HMRC support for Contractors during Pandemic
Since March 2020, HMRC support for contractors during the pandemic has been affected by the impact on businesses in the UK and throughout the World. The UK entered a second lockdown in November 5th 2020. HMRC offered guidance only to dealing with PSC Directors who are experiencing difficulty making payments on time, or if at all. Many may already be in a voluntary arrangement.
There has already been much debate regarding the Coronavirus COVID-19 Pandemic. Support. Originally set in March 2020, it has therefore been extended to bolster incomes in the second lockdown. Examples being:
The UK Government added further robust support to businesses in the UK. HMRC suspended the Wrongful Trading rules and enforcement actions. However, not if considered evasion, and, in particular, targeted those who abuse the Coronavirus job retention scheme. Yet, further direction announced by HMRC, specific to how it handles outstanding taxes, and action by the HMRC for individuals currently in a Voluntary Arrangement.
HMRC has announced the suspension of all insolvency action during the Coronavirus COVID-19 pandemic. Therefore, HMRC is not petitioning for bankruptcy and winding-up orders, except if considered necessary (EG. Criminal or fraudulent activity).
HMRC granted businesses the opportunity to delay VAT amounts due within:
For those individuals who owed a self-assessment payment on account deadline of July 31st 2020? HMRC approved an extension to January 31st 2021.
Furthermore, those who are unable to pay due to the Coronavirus, HMRC will discuss your particular concerns to examine:
- Agreeing to an instalment arrangement;
- postponing debt collection proceedings;
- dropping penalties and interest where you experienced problems communicating or paying HMRC promptly
Coronavirus HMRC helpline is 0800 024 1222 or check out Dealing with HMRC Debt.
Opening hours remain: Monday to Friday from 8 am to 4 pm. They are closed on Bank Holidays.
However, further guidance remains related to how the COVID 19 coronavirus pandemic affects contractors contemplating or now in a voluntary arrangement.
HMRC support for Contractors during Pandemic – What is a “Voluntary Arrangement”?
A Voluntary Arrangement:
Remains a legally binding contract between an individual, partnership or company and their creditors.
How does a voluntary arrangement work?
Where an individual or company burdened with debt remains unable to pay. Then approach a Licensed Insolvency Practitioner (IP) for assistance, and eventually prepare a ‘proposal’ for creditor approval. 75% of creditors are required to support the proposal, accept it and commence its implementation.
Role of a Licensed Insolvency Practitioner in a Voluntary Arrangement?
Licensed Insolvency Practitioners (without any responsibility for the reliability of the figures) support the individual or director in drafting a suitable ‘proposal document’. The IP then assumes the position of “NOMINEE” responsible for an independent review of the proposal.
Once a meeting has approved the proposal, which requires 75% of creditors approval, the IP is formally appointed as ‘Supervisor of the Voluntary Arrangement’. Therefore, they manage the operation of the arrangement, ensuring that the agreed payments for distribution to the creditors are received.
Voluntary Arrangement Advantages?
For a Voluntary Arrangement to be approved. 75% of creditors must vote for a Voluntary Arrangement. Note: The terms of an approved arrangement binds all creditors even if they failed to vote. Therefore, creditors may not take additional enforcement action on the individual or company in the approved agreement. Consequently, it enables the individual, partnership or company to work towards recovering their situation while protected over some time, usually by submitting payment using anticipated income or profits in the future.
Once a Voluntary Arrangement is approved, those parties to the agreements MUST strictly follow the terms.
Failing so may trigger the supervisor to commence bankruptcy or compulsory liquidation if a limited company, as per the terms outlined in the agreement.
However, if the arrangement fails? Everything returns to the original position. IP’S though may apply variations with creditors approval.
Option when struggling with an existing Voluntary Arrangement?
- Ensure you communicate with your supervisor as soon as you know your problem.
- Usually, arrangements allow the appointed supervisor some discretion to delay payments,
- During the Coronavirus COVID-19 Pandemic, Coronavirus Insolvency Guidance on the ICAEW site.
HMRC also agrees to offer a minimum three-month break from contributions to those affected by Coronavirus COVID-19. Pandemic. Therefore, HMRC supports anyone with a VA, allowing a break from contributions transacted without having to gain approval from HMRC.
HMRC confirms any deferment of VAT as a breach of any terms of the arrangement requiring payment of liabilities as they come due.
What connection does this hold for contractors?
During the current pandemic, many contractors are unable to deal with debt, yet still outstanding.
While most PSCs have few creditors. They may consider:
Voluntary arrangements may allow additional time to repay when pitched against informal ones.
A Voluntary Arrangement can avoid bankruptcy. Important, especially if the individual is a company director, as they may face company director disqualification.
For further advice, contact the team at HBG Advisory.