COVD-19 Business Support schemes update.
Friday, April 10th, 2020
At Copia Wealth & Tax, we remain open for business to support our clients, albeit working remotely. We have now got used to having online meetings with clients and internally – all now part of the COVID-19 experience! Since our last article there have been several updates to guidance regarding the various Government initiatives to support business and so we thought it would be useful to summarise these for you to ensure you are fully up to speed with what is available to help see your business through the crisis.
Self-employed Income Support Scheme (SEISS)
There have been limited updates on this scheme since its announcement on 26th March but here are some brief reminders from the latest guidance:
- Broadly the new scheme will allow self-employed taxpayer to claim a taxable grant worth 80% of trading profits up to a maximum of £2,500 per month for the next 3 months. This may be extended if needed.
- The scheme does not apply to company directors who should be able to claim support using the Coronavirus Job Support Scheme. This would only cover their salaries, however. If you feel strongly that company directors should get more support than this then you should consider signing the petition HERE.
- The scheme is available to self-employed individuals and members of a partnership who satisfy all the following conditions:
- They have submitted their Income Tax Self-Assessment tax return for the tax year 2018/19
- Have traded in the tax year 2019/20
- Are trading when they apply, or would be except for COVID-19
- They intend to continue to trade in the tax year 2020/21
- They have lost trading/partnership trading profits due to COVID-19
- Someone who commenced self-employment in 2019/20 would not be eligible for a grant under the proposed rules.
- The self-employed trading profits must also be less than £50,000 and more than half of the taxpayer’s income must come from self-employment.
- At least one of the following conditions must be satisfied:
- Trading profits/share of partnership trading profits in 2018/19 of less than £50,000 and these profits constitute more than half of the taxpayer’s total taxable income, OR
- Average trading profits in 2016/17, 2017/18, and 2018/19 of less than £50,000 and these profits constitute more than half of the taxpayer’s average taxable income in the same period
- If trading commenced between 6 April 2016 and 5 April 2019, HMRC will only use those years for which a Self-Assessment tax return has been filed.
- Self-employed profits have not been defined but we assume that this refers to the net profit as shown on the self-assessment tax return for the year in question.
- For those who have not submitted their Income Tax Self-Assessment tax return for the tax year 2018/19, they must do so by 23 April 2020 to qualify.
- HMRC will use data on 2018/19 returns already submitted to identify those eligible and will risk assess any late returns filed before the 23 April 2020 deadline in the usual way.
- The taxable grant will be 80% (up to a maximum of £2,500 per month) of the average profits from 2016/7, 2017/8, 2018/9 tax years (where applicable). To work out the average HMRC will add together the total trading profit for the 3 tax years (where applicable) then divide by 3 (where applicable) and use this to calculate a monthly amount. Where the trade commenced in that period it is assumed that the average will be computed on a pro-rata basis.
- The grant will be paid directly into taxpayers’ bank accounts, in one instalment.
- Taxpayers will need to include the grant in their income for tax credit purposes.
- Taxpayers cannot apply for this scheme yet. HMRC will contact taxpayers directly if they are eligible for the scheme and invite them to apply online. Once HMRC has received the claim and the taxpayer is eligible for the grant, they will contact them to tell them how much they will get and the payment details.
Coronavirus Job Retention Scheme (CJRS) update
An update to this scheme was issued on 26th March and can be viewed at:
Since then the main news has been the announcement that the internet portal through which grant claims will be made will be operational from 20th April with payments being made within 4-6 days.
In order to make a claim you will need to provide the following information:
- Bank account and sort code number
- Name and address of a person within the business for HMRC to call with any questions
- Company Unique Taxpayer Reference or Company Number
- Name, employee number and NI number of each furloughed employee
- Total amount being claimed for all employees and the total furlough period (claims to be in 3-week blocks).
If you use an agent who is authorised to act for you for PAYE purposes, they will be able to make the claim for you but if you use a file-only agent (only authorised to file RTI returns) then they will not be able to make the claim on your behalf.
