In the current emergency, anything that potentially reduces outgoing cash flow, including impending tax due dates for payment, is welcome. We have therefore outlined, opportunities within the current tax system that businesses should not overlook.
Tax Deferral – HMRC Announcements
Second Payment on Account instalment due on 31 July 2020
HMRC have confirmed that the second instalment of tax due on 31 July can be deferred until 31 January 2021. It has been promised that no interest or penalties for late payment will be applied to payments made on or before 31 January 2021. It is recommended that a budget plan be put in place to meet any tax payments that are to be delayed.
VAT registered businesses can delay the payment of VAT liabilities falling due between 20 March and 30 June. HMRC have said that the deferral is automatic, and that payment can be deferred until any time up to but before 30 March 2021. No interest or penalties for deferred payment within these limits will be applied.
Claiming Relief for Losses Sustained in a Trade or Profession
This may be a good strategy if the previous tax year (or accounting period in the case of a company) has produced a profit leading to Income Tax or Corporation Tax being due.
Sole Trades and Partnerships (including LLPS)
A new tax year begins on 6 April 2020. If it is already clear that a loss has been made for the tax year to 5 April 2020, there is no need to delay filing of accounts and tax returns until 31 January 2021. Early filing could also take further pressure from the second instalment of tax due for 2019/20 if a loss carry-back claim reduces the profits for that year
If a business is ceasing, the loss can be carried back for up to three tax years under the terminal loss relief rules.
Tax returns are submitted by reference to the accounting date of the company. If a Corporation Tax return for a loss-making period has not yet been submitted, companies will need to approach HMRC to make an amendment to the previous accounting period to carry back the loss of the current year and claim a repayment of tax.
A better alternative would be to submit the tax return for the loss-making period before the filing date, to accelerate the carry back of any losses which can be offset against any profits of the previous year. If the company has ceased to trade, a loss can be carried back for three years under the terminal loss relief rules.
A loss-making company that is a member of a group of companies should consider making a group relief surrender against any other member of the group that would otherwise be paying Corporation Tax on its full profit without taking advantage of the Group relief.
Sole Trades and Partnerships – Low Profits but No Overall Loss for 2019/20
For sole trades and partnerships, early filing of accounts and tax returns (this can be done at any time from 6 April 2020) could also take further pressure of the second instalment of 2019/20 tax. The second instalment is based on an assumption that the profits made in 2018/19 will be made in 2019/20, but submitting a tax return showing a reduced profit for that year can also potentially reduce the amount of the second instalment of tax for 2019/20 in addition to the deferral of payment offered by the Government via HMRC.
Avoid Wasting Allowances
If, despite the impact of COVID 19, a business has generated a small overall profit but is able to cover that profit substantially by personal allowances. By claiming full capital allowances that may be due, it could reduce the profit further and in some cases create a loss, potentially wasting an individuals personal allowance and future writing down allowances. The circumstances will depend upon each case but allocating capital allowances without taking a broader view could lead to the inefficient use of those allowances.
Similarly, if a business has incurred substantial capital expenditure in the past, a simple audit of its eligibility to claim capital allowances could reveal the opportunity for future tax savings if those allowances are identified, and then deployed against income or profits tax efficiently.
Whilst these are opportunities that businesses can benefit from; readers should seek professional advice to their specific position before implementing anything discussed in this article. Use of the guidance on the HMRC websites is, in this respect, is also strongly recommended.