Coronavirus – an update on tax issues

The government has introduced a range of tax-related measures to assist businesses during the coronavirus crisis. Our tax advisers RSM have summarised those likely to be of most interest to housing associations, as well outlining other related issues worth considering.

Support for businesses through deferring VAT payments

The government has announced that it will support all UK businesses by deferring VAT payments for three months from 20 March to 30 June 2020.

Housing associations that pay their VAT liabilities automatically by direct debit, and those that wish to take advantage of the VAT deferral, should cancel their direct debit, and then set it up again once the deferral period is over.

VAT returns should continue to be submitted in the normal way, subject to the normal deadlines during the deferral period, and repayments of VAT should be refunded as usual. There is further guidance on the government's website.

Payment of PAYE, NIC, VAT and Corporation Tax

Housing associations with outstanding tax liabilities (PAYE, NIC, VAT, Corporation Tax) may be able to defer payment under HM Revenue & Customs’ (HMRC) Time to Pay Arrangements, which are reviewed by HMRC on a case-by-case basis. A dedicated helpline has been set up on 0800 0159 559.

Temporary zero-rate on personal protective equipment (PPE)

A new, temporary, zero-rate of VAT has been introduced, which will apply to supplies of PPE, as defined in Public Health England's coronavirus PPE guidance. The zero-rate of VAT will apply to supplies of PPE between 1 May and 31 July 2020.

The objective of this to relieve the burden of VAT on the price of purchasing PPE used by frontline workers for protection from coronavirus. This will be of particular benefit to housing associations and care homes, which are unable to recover VAT in full due to their VAT-exempt status.

Working from home

Under current rules, where HMRC accepts an employee’s home is a permanent workplace, organisations can make tax and NIC-free payments to employees to reimburse them for the additional costs of household expenses incurred while working at home.

These additional costs can be difficult to calculate, so HMRC will allow a flat-rate payment of £6 per week from 6 April 2020, tax and NIC-free, to employees to cover these costs without requiring supporting receipts.

HMRC has confirmed that, if employees are working from home due to coronavirus, either because their normal workplace has closed or because they are following advice to self-isolate, then the normal working from home expenses rules will apply.

Further guidance is available on the government's website. Any related expenses or benefits which are taxable can be reported on a PAYE Settlement Agreement.

VAT deferral of rent

Housing associations that rent out commercial property may have received requests to delay rent payments or accept rent-free periods. This could pose a VAT issue if they or any managing agents issue VAT invoices for rent.

This is because VAT invoices create a VAT tax point, and therefore an obligation to pay VAT in the VAT period they are issued, regardless of whether payment is actually received. Therefore, if tenants are allowed to delay payment, housing associations could still be required to pay the VAT, even though the VAT has not been paid to them by the tenant.

If deferred rental terms are offered, housing associations might consider either refraining from issuing invoices, or issuing a payment request, or pro-forma invoice instead.

Acquisition of development land

We are aware that some (typically smaller) developers are approaching housing associations with a view to selling land or partly constructed properties to the housing association in order get the assets off the developers’ books.

Housing associations should not be pressurised into ‘fire-sale’ land deals without undertaking the usual due diligence, as the tax and other financial costs of any errors or oversights can be significant.

Making homes developed for sale available for rent

Given the downturn in the housing market, housing associations that have developed, or are developing, shared ownership properties or homes for market sale might be considering making them available for rent instead.

This can result in the clawback of previously recovered VAT, and also corporation tax liabilities as a result of appropriating the properties from stock to fixed assets. The tax implications therefore need to be considered and planned carefully before any final decisions are made.