Category COVID-19 Updates

VAT Question Of The Week – COVID19: VAT Implications of Donated Goods

My limited company client’s normal business activity is the design, build and installation of seasonal in-store displays for retailers. They are unable to work in this field because of the Covid-19 restrictions. They are considering using their staff and resources, with support from crowd funding, to manufacture visors which would be gifted to the NHS. The visors will show the company logo. Will VAT need to be accounted for on the crowd-funded income? Will there be any input tax restriction in relation to the costs of producing the gifted items? The company has also applied for a Covid-19 business support grant; how should they treat this income if they get it?

VAT Act 1994. Section 4, is the legislation which provides the points to be consider in deciding whether a transaction falls within the scope of VAT,

4(1) VAT shall be charged on any supply of goods or services made in the United Kingdom, where it is a taxable supply made by a taxable person in the course or furtherance of any business carried on by him.
4(2) A taxable supply is a supply of goods or services made in the United Kingdom other than an exempt supply.”

Section 5 goes on to provide that for there to be a supply of goods or services, there needs to be “consideration”. This can be in the form of money or indeed barter where the customer itself supplies goods or services to the supplier as payment.

In this case my client has two forms of income to consider: the crowdfunding and the Covid-19 Grant. In both instances my client is receiving income but in neither case is there a supply of goods or services to the person making the payment; neither the grant nor the crowdfunding income is within the scope of VAT. Please see last week’s VQOTW for more on the receipt of grants and when they may be consideration for a supply.

https://www.cronertaxwise.com/community/vqotw-covid-19-small-business-grants/

The visors produced will be donated to the NHS. It is possible to see the costs incurred in producing the visors in 2 different ways: –

The first is that the costs incurred have no business purpose. Strictly speaking entitlement to VAT recovery depends on the application of that cost to a taxable business purpose; thus, non-business activity could be seen to restrict recovery of input tax on both the directly related costs, and a proportion of overheads.

The second, and arguably more reasonable, way to see this is that the equipment is being given away as business gifts. The business logo is being shown on the visor, and while not the primary rider, this will show the business in a good light. Under business gift rules, input tax is recoverable in full, and if the total cost to the supplier of all the gifts to one person does not exceed £50 in any 12-month period there is no requirement to account for output tax. Output tax on the cost value of the gifts will be required to be accounted for if the cost of gifts to one person does exceed £50 in any 12-month period. See VAT Notice 700/7: Business Promotions, section 2 for full details. However, providing the NHS with a tax certificate (similar to a VAT invoice) may enable that VAT to be recovered by the NHS (700/7 paragraph 2.4).
HMRC have not, to date , provided any guidance on PPE products being given away in such circumstances, but it seems likely that they will take a pragmatic view of the recovery of related input tax.
If the NHS was receiving donated funds, and then purchasing the items using those funds, the supply of the goods would be zero rated under Schedule 8, Group 15, Item 5. Similarly, if my client personally raised the funds and then purchased the goods from the company to donate to the NHS the sale by the company to your client would be zero rated. Notice 701/6 provides detail on the supply of equipment for medical use and paid for by a charity or using donated funds.

 

Tax Question Of The Week – Self-Employment Income Support Scheme (SEISS) Grant

What happens if my sole trade made a loss in the 18/19 tax year will I still get access to the Self-employment Income Support Scheme (SEISS) grant?

The amount of grant that HMRC will pay to those claiming the SEISS is based on the average yearly trading profit in the 16/17, 17/18 and 18/19 tax years. The amount received will be 80% of the monthly average of the above up to a maximum of £2500 per month.

A loss making year will be treated as a year of negative profits rather than a year of zero profits for the purposes of the SEISS. This means the loss must be deducted from your profits in the period rather than treated as zero profits as it is until the losses are used.

Neither a brought forward loss nor the personal allowance will be deducted from the profits.

Please see the example below.

A sole trader has the following profits and losses for the 3 years and more than 50% of their income stems from self-employment.

  • £45,000 profit in tax year 2016/2017
  • £60,000 profit in tax year 2017/2018
  • £20,000 loss in tax year 2018/2019

First, add £45,000 and £60,000 then deduct £20,000 loss. This gives us a total of £85,000 and dividing this by 3 this gives us an average of £28,333. 80% of this would be £22,666.

