It is a crucial time for business, especially those in customer-facing sectors. This week has been one full of uncertainty and diluted messages as we all try to fight our way through this global pandemic, quickly adjusting business models to safeguard as best we can.
As far as HMRC goes, on Friday 20 March, the Chancellor announced that the next quarter of VAT payments will be deferred, meaning no business will pay any from now until the end of June. This is set to free up £30bn of cash to employers, equivalent to 1.5 per cent of GDP.
This announcement follows the HMRC plans set out by the Chancellor in Budget 2020, to create a dedicated helpline to provide information and advice in response to the crisis. Agreements to date have included instalment payments, suspending debt collection or stopping penalties and interest if they demonstrate difficulties paying immediately.
The idea of setting up a deferred tax system for all businesses is to provide the much needed flexibility when it comes to cash flow in the short term, presenting them with the opportunity to restructure their business accordingly.
Management will need this cash to meet critical short-term payments to enable ongoing trading and meet the costs associated with restructuring or mothballing businesses to adapt to the current circumstances.
What’s more, HMRC has outlined its immediate plans to withhold any further actions against any businesses where they have outstanding liabilities to HMRC. It is not yet clear how long this will stand for, but we can only presume it will last for the next few months at least.
The message from HMRC to date has been one of leniency and unprecedented support, giving businesses the ability to free up immediate capital funding to reduce impact. However, it is important to remember that any money falling due in tax in this time will have to be repaid in future – the Chancellor has given businesses until the end of the financial year to repay the bills.
There is no doubt that there is further guidance from HMRC to come imminently, but I would advise businesses that are feeling the impact of COVID-19 to seek advice and guidance on how best to use the extra cash to secure the future of their business
Simon Bonney, partner at business advisory firm Quantuma