PH COVID-19 Client Alert Series: U.K. Tax Implications
Arun Birla, Jiten Tank, Hannah Gray & Abigail Hung
The U.K. government continues to announce intervention and assistance measures to help businesses and individuals deal with the impact of COVID-19 on the U.K. economy. The continued disruption to worldwide travel will mean that various businesses will need to consider not only the human impact, but the economic impact on their businesses. In this article, we set out a few of the key tax considerations and government measures intended for businesses (and individuals where relevant) at this time.
Tax Payment Deferrals
Time to Pay Scheme
HMRC’s Time to Pay scheme allows businesses and individuals to set up payment plans and agree to deferred payments with HMRC where they are under financial distress and unable to meet their tax liabilities. HMRC has established a specific COVID-19 helpline and will discuss issues on a case-by-case basis in order to support those in need.
Last week the U.K. government announced a deferral on VAT payments for all U.K. businesses for the next quarter, until 30 June 2020. The offer is automatic with no applications required. For liabilities that accumulate during this deferral period, taxpayers will have until the end of the 2020 to 2021 tax year to pay. VAT refunds and reclaims will be paid by the government as normal.
It remains to be seen whether the government will also defer deadlines for VAT returns (a measure which some other European countries have already announced).
Income Tax Payments
For all self-employed individuals, income tax payments due on 31 July 2020 will be deferred until 31 January 2021. Again, no application is required as the offer will apply automatically. The government confirmed that no penalties or interest would be charged for late payment owing to the deferral period.
Business Rates Relief
All retail, hospitality and leisure businesses in England and Scotland are now subject to a business rates holiday for the 2020/2021 tax year. Certain businesses which qualify for small business rates relief will also be entitled to small business grants from their local authority.
Non-U.K. Company Directors
A company may be considered U.K. tax resident if: (i) it is incorporated in the U.K.; or (ii) it is incorporated outside the U.K. but its central management and control is deemed to be in the U.K. A company that has dual residency between the U.K. and a jurisdiction with which the U.K. has a double tax treaty will usually be subject to a tie-breaker test to determine which authority has the taxing right. Where there is no double tax treaty, a non-U.K. resident company which is deemed to be resident in the U.K. may be subject to U.K. tax.
Non-U.K. resident companies should take care to ensure that they try to avoid inadvertently affecting their tax residency. Whilst travel restrictions remain strict across the world, and directors of non-U.K. resident companies may be in the U.K., there is a risk that the central management and control of the non-U.K. resident company may be considered to be in the U.K. Similarly, U.K. companies that have directors who are currently residing abroad and unable to travel for meetings should also consider the potential local law guidelines on tax residency.
As the length of time for which non-essential travel will be inadvisable is not certain, but likely to be a considerable amount of time, businesses should put in place contingency plans for how best to protect their business from any residency concerns. Things to consider for non-U.K. resident companies include: (i) whether it would be prudent to postpone meetings and avoid directors in the U.K. from making any strategic business decisions at this time; (ii) whether the relevant U.K. director is required for such a meeting; or (iii) whether a proxy could be appointed.
Where these measures may not be possible, best practice would be to ensure that only a minority of the directors participate from the U.K. via telephone conferencing (or other means of communication) and that the meeting is initiated from outside the U.K.. In addition, all board minutes should be taken and kept outside the U.K., and evidence as to why it was necessary for the director to attend via telephone conferencing from within the U.K. should be retained by the non-U.K. resident company.
Ultimately, whilst there is no official guidance on what to do in these unprecedented circumstances, determination as to where the central management and control of a company is will depend on the specific facts and circumstances in question – which we anticipate should include an analysis of the historic pattern of the non-U.K. resident company over time and not just what may occur in the coming days or weeks.
U.K. Statutory Residency Test
The U.K. has a Statutory Residency Test which allows individuals to work out their residence status for a tax year. The Statutory Residency Test takes into consideration different factors; generally, consideration is placed on: (i) the number of days an individual spends and, where relevant, works in the U.K.; and (ii) the connections that that individual has with the U.K.
As set out above, given the strict travel restrictions that many governments have imposed, individuals may find themselves in a situation where they are approaching the maximum number of days they may be present in the U.K. before they are considered resident in the U.K. for tax purposes. However, the Statutory Residency Test does allow an individual's U.K. day count to be reduced due to “exceptional circumstances”, which would seem to apply in the current situation. Whether circumstances may be regarded as exceptional will depend on the facts and circumstances and also the choices available to the individual at that point in time. Note, however, the maximum number of days that can be discounted due to exceptional circumstances is 60 days.
With those professionals who are able to now advised to work from home, it is likely that firms will encounter increased difficulty and delays in practical areas of their business with a physically distant workforce and resources being redeployed into more business (and economy) critical areas where required.
As yet, no specific measures have been announced by the U.K. government on whether tax returns and other company administration will be subject to deferred deadlines or leniency from the authorities. We would expect that this will be considered in more detail in the coming weeks.