We’ve had lots of calls and contact from concerned clients asking for clarification of what help and assistance is available. Of course we are more than happy to speak to each of you one to one, but we wanted to ensure all of our clients had this information to hand. We have therefore put together this summary of assistance currently announced by the government, as well as our own thoughts as to how you could navigate your way through this period.
This is a fast changing situation with announcements being made every day, so we will look to update this with any relevant information and make you aware in due course.
Please be assured that we are operating our services as usual and do not currently foresee any significant interruptions to this. We have plans in place for our staff to work from home as and when the need arises.
The important point to remember is that this period will pass. Whilst there may be some short term difficulties, it is important to keep calm, be positive and continue to make rational decisions. We are here to support you through this, whether that being a sounding board for decisions or to offer moral support and encouragement when needed.
UPDATES to 2 April 2020
Compared to the last couple of weeks, it’s been a relatively quiet week in terms of government announcements. We’ve therefore provided the relevant updates below. We’ve also had some questions on the payment deferments for VAT and self assessment, so we have recapped the fundamentals of these schemes.
Many clients will be affected by the lack of help available for small owner-managed businesses and contractors. Whilst the Chancellor is expected to say more on helping businesses access the support they need in the coming days, it’s not clear whether this will address the lack of support for smaller businesses. A petition has been started, here, calling for more help from the government.
Coronavirus Job Retention Scheme
Directors furlough
- Whilst currently no official confirmation from HMRC or the government, it is our understanding that directors, including a sole director, who are already on PAYE could potentially furlough themselves.
- Whilst on furlough, the director(s) could only perform their statutory duties and obligations, such as filing their accounts. But they would not be able to undertake work or generate revenue.
- It would only be the regular PAYE salary, not dividends, bonuses etc which would be covered by the scheme, so for many this would be a minimal amount.
- We hope to receive official clarification on this in due course.
Employee furlough
- an employee cannot undertake work for or on behalf of the organisation. This includes providing services or generating revenue.
- A furloughed employee can take part in volunteer work or training, as long as it does not provide services to or generate revenue for, or on behalf of your organisation.
- If workers are required to for example, complete online training courses whilst they are furloughed, then they must be paid at least the NLW/NMW for the time spent training, even if this is more than the 80% of their wage that will be subsidised.
VAT payment deferment recap
- HMRC will defer VAT payments due between 20 March 2020 and 30 June 2020.
- VAT Returns must still be submitted during this period by the usual deadlines.
- All VAT-registered UK businesses are eligible.
- This is an automatic offer with no applications required – you don’t need to do anything.
- Any deferred VAT liabilities will be given until the end of the 2020-21 tax year to be paid.
- Businesses who normally pay by direct debit should cancel their DD with their bank in sufficient time if they are unable to pay.
- VAT refunds and reclaims will be repaid as normal.
Self assessment payment deferment recap
- The self assessment payment on account due to be paid by 31 July 2020 can be deferred until January 2021, without penalty or interest.
- All self assessment taxpayers, not just the self-employed, are eligible.
- This is an automatic offer with no applications required – you don’t need to do anything.
- The deferment is optional. Anyone able to make the payment by 31 July 2020 should still do so to avoid accumulating a large payment in January.
- Coronavirus Business Interruption Loan Scheme – removed requirement for personal guarantees
- The Big Four banks have agreed that they will not take personal guarantees as security for lending below £250,000 which was an initial stumbling block for those applying during the first couple of weeks.
- However, it should be born in mind that you will need to produce a borrowing proposal which the lender would consider viable were it not for the COVID-19 pandemic, and believes will enable you to trade out of any short-term to medium-term difficulty.
Rates grants
- The Chancellor has sent more than £12bn to local authorities, with the instruction being to get it to businesses as quickly as possible.
- Some of our clients have already received letters about the grants. They are being posted to the address to which it applies, and you will be asked to provide the authority with details of the bank account into which it should be paid.
- With the majority of people now working from home, and/or with premises temporarily closed, you should make arrangements to check into premises on a regular basis to avoid delays in receiving grants.
UPDATES to 26 March 2020
Self-employment Income Support Scheme
The Self-employment Income Support Scheme (SEISS) will support a number of self-employed individuals (including members of partnerships) who have lost income due to COVID-19.
