From VAT zero-rating to LISAs, tax credits and statutory payments, the government is using every tool it possesses to help taxpayers hit by the coronavirus crisis. But is there anything more they could do?
VAT on protective equipment
Early on in the crisis, the government permanently reduced VAT from 20% to zero on digital publications. Now, arguably a tad belatedly, it has also introduced a temporary zero rate of VAT for personal protective equipment (PPE).
This VAT zero-rating has been backdated to 1st May 2020 and will be in force until at least 31st July 2020. It applies to items recommended by Public Health England to reduce coronavirus infection rates. The goods covered include gloves, aprons, surgical masks, respirators and face visors.
This lower VAT rate was targeted to help care-homes, most of which have to source and buy PPE for staff themselves because they are private homes and therefore not supplied by the NHS. These businesses cannot reclaim VAT as they make exempt supplies or are not VAT registered.
The lifetime ISA (LISA) was initially introduced in April 2017 to encourage UK residents to save for long term goals such a buying a home or retirement. Individuals have to be aged between 18 and 40 to open a LISA. The government pays a 25% bonus up to £1,000 on amounts contributed in the year, until the saver reaches 50 years old.
The catch is a penalty of 25% of the amount withdrawn unless the funds are taken out because:
- To buy the saver’s first home worth up to £450,000
- When the saver is aged 60 or more
- When the saver is terminally ill with less than 12 months to live
So for example, if you saved say £1000, the government would add a bonus of £250, giving you a total of £1,250. However, if for any reason you had to cash-in your LISA, there would be a 25% penalty of (312.50, leaving you £937.50. Effectively you will have been ‘fined’ £62.50 for breaking the rules.
As quite a number of individuals have had to encash their LISA because of the financial impact of the crisis, the Chancellor has now introduced a reduced penalty of 20% and backdated it to 6th March 2020.
Therefore, in the earlier example, the saver would sacrifice £250 for early withdrawal, precisely the amount of the government’s bonus. Any savers who have already made withdrawals which now qualify for the lower 20% penalty, can ask their LISA provider to refund the difference. Also, the 20% rate will remain in force until 5th April 2021.
When the furlough scheme (CJRS) details were finalised, little thought was given to the knock-on effects of reducing an employee’s pay to 80% of their normal rate.
Although the national minimum wage rates do not have to be paid while an employee is furloughed, as the individual is not working, the statutory payment rules do apply. Thus, employees are entitled to the family-related statutory pay (for maternity, paternity, adoption, or parental bereavement) while on furlough.
However, all of these types of statutory pay rely on a calculation of average weekly earnings (AWE), which is particularly important for statutory maternity pay (SMP). While on furlough the employee’s salary may have been reduced to 80% of its average level, which would, in turn, reduce the amount of SMP payable.
Rather than see, for example, new mothers, penalised through no fault of their own, new regulations for each type of statutory pay require the employer to use the normal pay level to calculate AWE, not the furloughed pay. Thus, individuals who have had their pay reduced while furloughed will not be disadvantaged by receiving a lower rate of SMP (or SPP, SAP, SPBP) as a result.
Working Tax Credits
To be eligible for working tax credit, an individual needs to work above certain thresholds of hours per week (16, 24 or 30 depending on circumstances). However, while furloughed or on unpaid leave, HMRC will treat the claimant as working their normal hours, so they are still eligible for tax credits.
Tax Accountant’s Opinion: What more could be done?
I consider that any additional help for the vulnerable, however small, is to be welcomed. I would, however, like to see a number of additional tweaks made, for example:
- Pay universal credit awards within one week of the claim, not five weeks as currently.
- Require the NHS to pay all staff through the payroll with full employment rights, so they don’t have to be engaged through an agency and risk being drawn into tax avoidance schemes.
- Include monthly paid individuals employed from 1st March 2020, who have been excluded from receiving furlough pay because the first PAYE submission to HMRC with them on it, would have been as little as one day after the arbitrary cut-off date of 23rd March 2020
Additionally, I think it would be a nice gesture if the government could consider the following easements specifically for NHS and care workers:
- Free parking while at work.
- Relaxation of the taxi home rules so that any number of journeys paid for by the employer are tax-free
- Require employers to pay travel time for home care workers at their normal rate, and pay them 45p/mile to cover the costs of travelling between those they care for
If you would like more detailed information on some aspect of UK Tax, send me an e-mail and I’ll be pleased to advise further.