We previously sent out a list of 30 frequently asked questions about CJRS and, since then, there has been additional guidance in the following areas:
- Eligibility – employers must have created and started a PAYE payroll scheme on or before 28 February 2020, enrolled for PAYE online and have a UK bank account. Any entity with a UK payroll can apply, including businesses, charities, recruitment agencies and public authorities.
- Apprentices – can be furloughed in the same way as other employees and they can continue to train whilst furloughed. However, employers must pay their Apprentices at least the Apprenticeship Minimum Wage, National Living Wage or National Minimum Wage (AMW/NLW/NMW) as appropriate for all the time they spend training. This means you must cover any shortfall between the amount you can claim for their wages through this scheme and their appropriate minimum wage.
- Nannies and other domestic staff – individuals can furlough employees such as nannies provided they pay them through PAYE and they were on their payroll on, or before, 28 February 2020.
- Companies in administration – the administrator will be able to access the Job Retention Scheme. However, HMRC would expect an administrator would only access the scheme if there is a reasonable likelihood of rehiring the workers. For instance, this could be as a result of an administration and pursuit of a sale of the business.
- Employees with caring responsibilities – who are unable to work due to responsibilities resulting from COVID-19 can be furloughed. For example, employees that need to look after children can be furloughed.
- Employees on fixed term contracts – they can be furloughed. Their contracts can be renewed or extended during the furlough period without breaking the terms of the scheme. Where a fixed term employee’s contract ends because it is not extended or renewed employers will no longer be able claim grant for them.
- Furloughing office holders – they can be furloughed and receive support through this scheme. The furlough, and any ongoing payment during furlough, will need to be agreed between the office holder and the party who operates PAYE on the income they receive for holding their office. Where the office holder is a company director or member of a Limited Liability Partnership (LLP), the furlough arrangements should be adopted formally as a decision of the company or LLP.
- Furloughing company directors (including PSCs) – as office holders, salaried company directors are eligible to be furloughed and receive support through this scheme. Company directors owe duties to their company which are set out in the Companies Act 2006. Where a company (acting through its board of directors) considers that it is in compliance with the statutory duties of one or more of its individual salaried directors, the board can decide that such directors should be furloughed. Where one or more individual directors’ furlough is so decided by the board, this should be formally adopted as a decision of the company, noted in the company records and communicated in writing to the director(s) concerned. Where furloughed directors need to carry out particular duties to fulfil the statutory obligations they owe to their company, they may do so provided they do no more than would reasonably be judged necessary for that purpose, for instance, they should not do work of a kind they would carry out in normal circumstances to generate commercial revenue or provides services to or on behalf of their company.
- Salaried Members of Limited Liability Partnerships (LLPs) -they are designated as employees for tax purposes (‘salaried members’) under the Income Tax (Trading and Other Income) Act (ITTOIA) 2005 are eligible to be furloughed and receive support through this scheme. To furlough a member of an LLP, the terms of the LLP agreement (or any such agreement between the LLP and the member) may need to be varied by a formal decision of the LLP, for example to reflect the fact that the member will perform no work in the LLP for the period of furlough, and the effect of this on their remuneration from the LLP. For an LLP member who is treated as being employed by the LLP (in accordance with s863A of ITTOIA 2005), the reference salary for this scheme is the LLP member’s profit allocation, excluding any amounts which are determined by the LLP member’s performance, or the overall performance of the LLP.
- Agency Workers (including those employed by umbrella companies) – where they are paid through PAYE, they are eligible to be furloughed and receive support through this scheme, including where they are employed by umbrella companies. Furlough should be agreed between the agency, as the deemed employer, and the worker, though it would be advised to discuss the need to furlough with any end clients involved. As with employees, agency workers should perform no work for, through or on behalf of the agency that has furloughed them while they are furloughed, including for the agency’s clients. Where an agency supplies clients with workers who are employed by an umbrella company that operates the PAYE, it will be for the umbrella company and the worker to agree whether to furlough the worker or not.
