News on insolvency, IR35 and VAT changes
‘Wrongful trading’ law suspended
The UK Government has announced new insolvency measures to prevent businesses unable to meet debts due to the impact of coronavirus from being forced to file for bankruptcy.
Alok Sharma, the UK Business Secretary, said the wrongful trading law would be suspended to protect directors during the pandemic. The move will allow directors of companies to pay staff and suppliers even if there are fears the company could become insolvent.
Mr Sharma also announced a temporary moratorium for businesses undergoing a restructuring process, during which time they cannot be put into administration by creditors and will continue to be able to access all raw materials. He said legislation, which would retrospectively apply from the beginning of March, would be introduced at the “earliest opportunity”. However, he cautioned “all of the other checks and balances that help to ensure directors fulfil their duties properly will remain in force”. Wrongful trading was introduced into UK insolvency law in 1986 and makes it an offence for a company director to continue to trade if they know the business is unable to avoid going into liquidation.
Duncan Swift, president of insolvency industry trade association R3, said he had serious concerns about the suspension of the wrongful trading rules due to the risk of damage to creditor confidence and the danger of abuse by companies which could rack up debts they have no hope of paying.
IR35 changes delayed by a year
The UK Government has announced that the changes to IR35 in the private sector which were due to come into force on 6 April 2020 will now be delayed until 6 April 2021 as part of the emergency measures put in place to help businesses in light of the coronavirus pandemic.
The provisions were to impose new duties on companies engaging with contractors working through personal service companies, including a requirement to make status determinations and to deduct tax and NICs if they considered a ‘disguised employment’ relationship was in place.
The Government’s decision means the responsibility for accounting for tax and NICs in relation to such arrangements will currently remain with the contractor’s company, and the measures will give businesses more time to adjust to the new requirements.
VAT digital links put back
HMRC has delayed the requirement for digital links in VAT records by a year due to the current crisis. Digital links will now only be required for VAT returns that start on or after 1 April 2021, which means most clients will have at least a year before the requirement for digital links is enforced.
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