Extension to furlough
The Chancellor, Rishi Sunak has announced that the furlough scheme – which pays a grant equivalent to 80 per cent of employees’ wages for the hours they cannot work in the pandemic – will continue until 30 September of this year. Employers will be required to contribute 10 per cent in July and 20 per cent in August and September, as well as employers’ NIC and pension contributions.
The Chancellor has outlined a three-point plan intended to support people through the months ahead but has warned of challenging economic times to come.
Support for the self-employed
Self-employed workers will also receive support from a fourth grant from the Self-Employment Income Support Scheme. This will be available to claim from April and will be worth 80 per cent of three months’ average trading profits up to £7,500.
Support for the self-employed will also continue until the end of September, with a fifth and final grant. Those whose turnover has fallen by 30% or more will receive the full 80 per cent grant, while those with a fall below this level will receive 30 per cent. It is estimated that a further 600,000 people will be able to claim the fourth and fifth grants provided they filed their 2019/20 tax returns by the deadline.
Enterprise Management Incentives share option schemes
This measure, which was previously announced, and has now been extended, ensures that individuals who are furloughed or who have had their working hours reduced below the current statutory working time requirement for EMI purposes as a result of COVID-19 will retain access to the scheme’s favourable tax advantages. This will apply to existing participants as well as in circumstances where new EMI share options are granted. Without this specific measure – which will remain in place for the period up to 5 April 2022 – individual option holders would have failed to satisfy the minimum working hours requirement of 25 working hours per week and would thereby have become disqualified from the scheme.
Five per cent VAT rate extension
As expected, the temporary five per cent VAT rate for the hospitality and leisure sector has been extended. The rate cut was due to end on 31 March 2021 but will now be extended until September 2021. At that point, and with a view to easing those businesses back to the 20 per cent VAT rate, there will be a reduced VAT rate of 12.5 per cent until 31 March 2022. Users of the flat rate scheme will also be able to take a proportionate benefit of the 12.5 per cent rate.
Whilst the VAT rate cut will be welcomed, the changes in rates will undoubtedly give rise to compliance issues for businesses having to deal with multiple VAT rates in a relatively short space of time.
The current VAT registration and deregistration thresholds (£85,000 and £83,000 respectively) will remain the same until 31 March 2024, to give small businesses certainty.
With effect from 1 April 2022, Making Tax Digital (MTD) will apply to all VAT registered businesses with a turnover below the current threshold of £85,000. Currently, those businesses are not required to submit VAT returns via MTD or to keep digital records. This will be an additional burden to those small businesses who may have to incur costs to comply with the MTD rules.
Home-office expenses extension
There is also an extension to the temporary Income Tax and National Insurance Contribution exemption for home-office expenses.
This extension will mean that employees can continue to purchase the office equipment necessary for them to work from home and receive employer reimbursement without incurring Income Tax and NICs consequences. Previously, reimbursed expenses for home equipment such as laptops, desks or other necessary computer accessories would have been liable to Income Tax and NICs.
The exemption was due to end on 5 April 2021 but will now be extended to have effect until 5 April 2022 considering the ongoing impact of the pandemic.
Tax deductibility for repayment of coronavirus support
Legislation will be introduced in Finance Act 2021 so that a business that makes a payment to a public authority to repay coronavirus support or relief, may claim an Income Tax or Corporation Tax deduction equivalent to the quantum of that payment.
The measure seeks to provide neutrality by allowing a deduction in the same accounting periods as the original liability would have been due and paid. The quantum will be limited to the original liability.
To be eligible, a business must have had a liability which would have been deductible in calculating the profits of the business for Income Tax or Corporation Tax purposes had the liability not been removed through coronavirus support or relief. The reason for the original liability being removed must be for a purpose of supporting business in connection with coronavirus by a public authority. Once passed into legislation, the provision will be applied retrospectively.
If you have any questions regarding the above, please contact a member of the Mercer & Hole team. We are here to help you and your business.