Shearman And Sterling


March 23, 2020

UK Government Includes Tax Deferral in COVID-19 Business Support Package


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On 20 March 2020, the UK Chancellor of the Exchequer announced a package of COVID-19 measures. The measures on tax include the deferral of VAT payments by businesses and of income tax payments due from certain individuals, particularly in the self-employed sector.

The VAT deferral will apply to payments from VAT-registered businesses due between 20 March and 30 June 2020. These payments will be deferred until the end of the 2020/21 tax year. By way of background, where a business is paid by its customers on a VAT-plus basis, the business is typically required to account for the VAT every quarter, so the deferral effectively provides a temporary working capital facility for many businesses.

Under the income tax Self Assessment system for individuals, payments on account of an individual’s income tax liability for 2019/20 may be required in January and July 2020, typically based on the amount of income tax shown in the individual’s income tax return for 2018/19 (with a true-up of this estimate to the actual 2019/20 income tax liability once the associated tax return has been filed). The payments on account regime largely applies to self-employed individuals, including individual members of trading and professional partnerships, in contrast with employees whose income tax is instead largely deducted at source through the payroll system. The announcement states that the deferral of July 2020 payments on account until 31 January 2021 will benefit up to 5.7 million self-employed businesses.

These COVID-19 related tax deferrals follow the announcement at the Budget on 11 March of a local business rates holiday for certain retail, hospitality and leisure businesses, and the welcome 12 month deferral, until 6 April 2021, of the date from which the private sector will be required to operate ‘IR35’ rules treating certain contactors as employees for payroll tax purposes.

No changes have been announced to the payment cycle for corporation tax applicable to UK companies.

In addition to tax measures, the package includes UK Government support, during an initial three month period (which may be extended if necessary), for workers who would otherwise have been made redundant by their employers due to the COVID-19 crisis. The Government will provide grants to employers covering 80% of the salary of such workers backdated to 1 March, up to a limit of £2,500 per month per worker. Notably, this measure does not cover the self-employed. Separately, the Government will provide a loan guarantee scheme for SMEs, now including Government funding of the cost of related interest payments and lender fees for the first 12 months, and there will also be a facility for the Bank of England to provide finance by buying short-term commercial paper from larger companies.

We will continue to provide updates as future tax-related COVID-19 developments emerge.

For further information, please get in touch with any member of the London Tax team, or your usual Shearman & Sterling contacts.

Authors and Contributors

Simon Letherman



+44 20 7655 5139

+44 20 7655 5139