The grant will be the LOWER of 80% of the average trading profit (here £1,889 which is £22,666/12) or £2,500 per month. Here the grant would be £1,889 per month as it is lower than £2,500 per month.

If the trade only commenced in the 17/18 or 18/19 years the average profits would be divided by the number of years of trading rather than by 3 years.

To be eligible for the SEISS grant, the self-employed profits must be no more than £50,000 but more than 50% of total taxable income for either:

  • The tax year 2018/19, or
  • The average of the tax years 2016/17, 2017/18 and 2018/19.

When applying the averaging test, trade losses are taken into account and the other personal income is also averaged.

COVID-19 Latest summary

UK Government financial support

The following provides a summary of the UK Government financial support packages that may apply to you.

Small Company Director

For these individuals, they normally pay themselves through a mix of PAYE and Dividends.

It is important to note that, at the current time, Dividends are not covered by any UK Governments financial support packages.

Coronavirus Job Retention Scheme

  • You will be able to contact HMRC for a grant to cover most of the wages of your PAYE part of your income if you decide to furlough yourself.
  • This will cover 80% of your usual monthly PAYE costs up to £2,500 a month, plus the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on that wage.
  • Grants are backdated to 1 March 2020 and the scheme is expected to be up and running by the end of April 2020.
  • If you furlough yourself, you are not able to provide services to or generate revenue for, or on behalf of your company. This could include tweeting from an official account or on behalf of the company. Also, you cannot make phone calls or discuss the firm or its business.
  • However, you will be able to perform your statutory directorial duties while furloughed. For example, relating to filing documents to Companies House at the correct time.

Coronavirus Business Interruption Loan Scheme

  • Launched Monday 23 March 2020
  • Eligible for UK based SMEs with turnover of no more than £45 million per annum (although all lending decisions delegated to the lending partners)
  • The business must have a borrowing proposal which the lender:
    • would consider viable, were it not for the COVID-19 pandemic
    • believes will enable you to trade out of any short-term to medium-term difficulty
  • It will be interest free for 12 months
  • Further details included in the separate Coronavirus Business Interruption Loan Scheme document

VAT payments

  • If you’re a UK VAT registered business and have a VAT payment due between 20 March 2020 and 30 June 2020, you have the option to:
    • defer the payment until a later date
    • pay the VAT due as normal
  • HMRC will not charge interest or penalties on any amount deferred as a result of this change.
  • You will still need to submit your VAT returns to HMRC on time.
  • HMRC will continue to process VAT reclaims an refunds as normal during this time.
  • If you choose to defer your VAT payment, you must pay the VAT due on or before 31 March 2021.
  • You do not need to tell HMRC that you are deferring your VAT payment.
  • If you normally pay by Direct Debit you should contact your bank to cancel your Direct Debit as soon as you can, or you can cancel online if you’re registered for online banking.
  • VAT payments due following the end of the deferral period will have to be paid as normal.
  • Further information about how to repay the VAT you’ve deferred will be available soon. Income tax payments
  • If you’re due to pay a self-assessment payment on account by 31 July 2020, then you may defer payment until January 2021.
  • You are eligible if you are due to pay your second self-assessment payment on account on 31 July. You do not need to be self-employed to be eligible for the deferment.
  • The deferment is optional. If you are still able to pay your second payment on account on 31 July, you should do so.
  • This is an automatic offer with no applications required. No penalties or interest for late payment will be charged if you defer payment until 31 January 2021.
  • During the deferral period you can set up a budget payment plan to help you pay the deferred payment on account when it comes due.

Income tax payments

  • If you’re due to pay a self-assessment payment on account by 31 July 2020, then you may defer payment until January 2021.
  • You are eligible if you are due to pay your second self-assessment payment on account on 31 July. You do not need to be self-employed to be eligible for the deferment.
  • The deferment is optional. If you are still able to pay your second payment on account on 31 July, you should do so.
  • This is an automatic offer with no applications required. No penalties or interest for late payment will be charged if you defer payment until 31 January 2021.
  • During the deferral period, you can set up a budget payment plan to help you pay the deferred payment on account when it comes due.