This scheme will allow you to claim a taxable grant (i.e. this will need to be declared on your Tax Return) worth 80% of your trading profits up to a maximum of £2,500 per month for the next 3 months. This may be extended if needed.
Unlike employed workers furloughed during the outbreak, self-employed workers can also continue working and claim the grants.
You can apply if you’re a self-employed individual or a member of a partnership and you:
- have submitted your Income Tax Self Assessment tax return for the tax year 2018-19. It will not apply to anyone who started trading in 2019/20 i.e. those that have started a new business in the last 12 months
- traded in the tax year 2019-20
- are trading when you apply, or would be except for COVID-19
- intend to continue to trade in the tax year 2020-21
- have lost trading/partnership trading profits due to COVID-19
- your self-employed trading profits are less than £50,000 and more than half of your income comes from self-employment.
You cannot apply for this scheme yet. HMRC will contact you if you are eligible for the scheme and invite you to apply online.
The grant will be paid directly into your bank account in one instalment. This is expected to be “no later than the beginning of June”.
Self assessment (including self employed individuals)
For Income Tax Self-Assessment, payments due on the 31 July 2020 may be deferred until 31 January 2021. You are eligible if you are due to pay your second self-assessment payment on account on 31 July.
You do not need to be self-employed to be eligible for the deferment, so this includes anyone else who files a Self Assessment Tax Return.
This is an automatic offer with no applications required. No penalties or interest for late payment will be charged in the deferral period. Those who normally pay by direct debit should cancel their direct debit with their bank in sufficient time if they are unable to pay.
This deferment is optional. For many, a deferment will result in a large payment in January next year which may put further cashflow pressures on individuals. If you are still able to pay your second payment on account on 31 July then we advise that you do so. Alternatively, you should consider paying what you can in advance of January.
In addition to these measures the government have worked to reduce the fixed outgoings of self employed people. Currently they can also benefit from (some of which have already been covered):
- Rent deferral
- Mortgage deferral
- Energy Bill deferral
- Tax Bill deferral
- Business VAT deferral
- IR35 deferral
Coronavirus Job Retention Scheme
Under the coronavirus Job Retention Scheme, all UK employers (including charities) with a PAYE scheme will be able to access support to continue paying part of their employees’ salary for those that would otherwise have been laid off during this crisis. This applies to employees who have been asked to stop working, but who are being kept on the payroll, otherwise described as ‘furloughed workers’.
This is to safeguard workers from being made redundant. The scheme is available for employees on the payroll at 28 February 2020. Any employee who was made redundant after that date but who was employed then, can be re-employed and furloughed. The Coronavirus Job Retention Scheme will cover the cost of wages backdated to March 1st and is initially open for 3 months, but will be extended if necessary.
HMRC will reimburse
- 80% of their normal monthly wage (not including fees, commission and bonuses), up to £2,500 per month.
- plus the associated employers’ national insurance contributions (NIC) on this amount and the minimum automatic enrolment employer pension contributions on that wage.
This gives a maximum cap of £2,500 + £245 (employers’ NIC) + £59 (auto- enrolled pension contribution) = £2,804 of total possible grant that can be applied for per employee per month.
The employer could choose to fund the differences between this payment and the salary, but does not have to. To qualify for this scheme, the employee must not undertake work for the employer while they are furloughed.
Many owner managed company director/shareholders pay small salaries via a payroll and the balance of income as dividends. The scheme does not extend to dividends. Only the salary is relevant to the scheme.
You will need to:
- Designate affected employees as ‘furloughed workers,’ and notify your employees of this change – changing the status of employees remains subject to existing employment law and, depending on the employment contract, may be subject to negotiation.
- Once the new online portal is live, submit information to HMRC about the employees that have been furloughed and their earnings (HMRC will set out further details on the information required)
HMRC are working urgently to set up a system for reimbursement. Existing systems are not set up to facilitate payments to employers. The government expect the first grants to be paid within weeks, and are aiming to get it done before the end of April. If necessary, businesses should look to the Coronavirus Business Interruption Loan Scheme to support cashflow in the meantime.
The government will retain the right to retrospectively audit all aspects of the scheme with scope to claw back fraudulent or erroneous claims.
VAT payments
For VAT registered businesses, HMRC are deferring VAT payments for 3 months. The deferral will apply from 20 March 2020 until 30 June 2020.