- Limb (b) Workers – where they are paid through PAYE, they can be furloughed and receive support through this scheme. Those who pay tax on their trading profits through Income Tax Self-Assessment, may instead be eligible for the Self-Employed Income Support Scheme (SEISS). “Limb (b) worker” is a status acknowledged under EU employment law recognised as an intermediate category between employee and self-employed. Limb (b) workers benefit substantially from employment rights derived from EU law, for example: rights to restrict their working hours, rights to annual leave, protection from discrimination and equal pay.
- Contingent workers in the public sector – where the party receiving the contingent worker’s services is a Central Government Department, an Executive Agency of a Central Government Department or a Non-Departmental Public Body.
- Further information on what can be claimed – employers need to claim for 80% of employees’ wages (even for employee’s on National Minimum Wage) – up to a maximum of £2,500 plus minimum automatic enrolment employer pension contributions on the subsidised wage. Employers can choose to top up the employee’s salary, but do not have to. Employees must not work or provide any services for the business while furloughed, even if they receive a top-up salary. Grants will be prorated if the employee is only furloughed for part of a pay period. Claims should be started from the date that the employee finishes work and starts furlough, not when the decision is made, or when they are written to confirming their furloughed status. The way you work out your employees’ wages is different depending on what type of contract they are on, and when they started work. For salaried employees (full time or part-time) you can claim for the 80% of the employee’s salary, as of 28 February 2020, before tax.
- Employer National Insurance and Pension Contributions – employers will still need to pay employer National Insurance and pension contributions on behalf of furloughed employees, and those costs can be included in the claim. Employers cannot claim for additional National Insurance or pension contributions they make because they chose to top up the employee’s salary or any pension contributions they make that are above the mandatory employer contribution.
- Overtime, Fees, Commission, Bonuses and non-cash payments – employers can claim for any regular payments they are obliged to pay employees. This includes wages, past overtime, fees and compulsory commission payments. However, discretionary bonus (including tips) and commission payments and non-cash payments should be excluded.
- Benefits in Kind and Salary Sacrifice Schemes – the reference salary should not include the cost of non-monetary benefits provided to employees, including taxable Benefits in Kind. Similarly, benefits provided through salary sacrifice schemes (including pension contributions) that reduce an employee’s taxable pay should also not be included in the reference salary. Where the employer provides benefits to furloughed employees, this should be in addition to the wages that must be paid under the terms of the Job Retention Scheme. Normally, an employee cannot switch freely out of a salary sacrifice scheme unless there is a life event. HMRC agrees that COVID-19 counts as a life event that could warrant changes to salary sacrifice arrangements, if the relevant employment contract is updated accordingly.
- Apprenticeship Levy and Student Loans – both the Apprenticeship Levy and Student Loans should continue to be paid as usual. Grants from the Job Retention Scheme do not cover these.
- Minimum furlough period – any employees placed on furlough must be furloughed for a minimum period of 3 consecutive weeks. When they return to work, they must be taken off furlough. Employees can be furloughed multiple times, but each separate instance must be for a minimum period of 3 consecutive weeks.
Coronavirus Business Interruption Loan Scheme (CBILS) update
Many small businesses that have applied for a government backed CBILS loan thus far have been offered standard overdrafts and loans – without the Government’s 80% guarantee – on the basis that they fit the banks’ criteria for this type of lending
The Chancellor has now confirmed that this is not the intention of his CBILS scheme and that from now on all businesses affected by the COVID-19 disruption should be offered a CBILS loan with the government guarantee.
A summary of other changes to CBILS are set out below.
- Lenders will be banned from requesting personal guarantees on loans under £250,000.
- For loans over £250,000 personal guarantees will be limited to 20% of any amount outstanding on the CBILS lending after any other amounts have been recovered from business assets.
