Subsequent to the economic measures previously introduced by the government in support of entrepreneurs during the intelligent lockdown, new coronavirus tax measures have recently been announced offering them extra assistance. A measure has also been adopted in relation to lending, which an estimated 60,000 mortgage-holders can take advantage of. These measures are aimed at providing extra financial room for entrepreneurs. They accompany earlier announced measures such as the NOW scheme. In this blog we will briefly discuss the new coronavirus tax measures that have been taken.
Relaxation of the hour criterion for the self-employed
Self-employed individuals who qualify as entrepreneurs for income tax purposes can use various entrepreneur’s allowances. This includes the private business ownership allowance, provided they meet the hour criterion. This means that they devote at least 1225 hours on an annual basis to company activities. To ensure entrepreneurs do not lose the entrepreneur’s allowance due to the corona crisis, the Tax Authorities set a rule. From 1 March 2020 to 31 May 2020, it is assumed that entrepreneurs spent at least 24 hours per week on their business, regardless of actual hours worked. In addition, this relaxation also applies to entrepreneurs who perform seasonal activities, such as festival organisers.
Reduction in compulsory salary
Entrepreneurs working in companies where they hold a substantial interest must legally pay themselves a salary. This salary must match the extent of the work they deliver. This is known as the compulsory salary. Of course, tax must also be paid on this salary, in the form of payroll tax. In order to compensate entrepreneurs facing a drop in turnover due to the corona crisis, it has been determined that they may temporarily adopt a lower salary for the purposes of payroll tax. This requires that the company has less or no turnover as a result of the corona crisis. The lower pay must also be in proportion to the decrease in the company’s turnover.
Broadening of the work-related costs scheme
The work-related costs scheme is a tax scheme where employers have the freedom to provide tax-free allowances to their employees, such as gift vouchers. This is normally equivalent to 1.7% of the employee’s taxable pay. This freedom has now been extended to 3% of the employee’s taxable pay for the employer’s first € 400,000. Consequently, the normal rate of 1.7% applying to the freedom under the work-related costs scheme will apply to that the portion of the employer’s wage bill exceeding € 400,000. Here, the government’s aim is to give an indirect boost to some affected sectors.
Deferral of implementation of the Bill on Excessive Borrowing from one’s own Company Act
The Bill on the Excessive Borrowing from one’s own Company Act seeks to limit tax deferral for tax purposes by director-major shareholders (DGAs). The entry into force of this bill will be postponed by 1 year to 1 January 2023. In this way, DGAs will have more time and space to pay off the debts they owe to their own company that amount to more than € 500,000.
Earlier settlement of losses in corporate taxation
To ensure companies retain more cash and improve cash flow, they can now account for expected 2020 losses in their 2019 corporate tax return. Otherwise, entrepreneurs would have to wait until 2021 to offset these losses. A fiscal corona reserve can be created for expected 2020 losses. This allows losses for 2020 to be charged to the profit for 2019. The condition is that the offset loss for 2020 must be less than the profit for 2019.
Tax relief for mortgage obligations
Banks and other lenders can offer customers a break in payments of principal and interest. This applies when payment obligations cannot be met during the corona crisis.This payment break will have a maximum of six months.
In addition, repayment of unpaid sums during breaks in payment of mortgage obligations will be extended where there is also a tax repayment obligation. Tax regulations still require that repayment must be made no later than the year following the break in payment. The adjustments give mortgage-holders the opportunity of choosing from two options. The first option is to divide the payment arrears over the remaining mortgage term, up to a maximum of 360 months. The second option is to split the repayment obligation and agree on a separate repayment, for example, over 10 years.
Are you unsure whether your company qualifies for any of the above Coronavirus tax measures or how to apply them? If so, why not contact a tax consultant?