Universal Credit

  • You may be able to get Universal Credit if:
    • you’re on a low income or out of work
    • you’re 18 or over (there are some exceptions if you’re 16 to 17)
    • you’re under State Pension age (or your partner is)
    • you and your partner have £16,000 or less in savings between you o you live in the UK.
  • You can apply for Universal Credit online. If you are eligible you will need to make an appointment for your new claim interview. This interview will take place by telephone with a work coach. You will be given the number to call to book this appointment when you have submitted your claim.
  • The Universal Credit standard allowance and working tax credit basic element will be increased for the next 12 months by £1,000 a year.
  • This means that for a single Universal Credit claimant (aged 25 or over), the standard allowance will increase from £323.22 to about £406 per month.

 

Statutory Sick Pay (SSP)

  • For your PAYE element, you can get £94.25 per week Statutory Sick Pay (SSP) if you’re too ill to work. It’s paid by your company/employer for up to 28 weeks.
  • If you are staying at home because of COVID-19 you can now claim SSP. This includes individuals who are caring for people in the same household and therefore have been advised to do a household quarantine.
  • The Government is legislating for SSP to be paid from day 1, rather than day 4, of your absence from work if you are absent from work due to sickness or need to stay at home due to COVID- 19. Once the legislation has been passed, this will apply retrospectively from 13 March.
  • If you have COVID-19 or are advised to stay at home, you can get an “isolation note” by visiting NHS 111 online, rather than visiting a doctor.
  • For COVID-19 cases this replaces the usual need to provide a “fit note” (sometimes called a “sick note”) after 7 days of sickness absence.

Small business rates grant

  • The government will provide additional Small Business Grant Scheme funding for local authorities to support small businesses that already pay little or no business rates because of small business rate relief (SBRR), rural rate relief (RRR) and tapered relief.
  • This will provide a one-off grant of £10,000 to eligible businesses to help meet their ongoing business costs.
  • You are eligible if:
    • your business is based in England
    • you are a business that occupies property
    • you are receiving small business rate relief or rural rate relief as of 11 March
  • You do not need to do anything. Your local authority will write to you if you are eligible for this grant. Any enquiries on eligibility for, or provision of, the reliefs and grants should be directed to the relevant local authority.

Scottish Government support for business

  • £10,000 grants for small businesses in receipt of the Small Business Bonus Scheme or Rural Relief.
  • 1.6% relief for all properties, effectively freezing the poundage rate next year.

 

Northern Ireland Executive support for business

  • COVID Small Business Grant – small business grant of £10,000 to be issued immediately. This is for all businesses with a NAV up to £15,000. Landlords and renters

 

Landlords and renters

  • From 26 March 2020, landlords will have to give all renters 3 months’ notice if they intend to seek possession (i.e. serve notice that they want to end the tenancy) – this means the landlord can’t apply to start the court process until after this period.
  • This extended buffer period will apply in law until 30 September 2020 and both the end point, and the 3-month notice period can be extended if needed.
  • This protection covers most tenants in the private and social rented sectors in England and Wales, and all grounds of evictions. This includes possession of tenancies in the Rent Act 1977, the Housing Act 1985, the Housing Act 1996 and the Housing Act 1988. After 3 months if the tenant has not moved a landlord needs to apply to court in order to proceed.
  • Tenants are still liable for their rent and should pay this as usual.
  • Landlords will be protected by a 3-month mortgage payment holiday where they have a Buy to Let mortgage.
  • Landlords remain legally obligated to ensure properties meet the required standard – urgent, essential health and safety repairs should be made.

Personal Credit

  • If you need additional financial support because of coronavirus with an existing arranged overdraft, you will be able to request from your provider that up to £500, on your main personal current account, is provided at 0% for up to three months.
  • You can ask for a three-month payment freeze or to pay a nominal payment on credit cards, store cards and catalogue credit.
  • If you have a personal loan, you can ask for a three-month freeze if needed.
  • Further details included in the separate Regulatory support for individuals with consumer credit document.

 

Self-employment Income Support Scheme

On Thursday 26 March the government announced their intention to provide further support for the self-employed in the form of a taxable cash grant.

