Category: Personal Tax

Coronavirus: Help for the Self-employed

Expanding the UK Government’s measures to protect people and businesses from the economic impact of coronavirus, the Chancellor now focused on self-employed individuals (including members of partnerships) whose incomes have suffered.

The Self-employment Income Support Scheme, announced on 26 March 2020, will come as a welcome relief to those in self-employment, who comprise 15.3% of the UK’s workforce. The new scheme will cover 95% of those who are self-employed.

Under the scheme, a grant will be provided to self-employed individuals or partnerships, worth 80% of their profits up to a cap of £2,500 per month. This brings parity with the Coronavirus Job Retention Scheme, announced by the Chancellor last week, where the Government committed to pay up to £2,500 each month in wages of employed workers who are furloughed during the outbreak.

Second lump sum for self-employed [29/05/2020 UPDATE]
The Chancellor has announced a second and final grant to the self-employed who are eligible for the Self-employment Income Support Scheme (SEISS), based on 70% of earnings and capped at £6,570.

HMRC has confirmed the same eligibility criteria will be used to establish self-employed individuals’ entitlement to a further SEISS grant; the grant will be 70% rather than 80% of average earnings for three months and the maximum amount will be capped at £6,570, down from the £7,500 for the first grant. Applications will open in August and HMRC expects to publish further guidance on 12 June. As with the first claim, the second claim has to made by the taxpayer and cannot be made by agents.

QUALIFYING FOR THE SCHEME

  • Self-employed or a member of a partnership
  • Lost trading or partnership trading profits due to coronavirus (Covid-19)
  • Filed a Tax Return for 2018-2019 as self-employed or a member of a trading partnership
    • Eligible individuals who have not yet submitted 2018-2019 Tax Returns will have another four weeks to file in order to become eligible for this scheme (at time of writing a deadline of 23 April 2020).
    • Not applicable to anyone who started trading in 2019-2020.
  • Traded in 2019-2020 and were trading up until the point of application (or would be except for coronavirus)
  • Intend to continue to trade in the tax year 2020-2021
  • Trading profits of £50,000 or less and more than half of your total income come from self-employment. This can be with reference to at least one of the following conditions:
    • Trading profits and total income in 2018-2019
    • Average trading profits and total income across up to the three years between 2016-2017, 2017-2018 and 2018-2019.

We are doing everything we can to help our business community. If you would like to discuss how the changes or the coronavirus pandemic may affect you or your business, please do not hesitate to contact us on 020 8952 7717 or use our online enquiry form.

Negotiating time to pay with HMRC

HMRC has published details of the specific helpline to contact, but it’s not known whether HMRC will change its usual approach to time to pay, for taxpayers who are having difficulty paying.

The following usually needs to be considered when negotiating time to pay with HMRC.

WHEN TO MAKE CONTACT – In general it is advisable to contact HMRC as soon as difficulty making payment is expected. However, HMRC’s systems do not easily facilitate setting up a payment arrangement too far in advance, so the best time to phone HMRC is usually one to two weeks in advance of the due date for payment.

MAKE SURE RETURNS ARE UP TO DATE – HMRC is more amenable to agreeing time to pay if returns are up to date and the correct liability has been established.

CASH FLOW FORECASTS AND BUDGETS – Before phoning HMRC it is advisable to have financial forecasts and a statement of assets and liabilities available. HMRC will expect the taxpayer to make the best offer they can and will not usually make suggestions about the amount it will accept as a regular payment.

HMRC STAFF AUTHORITY TO AGREE TIME TO PAY – HMRC will usually expect to set up a regular monthly payment plan with collection by direct debit. Most HMRC debt management contact centre staff have authority to agree time to pay over a period of up to 12 months. Longer periods can be arranged but usually need to be escalated to more senior HMRC staff.

EXPECT ROBUST QUESTIONING – We don’t know to what extent HMRC staff will be more sympathetic to requests for time to pay in the current environment but in normal circumstances negotiating time to pay can involve what feels like personal and intrusive questioning. It is important to make HMRC aware of all information which might be relevant to the payment difficulties, as calmly and professionally as is possible in what may well be extremely difficult circumstances.

