In The News
Article Date: 17 March 2020
The medical opinion seems to be forecasting that more and more people self isolate in the coming weeks as the world struggles to cope with the virus.
Along with many other staff, I am now grounded at ASE with virtually no clients willing to allow us to attend audits / hold meetings. Lord knows how businesses will be expected to go about their normal activities in the coming days and I suspect that at some point in time this will decimate many businesses including those involving car sales if customer contact is limited to virtually nil, if it already has not done so.
With a possible downturn in trading, the way in which tax is both determined and collected will need to be reviewed carefully by all businesses. There are a number of simple rules (excluding any and all of the measures that HMRC introduce to assist in these difficult times).
Companies have three principal taxes to consider.
Corporation Tax for the accounting period recently closed (for example 31 December 2019) is payable 9 months and 1 day after the end of the accounting period. If it is clear that the company is trading at a loss in the following period, it is possible to utilise the loss from that period to offset the profits chargeable to tax in the earlier period by way of a carry back process.
The key to this is to make sure that the loss carry back is both genuine and known when the tax is due for the previous year.Accordingly, I have asked my colleagues to contact you in July 2020 to investigate how the business has performed at the 6th month period. Subject to this review, and in order to eliminate all or part of the liability based upon the previous year results, a further review will be scheduled for late September.
When tax is not paid but where it otherwise would be due, HMRC will charge interest for late payment adding to the overall burden. Accordingly, working with you, we hope we can give you the best possible advice to determine whether the tax can be legitimately set aside.
The other two taxes that face a company are PAYE and VAT.
It would be reasonable to assume that HMRC will be required to offer considerable flexibility with regard to the collection of these taxes if trading conditions deteriorate.
Importantly, both taxes are capable and are very often settled on “time to pay” terms but equally it is also true to state that HMRC tend to regard non-payment of VAT as a more serious issue because VAT is tax paid by a customer in which the company acts a collector of taxes.
If either of these taxes are likely to cause you difficulty please do not hesitate to contact my colleagues in order that we can assist you in arranging a time to pay arrangement.
Individuals who own businesses have three issues to consider in tax terms.
Firstly, dividends which are undoubtedly more tax efficient than salary, are subject to repayment by the shareholder if the company has insufficient funds to meet its obligations.
Dividends paid within the last 24 months are subject to recovery.
I would expect HMRC to require shareholders to consider the statutory requirements of dividend legislation alongside any “time to pay arrangements” that might be authorised.
Secondly, overdrawn directors loan accounts, whether or not s455 tax has been paid or otherwise, are also subject to repayment by the shareholder if the company has insufficient funds to meet its obligations.
I would also expect HMRC to require shareholders to consider the full repayment of overdrawn loan accounts alongside any “time to pay arrangements” that might be authorised.
Thirdly, on 31 July 2020, the second instalment of self-assessment tax will be due. Between the submission of the 2018/19 tax return and this date many things may have changed such that income expectations for the tax year to 5 April 2020 may be substantially revised.
Taxpayers are able to contact HMRC to reduce payments on account due on 31 July 2020 to reflect changes in circumstances.
Where tax is not paid where a taxpayer has self-assessed a revised liability, HMRC will charge interest and penalties if the self-assessed adjustment is incorrect. Accordingly, if this might be an issue for you to consider, we can work with you to give you the best possible advice to determine whether the tax can be legitimately set aside.
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