The scheme allows individuals to claim a taxable grant worth 80% of their trading profits up to a maximum of £2,500 per month for the 3 months from March to May 2020. This may be extended if needed.

The taxable cash grant will be in the form of a single lump sum to cover the three months from March to May 2020. It will be paid in June 2020 to those that are eligible directly into their bank account.

The self-employed including members of Partnerships will be eligible if their trading profits for 18/19 were less than £50,000 and more than 50% of their income stems from self-employment.

Alternatively, they will be eligible if their average trading profits for the tax years 16/17, 17/18 and 18/19 were less than £50,000 and more than 50% of their income stems from self-employment. For those that started trading between 2016-19 HMRC will only use those years for which a Self-Assessment tax return has been filed.

The scheme will be open to those that have submitted an income tax self-assessment tax return for the year to 5 April 2019 (the 18/19 tax year). Worth noting that HMRC’s guidance does state that the 18/19 tax return must be filed by 23 April 2020 in order to eligible! For those that have yet to file their 18/19 tax return, it represents something of an opportunity.

Additional eligibility criteria include the requirement that the individual must have lost trading profits due to Covid-19 and they must have traded in 2019/2020, intend to trade in 2020/2021 and are trading at the point of application or would have been except for Covid-19.

Individuals that claim Tax Credits would need to include the grant as part of their income.

It is crucial to observe that HMRC will contact and invite those that are eligible to apply. Applications will need to be made online when the invitations have been issued by HMRC.

Individuals do not need to contact HMRC now.

This seems an opportune moment to remind readers that HMRC does not send texts or make calls asking for bank or credit card details. If this happens then it is likely to be a scam. Please be wary.

We will update this guidance as and when HMRC issue further guidance of their own.

£10k Grant

The government will provide additional funding for local authorities to support small businesses that already pay little or no business rates because of small business rate relief (SBBR). This will provide a one-off grant of £10,000 to businesses currently eligible for SBRR or rural rate relief, to help meet their ongoing business costs.

If your business is eligible for SBRR or rural rate relief, you will be contacted by your local authority – you do not need to apply.

Funding for the scheme will be provided to local authorities by the government in early April. Guidance for local authorities on the scheme will be provided shortly.

SMALL BUSINESS RATES RELIEF

If you work from home, you cannot get this grant, its if you have actual work premises.

 

COVID-19 Emergency Fund

What’s Included in COVID-19 Emergency Funding?

  • Government backed loans with attractive terms for payment of rent, salaries, suppliers or stock.
  • For businesses in retail, hospitality and leisure, rates will be waived for 12 months for 2020/21.
  • The Coronavirus Business Interruption Loan Scheme expanded from £1.2m to £5m with an interest waiver for first 6 months.
  • Grants to small businesses eligible for Small Business Rate Relief will be increased from £3,000 to £10,000.
  • Further £25,000 grants for retail, hospitality, and leisure businesses operating from smaller business premises defined as those within a rateable value between £15,000 and £51,000.
  • £10,000 one-off grant to businesses that pay little or no business rates due to small business rent relief or rural rate relief.
  • Small and medium sized business will be able to reclaim SSP for sickness due to COVID-19.
  • Support for liquidity for larger business with a new scheme from the Bank of England.
  • The advice to avoid pubs, clubs and theatres is sufficient to trigger a claim under business interruption insurance.
  • Pubs and restaurants are able to provide a takeaway service without a planning application.

COVID-19: support for businesses (Grants etc)

The Chancellor has set out a package of temporary, timely and targeted measures to support public services, people and businesses through this period of disruption caused by COVID-19.

