HM Revenue & Customs will impose a new 100 percent tax charge to recover grants overpaid under coronavirus support schemes, under a measure to be added to the current finance bill.
A technical consultation on the draft legislation was published on May 29, as Chancellor of the Exchequer Rishi Sunak outlined changes to the coronavirus job retention scheme (CJRS) and the self-employment income support scheme (SEISS). The consultation closes on June 12, while a House of Commons public bill committee will examine the finance bill in a series of meetings beginning on June 4.
Under the CJRS, 8.7 million jobs had been furloughed by 1.1 million employers by May 31, and the total value of claims made was £17.5 billion. Self-employed people had made 2.5 million claims under the SEISS by May 31, with a total value of £7.2 billion, HMRC announced on June 2.
Employers will be able to bring employees furloughed under the CJRS back to work part time in July, but from August a new taper system will require employers to contribute to furloughed salaries, Sunak announced on May 29. The scheme will close at the end of October. Those eligible for the SEISS will be able to claim a second and final grant in August.
HMRC also reported that 251,000 VAT payments amounting to £22.4 billion have been deferred under the VAT deferrals scheme. The figures are based on payments due for VAT periods ending in February and March.
Businesses have also borrowed more than £30 billion under government-backed loan schemes. HM Treasury statistics on the coronavirus business interruption loan scheme, the coronavirus large business interruption loan scheme, the bounce back loan scheme, and the future fund were set out in a June 2 release.
Power to Recover Payments
Grants paid to employers under the CJRS, grants paid to self-employed people under the SEISS, and payments under “business support grant schemes” defined in the draft legislation will be treated as income chargeable to income tax or corporation tax. SEISS grants will be treated as profits arising in the 2020-2021 tax year.
HMRC will have the power to “recover payments, by imposing a 100 percent tax charge, from anyone who has received a payment under the schemes to which they are not fully entitled or anyone who has not used a CJRS payment to pay [furloughed] employee costs,” according to a draft explanatory note. HMRC will also be able to charge penalties for deliberate noncompliance.
A draft tax information and impact note confirms that the finance bill measure itself will not legislate for the operation of the support schemes. Treasury directions under the Coronavirus Act 2020 were made on April 15 for the CJRS and on April 30 for the SEISS. A further Treasury direction for the CJRS was published on May 22.
The Tax Faculty of the Institute of Chartered Accountants in England and Wales noted that HMRC's intention is to recover any SEISS grant that was not due “by way of a 100 percent tax charge, with the regular tax charge being dis-applied, in a manner which is independent of the self-assessment tax return, although there will be an opportunity on the tax return to declare liability to the recovery charge.”
Finance Bill Debates
The finance bill includes the digital services tax legislation. The Office of the U.S. Trade Representative announced on June 2 that it is initiating investigations into “digital services taxes adopted or under consideration” by the United Kingdom and several other trading partners, including the EU. It invited public comments by July 15.
The bill also includes the significant reduction in capital gains tax entrepreneurs’ relief announced in the March budget. The Chartered Institute of Taxation has pointed out that while “the media was full of comments from friends and enemies of entrepreneurs’ relief” in the weeks leading to the budget, there was no formal public consultation.
“We hope that [members of Parliament] will look closely at the government’s plans for entrepreneurs’ relief. This could usefully include asking why the government’s review was not carried out in public. It is disappointing that such a significant change to an established relief risks going through the policy process with little independent examination and debate,” CIOT Tax Policy Director John Cullinane said in a June 2 release.
Cullinane said uncertainty about tax reliefs presents a difficulty for taxpayers who have legitimately taken advantage of reliefs. There are people affected by the budget change who reinvested money in the expectation of a relief that they will no longer receive, he noted. “Without transitional provisions, such ‘retroactive’ effects are inevitable in a capital gains tax system where there is deferral advantage in that gains are taxed only when realized rather than as accrued,” he said.
Fewer than one in 10 claimants say entrepreneurs’ relief has been an incentive to set up a business, Sunak said during his budget speech. “Just because it is called 'entrepreneurs’ relief' doesn’t mean that it’s entrepreneurs who mainly benefit,” he added. He said he did not want to discourage genuine entrepreneurs who rely on the relief, so rather than abolish it, he proposed to reduce the lifetime limit from £10 million to £1 million. The bill provides that the relief will be known as “business assets disposal relief.”
Amendments proposed by June 1 were set out in a House of Commons notice. They include government amendments introducing the deferred IR35 legislation and extending time limits relating to the loan charge. The cross-party public bill committee on the finance bill has invited written evidence from those with “relevant expertise and experience or a special interest” in the bill.