these are separate from interest charges. Ensure all returns are submitted to HMRC prior to the due date and at least 24 hours in advance of your call.

HMRC has been very understanding of the circumstances and have agreed for some of our clients to defer tax payments for a month or two, and instalment plans for up to 12 months. HMRC’s scope for agreeing instalment plans is constantly evolving.

VAT deferral and Time to Pay (TTP) arrangements

Following recent discussions between haysmacintyre and HMRC in relation to the practicalities of the VAT deferral period and paying the corresponding accumulated liability by 31 March 2021 (the end of the tax year), we understand that HMRC aims to contact those with a deferred VAT liability (as accumulated in the period 20 March 2020 to 30 June 2020) in mid-June to agree a payment plan.

The payment plan will cover weekly or monthly payments to clear the liabilities by 31 March 2021. The deferral does not allow the liabilities accumulating in the period to 30 June 2020 to be paid at the end of the 2020/21 tax year. HMRC are planning to contact those affected by telephone or letter.

Importantly, HMRC is aware that the current deferral advice may change and, therefore, will not set up TTP arrangements at this time.

It should be noted there are already a number of phishing/fraud attempts and therefore please be on guard and take the necessary steps to ensure all communications from HMRC are genuine.

Cancel that VAT direct debit 

Although HMRC has made temporary changes to allow the deferral of VAT due between 20 March 2020 and 30 June 2020, you will still need to submit your VAT return on time. If you pay your VAT by direct debit it is best to cancel it and set it up again after the deferral period as it is likely that HMRC will still be taking direct debits.

PAYE deferral and TTP arrangements 

We understand that, whilst HMRC’s COVID-19 helpline can currently provide a PAYE deferral to June 2020, it cannot provide TTP arrangements at this time. That said, once the PAYE end of tax year filings have been processed by HMRC (after 5 April 2020), should you require a payment plan you can contact the Payment Support Service (0300 200 3835) on Monday to Friday between 08:00 and 16:00.

HMRC guidance and advice is ever evolving but the key message is, if you are unable to settle a tax liability on time, contact HMRC before the liability becomes due for payment. We are finding HMRC to have been receptive to genuine cases of financial stress. Failing to communicate with HMRC in advance will result in penalties, in addition to interest.

In conclusion

The tax reliefs discussed above are deferrals, not grants, and therefore will need to be paid in the future. Accordingly, these payments will need to be factored into  the organisation’s cashflow in the coming financial year. Good cashflow projection will be just as important then, as it is now.

For more information, please contact your usual haysmacintyre advisor or Danielle Ford.

Danielle Ford

Partner, Head of Tax Disputes & Resolutions
+44 20 7969 5591
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