These two changes will provide further reassurance for business owners. Not only will their homes be protected – lenders are already prohibited from asking business owners to put their house on the line – but will also limit the exposure to other personal assets. Reassuringly, these changes will apply to finance already offered under CBILS.
Further changes include:
- The Government encouraging operational changes to speed-up applications under the scheme.
- The government still covering the first twelve months of interest and bank fees.
- A new Coronavirus Large Business Interruption Loan Scheme (CLBILS) is to be made available to enable banks to make loans under the scheme of up to £25m (the present limit for the smaller scheme is £5m). This will allow firms with an annual turnover of between £45m and £500m access to the 80% government guarantee.
- The Government actively requesting that banks keep interest rates to “a reasonable level”.
These changes should make it easier for small and mid-sized firms to get access to funding that will support their efforts to survive the COVID-19 disruption. If you need to make an application would be wise to revise their business cashflow and other projections prior to making an application. This funding is a loan not a grant. The impact of loan repayments and interest charges after the first twelve months need to be considered as part of this planning process.
We can help you consider your options and prepare the necessary forecasts if required.
Support for businesses who pay little or no business rates – update
As announced, there is a £10,000 grant available for businesses in receipt of small business rates relief or rural rate relief (rising to £25,000 for retail, hospitality or leisure businesses). This is being administered by local authorities who will contact eligible businesses direct.
Most authorities seem to be allowing applications online and locally there is information below on how to claim:
We are delighted to inform you that Copia received its support grant from Wolverhampton Council on 9th April, exactly one week after submitting the application so things are clearly moving in this area. Well done to Wolverhampton Council on acting so quickly.
Relaxation of financial solvency rules
The government plans to introduce emergency changes to overhaul insolvency laws and give “breathing space” to companies hit by the coronavirus crisis, Alok Sharma, the business secretary has announced, in a move to help prevent mass failures.
Laws that make it illegal for a business to trade when it is insolvent are set to be suspended. The decision means companies and individuals that cannot meet their debts because of the coronavirus pandemic will not be forced to file for insolvency.
Current insolvency rules make it a civil offense for directors of limited liability companies to continue to trade when they are not certain that their businesses can continue to meet their debts, with directors becoming personally liable, the Department for Business, Energy and Industrial Strategy said in a statement.
Amendments to wrongful trading rules will protect directors during the pandemic by allowing companies to continue buying supplies, such as energy, raw materials or broadband, while they attempt a rescue, the government said.
The suspension be put in place retrospectively from March 1 for three months.
Reviewing your personal finances
As the crisis continues it is probably a good time to review your options to improve your cash flow position for your personal as well as business finances. Here are some areas to consider:
- Universal credit remains an option especially as some SEISS scheme unlikely to make any payments before June:
- Standard monthly allowance £342-594 per month plus £236-281 per child plus help for housing costs
- Adjusted to take account of other income
- Adjusted to take account of savings (no UC if >£16k)
- Takes around 5 weeks for first payment (probably longer now)
- Apply via 0800 328 5644 or https://www.gov.uk/sign-in-universal-credit
- Mortgage payment holiday – 3 months available (including for Buy to Let mortgages) – contact your lender to discuss your options
- Personal debt holiday – many lenders offering 3 months so contact your lender
- Rent deferral – worth talking to your landlord about this and note that eviction notices extended to 3 months
- Review monthly expenses e.g. Sky Sports, gym etc
- Use free time to time to consider developing new income streams e.g. network marketing
The support schemes are all within or nearing the point where claims can be made, and payments will commence – it is worth ensuring you have explored all the options and maximised your position.
It should also now be possible to calculate what you are likely to receive which can be factored into your cash flow projections to establish if you need to consider using CBILS.
It is also worth remembering to consider what you can do with your personal finances too.
Remember, the Copia team is still up and running and here to help – give us a call on 01902 783172.