This includes a package of measures to support businesses including:

  • a statutory sick pay relief package for SMEs
  • a 12-month business rates holiday for all retail, hospitality and leisure businesses in England
  • small business grant funding of £10,000 for all business in receipt of small business rate relief or rural rate relief
  • grant funding of £25,000 for retail, hospitality and leisure businesses with property with a rateable value between £15,000 and £51,000
  • the Coronavirus Business Interruption Loan Scheme offering loans of up to £5 million for SMEs through the British Business Bank
  • a new lending facility from the Bank of England to help support liquidity among larger firms, helping them bridge coronavirus disruption to their cash flows through loans
  • the HMRC Time To Pay Scheme

Support for businesses who are paying sick pay to employees

We will bring forward legislation to allow small- and medium-sized businesses and employers to reclaim Statutory Sick Pay (SSP) paid for sickness absence due to COVID-19. The eligibility criteria for the scheme will be as follows:

  • this refund will cover up to 2 weeks’ SSP per eligible employee who has been off work because of COVID-19
  • employers with fewer than 250 employees will be eligible – the size of an employer will be determined by the number of people they employed as of 28 February 2020
  • employers will be able to reclaim expenditure for any employee who has claimed SSP(according to the new eligibility criteria) as a result of COVID-19
  • employers should maintain records of staff absences and payments of SSP, but employees will not need to provide a GP fit note
  • eligible period for the scheme will commence the day after the regulations on the extension of Statutory Sick Pay to those staying at home comes into force
  • the government will work with employers over the coming months to set up the repayment mechanism for employers as soon as possible

Support for businesses that pay business rates

We will introduce a business rates retail holiday for retail, hospitality and leisure businesses in England for the 2020 to 2021 tax year.

Businesses that received the retail discount in the 2019 to 2020 tax year will be rebilled by their local authority as soon as possible.

A £25,000 grant will be provided to retail, hospitality and leisure businesses operating from smaller premises, with a rateable value between £15,000 and £51,000.

Any enquiries on eligibility for, or provision of, the reliefs should be directed to the relevant local authority. Guidance for local authorities on the business rates holiday will be published by 20 March

Support for businesses that pay little or no business rates

The government will provide additional funding for local authorities to support small businesses that already pay little or no business rates because of small business rate relief (SBBR). This will provide a one-off grant of £10,000 to businesses currently eligible for SBRR or rural rate relief, to help meet their ongoing business costs.

If your business is eligible for SBRR or rural rate relief, you will be contacted by your local authority – you do not need to apply.

Funding for the scheme will be provided to local authorities by government in early April. Guidance for local authorities on the scheme will be provided shortly.

Support for businesses through the Coronavirus Business Interruption Loan Scheme

A new temporary Coronavirus Business Interruption Loan Scheme, delivered by the British Business Bank, will launch next week to support primarily small and medium sized businesses to access bank lending and overdrafts. The government will provide lenders with a guarantee of 80% on each loan (subject to a per-lender cap on claims) to give lenders further confidence in continuing to provide finance to SMEs. The government will not charge businesses or banks for this guarantee, and the Scheme will support loans of up to £5 million in value. Businesses can access the first 6 months of that finance interest free, as government will cover the first 6 months of interest payments. Further details, including on the lenders providing access to this scheme will be announced in the coming days, and the scheme will be available from early week commencing 23 March 2020.

Support for larger firms through the COVID-19 Corporate Financing Facility

To support larger firms, the Bank of England has announced a new lending facility to provide a quick and cost effective way to raise working capital via the purchase of short-term debt. This will support companies which are fundamentally strong, but have been affected by a short-term funding squeeze, enabling them to continue financing their short-term liabilities. It will also support corporate finance markets overall and ease the supply of credit to all firms. Further details, including on how to access this funding will follow in the coming days, and the scheme will be available from the week commencing 23 March.

Support for businesses paying tax

All businesses and self-employed people in financial distress, and with outstanding tax liabilities, may be eligible to receive support with their tax affairs through HMRC’s Time To Pay service. These arrangements are agreed on a case-by-case basis and are tailored to individual circumstances and liabilities.

If you are concerned about being able to pay your tax due to COVID-19, call HMRC’s dedicated helpline on 0800 0159 559.

Insurance

Businesses that have cover for both pandemics and government-ordered closure should be covered, as the government and insurance industry confirmed on 17 March 2020 that advice to avoid pubs, theatres etc is sufficient to make a claim.

Insurance policies differ significantly, so businesses are encouraged to check the terms and conditions of their specific policy and contact their providers. Most businesses are unlikely to be covered, as standard business interruption insurance policies are dependent on damage to property and will exclude pandemics.

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