The impact of coronavirus is widespread and global. In the face of a potential worldwide disaster, governments are begnning to adopt precautionary meaures and put in place tools for those that can't afford to be affected. According to Bob Trunchion, tax partner at MHA MacIntyre Hudson, a myriad of businesses becoming insolvent will only add salt to the wound.
The coronavirus threat is worrying enough for the UK economy but an upswing in company insolvencies in its wake would make the situation even worse.
Cash flow is the number one cause of business failure and the disruption the viral outbreak may bring could therefore lead to a substantial increase in business failures. The government’s COVID-19 action plan, published yesterday, claims the government will consider whether cash strapped businesses can use its Time to Pay (TPP) scheme, on a case-by-case basis, to make tax payments more manageable. We believe this will be an inadequate measure if the outbreak escalates.
TTP works well but the process is bureaucratic and HMRC requires a lot of information before agreeing it can be applied. The business also needs to formulate a repayment plan, which isn’t always possible in the midst of a crisis. In addition, TTP doesn’t cover the major ongoing expense of business rates, only taxes administered by HMRC.
A major virus outbreak in the UK, that includes quarantine measures, falling demand for products and services and a lack of staff availability will put companies in a very difficult situation. While sales would fall, costs such as rents, rates, mortgages and payments to suppliers and staff will remain constant.
A major virus outbreak in the UK, that includes quarantine measures, falling demand for products and services and a lack of staff availability will put companies in a very difficult situation.
A key measure for the Chancellor to consider for the Budget is a ‘tax holiday’ for major business costs like rates, PAYE tax, national insurance contributions and VAT. The holiday could be implemented if the outbreak worsens and the economy suffers. Usually tax holidays or temporary reductions in tax are used to boost growth; but in this case would help prevent company bankruptcies.
In addition, HMRC needs to adapt and allow time to pay self-assessment income tax and corporation tax in more flexible ways. The upcoming budget is a key moment for Chancellor Rishi Sunak to reassure the business community. Hopefully he will rise to the challenge.
