Employment Tax matters to consider in light of COVID-19
This briefing covers measures announced as at 17 March 2020
All employers are currently focussed on maintaining the health and wellbeing of their employees. Undoubtedly, extended homeworking and the financial implications on businesses from Covid-19 will require many measures to be considered for the workforce.
In addition to the current position on SSP, see Budget 2020 - Employment Taxes, it is anticipated that the Government may introduce more financial measures to support employers: the Chancellor has announced that he is urgently consulting on an ‘employment support package’. These are expected to be in addition to the general financial support measures already announced.
In addition to any new measures, here are some practical points that Employers may like to consider.
PAYE and NIC
Monthly PAYE/NIC remittances should continue unless specific payment holidays are announced by the Government (we anticipate that this may be unlikely).
If you are under financial pressure to meet your PAYE/NIC commitments then employers should contact the HMRC Covid-19 time to pay helpline (0800 0159 559) to seek a deferral arrangement. Evidence of financial hardship will be needed. Currently, this is expected to be a straightforward process but if you have difficulties in reaching agreement with HMRC contact our tax debt management specialists here.
Managing staff costs
If you are considering asking staff to take a temporary pay cut, employment law advice is essential. If a temporary pay cut is introduced, formal employment contract changes may be required. If they are not put in place, a PAYE liability may still arise for the pay that has been reduced. This is because if an employee is still entitled to the pay that has been cut, PAYE will be due on that element even though it has not been paid. This does not apply to NIC which only arises when a payment has been received by an employee.
If it unfortunately becomes necessary to reduce your workforce, then the existing tax and NIC rules for redundancies remain in place. Statutory Redundancy Pay is not liable to PAYE and NIC, but any additional payments made on termination require careful consideration. For help and advice please contact us.
If employees are home working then you may want to give some financial assistance. Under current legislation a GBP 4 per week (GBP 18 per month) allowance can be paid tax/NIC free without the proof of expenditure if an employee works from home regularly. This will rise to GBP 6 per week for 2020/21. This allowance is intended to differentiate between employees who work from home on a regular basis (i.e. are home based) and those who do so occasionally. It remains to be seen whether HMRC will see enforced homeworking as ‘regular’. Current HMRC guidance can be accessed at Homeworking - EIM1472.
To help employees, as an alternative if you make a loan to an employee, if it less than GBP 10,000 (taking into account the value of any existing employee loans) then it can be made on a tax free basis and does not give rise to an Employers NIC liability. Please note if the loan is not then repaid, the value that is written off then then becomes liable to PAYE and NIC.
If an employer sets up health screening or Covid-19 testing for employees the costs involved should not generate a tax and NIC charge. Other minor costs (GBP 50 or less per employee) incurred by
IR35 Private Sector Reforms – Postponed until April 2021
As part of the additional measures announced to support businesses and individuals to deal with the economic impacts of Covid-19, it was announced on 18 March that the implementation of the Private Sector IR35 Reforms would be postponed until April 2021.
There is currently little detail in support of this announcement, however the key message is that this is a deferral of the new rules not a cancellation. Once more information has been provided by HM Treasury will be able to provide a more comprehensive view on the potential impact this change will have on affected organisations, businesses and individuals.
Paying Statutory Sick Pay (SSP)
A number of measures have been announced. All employees who self-isolate will be able to claim SSP and, as a temporary measure, SSP claims can be made from Day 1 rather than Day 4 of illness. Employees who are caring for someone who is self-isolating will also be able to claim SSP on this basis.
Businesses with fewer than 250 employees as at 28 February 2020 will be able to reclaim SSP expenditure up to a maximum of two weeks per employee from the government. Details of the reclaim method have not been announced, but it is expected that the government will confirm that employers will claim by offsetting any amount of reclaim for a period against the amount of PAYE payable to HMRC for the period.
Potential tax issues arising from international travel restrictions
Managing international staff through the Covid-19 crisis will be increasingly demanding: in many cases physical assignments will not happen, be delayed or postponed and redundancies may increase. Here are some important issues to consider:
If assignees need to stay in the UK or come back to the UK because of the virus, they will need to consider the impact on their UK residence days under the Statutory Residence Test.
As well as tax residence issues where individuals remain in a country as a result of Covid-19, this could also affect their eligibility for expatriate tax concessions, social security and withholding taxes on earnings. It could trigger unexpected personal tax liabilities and potentially have an impact on the tax status of the employer.
Many staff with international roles will have returned home so are working from a single location: those with cross border ‘commuter’ jobs may now be working remotely from their home jurisdiction. We expect that a number of countries will introduce concessions to their usual rules – for example, we understand that France may not insist on French social security if employees have to remain there for an unexpected period of up to 60 days. However, without an official, multi-country relaxation of tax and social security rules there will be tax impacts for both the employee and employer to manage.
Of course, all jurisdictions will still expect all relevant tax returns and filings to be made and, as yet, deadlines have not been moved.
It is vital for employers to have a strategy for dealing with their international employees and to ensure that all issues are thought through before final action is taken, otherwise unintended consequences and costs will arise.
Personal tax residence – Days in the UK
The rules for establishing whether or not individuals are tax-resident in the UK (the statutory residence test) depend, amongst other factors, on the number of days spent in the UK in a tax year). Non-UK resident individuals who end up spending more time in the UK than planned as a result of the Covid-19 crisis may find that they exceed the permitted number of days in the UK relevant to their circumstances.
However, up to 60 days spent in the UK can be ignored if they result from ‘exceptional circumstances’. We would expect that, for many individuals, the current Covid-19 crisis would constitute ‘exceptional circumstances’. HMRC has issued guidance on this (shown below) and they will consider the specific facts for each individual when reviewing their residence status on a case by case basis.
Coronavirus (COVID-19) – HMRC Guidance
This new guidance needs to be read in conjunction with the current published guidance on exceptional circumstances (see RDRM13200 onwards).
The UK is currently experiencing the effects of the coronavirus (COVID-19) pandemic. Events resulting from the impact of the virus are changing rapidly and this guidance may change at short notice as situations change.
The coronavirus (COVID-19) pandemic may impact your ability to move freely to and from the UK or, require you to remain unexpectedly in the UK.
Whether days spent in the UK can be disregarded due to exceptional circumstances will always depend on the facts and circumstances of each individual case.
However, if you:
- Are quarantined or advised by a health professional or public health guidance to self-isolate in the UK as a result of the virus
- Find yourself advised by official Government advice not to travel from the UK as a result of the virus
- Are unable to leave the UK as a result of the closure of international borders, or
- Are asked by your employer to return to the UK temporarily as a result of the virus the circumstances are considered as exceptional.
Tax – Improved Time To Pay arrangements
The government has announced extra resources to assist those struggling to pay their tax liabilities and in financial distress. HMRC will be committing 2,000 experienced call handlers to support taxpayers.
This includes a dedicated COVID-19 helpline to help those in need. The helpline number is 0800 0159 559. Opening hours are Monday to Friday 8am to 8pm, and Saturday 8am to 4pm.
Support will include agreeing a bespoke Time To Pay arrangement with HMRC. This will help those struggling with cash flow and allow those who enter into arrangements to spread liabilities owed over a pre-agreed period. In addition, HMRC will waive late payment penalties and interest where businesses experience administrative difficulties contacting HMRC or paying taxes due to COVID-19.
As always, it will be important to get upfront agreement from HMRC before a payment deadline. There is also a commitment to suspend debt collection proceedings.