NO AGREEMENT MAY BE BETTER THAN AN UNAFFORDABLE AGREEMENT – It is often better to conclude a phone call to HMRC having failed to reach an agreement than to agree to an arrangement which the business can’t afford. If a time to pay agreement is not kept to it is difficult to get HMRC to reestablish it and HMRC will be more reluctant to make agreements in the future. If circumstances change it is advisable to contact HMRC, before missing any payments, to renegotiate the arrangement. If a formal time to pay arrangement cannot be reached it is usually advisable for the taxpayer to pay what they can when they can as this shows willingness to pay and may delay further enforcement action by HMRC (this approach may not be appropriate if insolvency is likely and further advice should be sought in this situation).

FUTURE TAX LIABILITIES – A standard term of HMRC time to pay agreements is that future tax liabilities are paid in full as they fall due. Where this is not possible it is necessary to contact HMRC again to renegotiate the arrangement to include the new debt. HMRC is often reluctant to agreed repeated requests for time to pay but may be more amenable in the current situation.

WHICH DEBTS TO PRIORITISE – HMRC is usually more willing to consider agreeing time to pay for profits based taxes such as income tax and corporation tax than for taxes such as VAT and employees’ PAYE and national insurance contributions, which businesses are effectively collecting on behalf of the exchequer. The usual advice is to prioritise paying VAT and employer liabilities as HMRC pursues these more actively. We don’t yet know whether this will change in the current situation; there has been some speculation that the Government may be minded to focus assistance on VAT and employer liabilities but no announcement has been made.

LATE PAYMENT PENALTIES – An advantage of a formal time to pay arrangement is that late payment penalties will not be charged if the arrangement is in place at the trigger date for the penalties. We don’t yet know whether HMRC will be more willing to waive late payment penalties in the current situation but the helpline page suggests that the cancellation of penalties will at least be explored.

INTEREST – In normal circumstances HMRC does not waive interest unless the delay in making payment is somehow directly attributable to HMRC. We don’t yet know whether HMRC will be more willing to waive interest in the current situation but the helpline page suggests that the cancelling of interest will at least be explored.

ALTERNATIVE WAYS TO CONTACT HMRC – As well as the COVID-19 helpline HMRC has regular payment helplines. Large businesses with a customer compliance manager should contact that individual. If the debt is a result of a compliance check any anticipated difficulty with making payment should be discussed with the compliance officer, ideally before reaching final settlement.

We are doing everything we can to help our business community. If you would like to discuss how the changes or the coronavirus pandemic may affect you or your business, please do not hesitate to contact us on 020 8952 7717 or use our online enquiry form.

Offshore Income: in the Firing Line of the Worldwide Disclosure Facility

As predicted, HM Revenue & Customs (HMRC) has started firing, quite unpredictably, Certificates of tax position concerning offshore income or gains. In the firing line are taxpayers who the revenue believes have not correctly disclosed their worldwide income to HMRC. The requirement for a UK resident to disclose and pay tax on all overseas income and gains is age-old, but was often overlooked: clouded by the murky waters that separated national tax positions. Now the gunpowder, or information source, are the Common Reporting Standards (CRS), a commitment by over 100 countries to exchange taxpayer information on a multilateral basis and increase international tax transparency.

Past, Present or Future?

Taxpayers are being encouraged to use HMRC’s Worldwide Disclosure Facility (WDF) to come clean and disclose their non-UK income and assets, including additional tax liabilities together with penalties and interest. This could include income arising from a source outside the UK, assets situated or held outside the UK or activities carried on wholly or mainly outside the UK. The challenge can surmount to a daunting prospect for wealthy individuals with global, inter-connected and complex tax affairs. The declaration will affect not only past, but also future tax liabilities.

As part of the disclosure, made via the online Digital Disclosure Service, the taxpayer also needs to self-assess his or her behaviour, ranging from “careless” to “deliberate and concealed”. This self-assessment is an integral part of disclosure that determines the penalties applied and whether further action is warranted. Understanding the spirit of the Requirement to Correct (RTC) legislation is therefore crucial, for mis-reporting could compound the already very penile penalty rate, equivalent to 200% of the tax liability which should have been disclosed to HMRC under the RTC but was not. Rather frightfully, HMRC reserves complete discretion to conduct a criminal investigation in relation to the disclosure, whether it appears to be complete or incomplete.

The inevitable question arises: how much does HMRC now know, or rather, not know.

Tax investigations can be stressful if you are going it alone and most often merit professional advice. Our team of advisors in North West London is here to help. 
Contact Mouktaris & Co Chartered Accountants
to ensure that you report correctly and avoid the potential repercussions, of getting it wrong.

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