U.K. lawmakers continued to challenge HM Treasury on the scope of support schemes intended to help individuals and businesses deal with the economic impact of COVID-19.
Separately, the government confirmed that it will relax the statutory residence test, while tax professionals reminded businesses wishing to defer VAT payments to cancel their VAT direct debits.
During an April 29 evidence session, Mel Stride, chair of the House of Commons Treasury Committee, urged the government to consider extending the coronavirus job retention scheme (CJRS) to dividends received by company directors.
HM Revenue & Customs Chief Executive Jim Harra had told the committee on April 8 that dividends received by the owner-manager of a company would not qualify for the CJRS grant. HMRC has no way of identifying whether dividends are received in lieu of wages or as a return of capital, he said. “That’s been a difficult issue to work through, and we’ve not been able, in the time scale, to come up with a design that would enable us to top up the furlough payment for those people beyond 80 percent of their wages,” Harra added.
“The government has certainly come forward with economic support in a bold, wide-ranging, very quick fashion,” Stride said as he opened the April 29 hearing. “But inevitably, in those circumstances, there are hard edges.”
Stride asked Chief Secretary to the Treasury Stephen Barclay whether he thought it was unsatisfactory that owner-managers are “disadvantaged” by the exclusion of dividends.
“You’re right to say there is a trade-off between the pace and the operational delivery issues that Jim Harra drew the attention of the committee to,” Barclay said.
Barclay went on to remind the committee of the scale of the support packages. The CJRS launched on April 20 has protected over 4 million jobs, he said. “Where someone does not qualify for one scheme, there are other measures which apply. . . . There is a distinction in treatment of dividends in principle — in the way they are addressed in the tax system — but there’s also a difference in practice [that] Jim Harra was drawing the committee’s attention to when he said it was very difficult to roll this scheme out [at speed] whilst also trying to address how you tell what is investment income and what is linked to earnings,” Barclay added.
Beth Russell, Treasury's director general for tax and welfare, told the committee that in order to deliver the support schemes quickly, “we’ve had to build new systems which match information that comes from a claimant” to information already held on the HMRC system. “Obviously, in [the case of dividends] we don’t have that information. We are looking at proposals where the money is paid out on a claim, and not verified upfront . . . [but] if we did do this, it would have to be a separate scheme, very different to the ones already in place, and would take far longer to set up,” she said.
“Income from dividends is a return on investment in the company, rather than wages, and is not eligible for support,” Financial Secretary to the Treasury Jesse Norman said in a parliamentary written answer on April 29. “Under current reporting mechanisms, it is not possible for HMRC to distinguish between dividends derived from an individual’s own company and dividends from other sources, and between dividends in lieu of employment income and as returns from other corporate activity. Expanding the scope would require HMRC to collect and verify new information. This would take longer to deliver and put at risk the other schemes which the government is committed to delivering as quickly as possible.”
Residence Test Relaxed
The government “warmly welcomes the expertise and resources offered by those who wish to come to the U.K. to combat the coronavirus, from anaesthetists through to engineers working on ventilator design and production,” Norman said in an April 29 written ministerial statement. “However, the actions and presence of these individuals in the U.K. could inadvertently and unfairly affect their own tax residence status, and potentially deter others from giving their assistance.”
The government will legislate in the finance bill to amend the statutory residence test — a complex set of rules contained in schedule 45 to the Finance Act 2013 — to ensure that “any period(s) between March 1 and June 1, 2020, spent in the U.K. by individuals working on coronavirus disease-related activities in specified sectors will not count towards the residence test,” Norman said. The change was set out by Chancellor of the Exchequer Rishi Sunak in an April 9 letter to the House of Commons Treasury Committee.
HM Revenue & Customs has already indicated in an update to its Residence, Domicile and Remittance Basis Manual that days spent in the United Kingdom because of COVID-19-related self-isolation or travel restrictions may be disregarded in some situations. “Whether days spent in the U.K. can be disregarded due to exceptional circumstances will always depend on the facts and circumstances of each individual case,” HMRC says at RDRM11005.
VAT Deferral
A U.K. VAT-registered business that has a VAT payment due between March 20 and June 30 may defer the payment until a later date (on or before March 31, 2021), HMRC said in guidance updated on April 27, adding that it will not charge interest or penalties on any amount deferred as a result of Sunak’s March 20 announcement.
The guidance sets out the VAT payments that can be deferred. Businesses that normally pay VAT by direct debit are advised to “cancel your direct debit through your bank as soon as possible so that HMRC will not automatically collect any VAT due.”
“Businesses wishing to take advantage of the deferral should cancel any direct debits as soon as possible, and ideally five working days before the filing date of the return. The next due date for monthly and quarterly VAT returns is May 7, 2020, which is not far away,” the Chartered Institute of Taxation said in an April 29 release. May 7 is the filing date for the VAT quarter that ended on March 31.
“Hundreds of thousands of businesses will be getting their [CJRS] grants this week — but they should not forget about the other government help which can assist cash flow in a time when financial pressures are high,” said John Cullinane, CIOT's tax policy director.