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COVID-19: Exit & Recovery for UK Businesses & Taxpayers (Part 1)

21/04/2021

In this ‘part 1’ blog post we highlight what businesses and taxpayers need to be aware of when it comes to the UK Government’s plans to exit and recover from the adverse impacts of the COVID-19 pandemic.

Further help from the UK Government

The UK Government recognised in the recent Budget that further help was needed for businesses and taxpayers to start the exiting and recovery from the continuing dire impact of COVID-19. The Governmental help comes in the form of short-term help and boosting investments.

Before outlining the proposed Governmental help to UK businesses and taxpayers, let us look at just one factor which identifies why such help is desperately needed namely the UK tax debt i.e. what is owed to HMRC by UK taxpayers?

Currently, the debt owed to HMRC by UK taxpayers is reported as £65.56bn which is nearly treble the amount of debt owed to HMRC for 2019 which stood at £19.36bn. From this you can see just one of the reasons for the continual UK Government’s help! Also, it will be interesting to see how HMRC reacts to collecting this record amount of tax debt.

The usual HMRC, some would say, heavy handed response to collecting their debt as preferential creditors namely issuing petitions to wind up businesses so that at least the HMRC debt is recovered either in full or part to the detriment of the other creditors may not be the best way forward. HMRC may be required, going forward, to work with corporate restructuring professionals to find ways of recovery for those UK businesses adversely affected by COVID-19.

What is the announced latest UK Government’s help to UK businesses?

It must be said that the Government’s help as announced in the recent Budget although welcomed by UK businesses is short-term and is primarily extensions to previous and well documented financial assistances. However, they are summarised as below.

Value Added Tax (VAT)

The deferred payments scheme extended for up to three months and the reduced VAT rate for the accommodation and hospitality business sector remains at 5% until 30 September 2021 when the reduced rate increases to 12.5% until 31 March 2022.

Self-Employment Income Support (SEISS)

There are to be two more SEISS grants. The fourth grant to cover the adverse impact of COVID-19 on the business during the period February to April 2021. There is also to be a fifth SEISS grant to cover the adverse impact of COVID-19 on the business during the six months period from May to September 2021 but the SEISS payout will be calculated for a maximum of a period of three months.

Coronavirus Job Retention Scheme (CJRS)

The CJRS is being extended to 30 September 2021.

Stamp Duty Land Tax (SDLT)

The nil rate band is to be maintained for SDLT transactions valued up to and including £500k until 30 June 2021 and for SDLT transactions valued at up to and including £250k until 30 September 2021.

Business Rates for eligible retail, hospitality & leisure properties

The recent Budget confirmed that the existing 100% business rate relief will continue until 30 June 2021. A 66% business rate relief will then apply for the period from 1 July 2021 to 31 March 2022 with a cash cap as to £2m per business for properties that were required to be closed on 5 January 2021 and £105k per business for other eligible properties.

Custom Duties

Fuel duty rates to remain frozen and alcohol duty rates to be frozen for a further year.

What else did the UK Government announce in the budget to assist UK businesses?

Encouraging investment by UK trading companies

The recent Budget introduced what is referred to as a ‘super-deduction’ for companies (not partnerships or self-employed individuals) investing capital in their businesses for ‘new’ plant & machinery (excludes the investment in the capital cost of cars, operating leases and second-hand plant etc.). The super-deduction amounts to a claim for tax relief at 130% of the cost of the qualifying plant etc. that would be entitled to the main writing down allowance rate (18%) for capital allowances and 50% relief for special writing down allowance rate (6%) capital allowances — the special 6% capital allowances rate usually applies to plant integral to a business property or long life (plant with an economic life of at least 25 years). The Government hopes that the ‘super deduction’ will encourage UK companies to invest in the UK economy to improve infrastructure, technology, and workers’ skills. However, if you claim the 130% relief then the proceeds from the sale of that piece of plant will be increased by the multiple of 1.3 and taxed as a separate taxable receipt.

Smaller UK companies need to do their sums as to whether this ‘super-deduction is worth advancing their capital plant investments as given that they may already be entitled to the 100% Annual Investment Allowance. Also, not forgetting that the Government intends to increase the current 19% Corporation Tax rate to 25% Corporation Tax rate from 1 April 2023 – then it may be that the enhanced super-deduction relief will be given at today’s lower Corporation Tax rate but the proceeds from the disposal of the plant that qualified for the 130% super-deduction will be taxed at the higher Corporation Tax rates. Keeping in mind that such sale proceeds are uplifted by the multiple of 1.3 and then taxed as a separate taxable receipt.

Advancing tax relief for losses

Following pressure from the various professional bodies, the Government has agreed that trading tax losses incurred by UK businesses (this time it includes companies, partnerships, and self-employed individuals) for the accounting periods ending after from 1 April 2021 can be relieved by being carried back and set against taxable profits for the previous three years.

This should enable tax relief for losses to be obtained much sooner than by having to carry forward the loss for offset against future taxable profits. There is an annual £2m cap for the loss that can be carried back per taxpayer or a £2m annual loss cap for a group of companies.

Here at HaesCooper, we have experience working with small, medium, and large businesses. To learn more or for advice, contact us.