Tax Risk & Dispute Resolution partner Fiona Fernie said: “HMRC is writing to taxpayers under enquiry acknowledging that, during the current lockdown, they are being instructed not to request information or documents and not to press for responses to requests already made. Indeed, in some cases they are suspending enquiries at this difficult time.
“Whilst this may seem to be welcome news, there may be good reasons to press ahead if taxpayers or their businesses are already under enquiry.
“Putting off HMRC’s queries until after this difficult period is over may not be as good an idea as it sounds. Many will need to be concentrating hard on reviving their business and HMRC’s questions will inevitably distract attention from that at a time when loss of focus on business management could be potentially devastating.
“For individual taxpayers and businesses whose activities are currently curtailed, it would be sensible for them to use the time they have now to deal with HMRC rather than store up problems for the future, although clearly employees who are furloughed cannot be involved in responding to HMRC enquiries on behalf of their employers. After all, if tax is due – it is still going to be due when we come out of this.
“In addition, HMRC is focused at the moment on the fact that many taxpayers will need Time to Pay (TTP) and indeed they have a dedicated helpline manned by 2,000 staff dealing with this. Hopefully that will mean that it is possible to agree something sensible for the taxpayer.
“However, taxpayers do need to bear in mind that tax liabilities are only deferred, not extinguished, and for TTP they will need to be able to provide information which demonstrates why they need TTP, the impact that COVID-19 has had, and a plan for repayment. That plan will need to include:
- Explanation of the financial hardship
- The proposed timescale for deferral of the tax
- Why the payment plan is affordable (this could be based on either future anticipated income or (for example) the proceeds of selling an asset
- Explanation of the impact of the interaction with other debt financing (i.e. being able to make appropriate payments on both)
- Provision of evidence to show that costs are being well managed.
Fiona continued: “For businesses that will probably mean the provision of management accounts and preparation of a cash-flow forecast. They may also be asked to show the level of their cash reserves. Individual taxpayers are likely to need monthly income and expense statements and a statement of personal assets and liabilities.
“The longer the period being requested for TTP, the more evidence HMRC is likely to require. Since nobody knows how long the impact of COVID-19 will last, it may be necessary/possible to renegotiate TTP if the original agreement cannot be met. If that turns out to be the case, taxpayers should always notify HMRC of the difficulty as soon as possible and before missing a payment”.
Robert Salter, a senior advisor in Blick Rothenberg’s Global Mobility team, also warns that this is a good opportunity for businesses to make sure their ‘house is in order’, particularly for those who are taking advantage of the Job Retention Scheme (JRS).
Robert, who specialises in expatriate and employment tax support for fast-growing entrepreneurial businesses, notes that Jim Harra, Head of HMRC, has already publicly admitted that the Government’s Coronavirus Job Retention Scheme, (and the parallel scheme for the self-employed), have significant “fraud risks” associated with them.
Robert said: “It is vital for legitimate businesses to ensure that they correctly document and evidence any claims that they make for JRS grants in respect of their furloughed employees, if they wish to avoid any future audit challenges from HMRC in respect of these claims.
“This is particularly important in this situation, as one of HMRC’s main weapons against JRS fraud will realistically be tax enquiries and reviews, once the initial Coronavirus ‘chaos’ and confusion has subsided.”
Robert also highlights that amongst the evidence which businesses claiming JRS support should retain are:
- An assessment showing impact of Coronavirus on the business and how this justifies the furloughing of staff
- Clear calculations backing up the amount being claimed under the JRS
- Formal written paperwork between the employer and employee backing up the furlough arrangements and the parties’ agreement to these.
Robert added: “Companies which fail to document their claims under the JRS risk having to refund the money in future (plus potentially interest and penalties / surcharges), if they are unable to defend the amounts being claimed today.”
If you would like to discuss any of the above or have other queries about how you can make the right decisions for the future of your business and your income, please contact your usual Blick Rothenberg contact or one of the partners to the right.
You can also visit our Coronavirus – Practical Guidance for businesses today Hub for our latest updates and insights.