This is an automatic offer with no applications required. Businesses will not need to make a VAT payment during this period. Businesses who normally pay by direct debit should cancel their direct debit with their bank in sufficient time if they are unable to pay. VAT refunds and reclaims will be paid by the government as normal.
Taxpayers will be given until the end of the 2020 to 2021 tax year to pay any liabilities that have accumulated during the deferral period.
Filing accounts at Companies House
From 25 March 2020, businesses will be able to apply for a 3-month extension for filing their accounts. This is not automatic, companies will have to apply before their usual filing deadline for the 3-month extension to be granted.
Those citing issues around COVID-19 will be automatically and immediately granted the extension. However, companies that have already extended their filing deadline, or shortened their accounting reference period may be ineligible for an extension. Applications can be made through a fast-tracked online system. Companies should simply cite COVID-19 or Health matters as the grounds for their application.
The government is also in consultation to look at solutions for the impact COVID-19 may have on companies’ ability to hold Annual General Meetings.
The government is also in consultation to look at solutions for the impact COVID-19 may have on companies’ ability to hold Annual General Meetings.
Nursery businesses that pay business rates
HMRC will introduce a business rates holiday for nurseries in England for the 2020 to 2021 tax year. Properties that will benefit from the relief will be those:
- occupied by providers on Ofsted’s Early Years Register
- wholly or mainly used for the provision of the Early Years Foundation Stage
Premises which have closed temporarily due to the government’s advice on COVID-19 will be treated as occupied for the purposes of this relief. Premises which are occupied but not wholly or mainly used for the qualifying purpose will not qualify for the relief. There is no action for you to take, this will apply to the next council tax bill in April 2020 (some of which may have to reissued to exclude the business rate charge).
Protection from eviction for commercial tenants
Commercial tenants in England, Wales and Northern Ireland who cannot pay their rent because of COVID-19 will be protected from eviction. This is not a rental holiday, all commercial tenants will still be liable for the rent.
These measures will mean no business will automatically forfeit their lease and be forced out of their premises if they miss a payment up until 30 June. There is the option for the government to extend this period if needed. No action is required. The change will come into force when the Coronavirus Bill receives Royal Assent.
Extension of Business Improvement Districts (BIDs) arrangements
BIDs will be able to extend the maximum duration of their BID arrangements until 31 March 2021 by delaying BID ballots due to take place this year. This enables BIDs, and the local authorities who administer the ballot process, to concentrate on responding to the current emergency.
Coronavirus Business Interruption Loan Scheme
Since the announcement last week, we are hearing that many banks are making it difficult to lend based on the more pessimistic short term forecasts understandably now being drawn up in the current environment and/or insisting on personal guarantees covering the majority of the loan. It therefore seems that the businesses who these loans were intended to help are in fact finding that they are unable to access them. We are hoping that these difficulties will be addressed and the scheme guides refreshed/changed, in order to make the scheme more suitable to those that it was designed for. We wait and see.
GOVERNMENT
IR35 and the private sector
The IR35 tax reforms due to implemented in April 2020 have been postponed, with the legislation now due to be reintroduced in April 2021.
If you were due to be affected by the new measures, it would be sensible to reach out to your end client immediately to confirm that they will be deferring any changes to your working practices in line with the government announcement.
You then have the opportunity of a further year to review your contracts, working practices, and to have productive discussions with your clients, with the plan being to adapt the details where necessary to ensure you will remain outside of IR35 this time next year.
Support for businesses paying statutory sick pay to employees
The government is introducing legislation to enable small and medium-sized businesses with fewer than 250 employees to reclaim Statutory Sick Pay (‘SSP’) paid for sickness absence due to COVID-19.
The government has issued assurances that it will work with employers over the coming months to set up the refund system as soon as possible.
You should continue to maintain records of staff absences and payments of SSP, however your employees will not need to provide a GP fit note.
Unfortunately there’s not yet any specific support announced for the self-employed, who cannot access the SSP reclaim.
Support for businesses that pay business rates
A business rates retail holiday for retail, hospitality and leisure businesses in England is being introduced for the 2020/21 tax year.
A £25,000 grant i.e. should not need to be repaid, will be provided to retail, hospitality and leisure businesses operating from smaller premises (rateable value between £15,000 and £51,000). Pubs and restaurants will also be granted fast-track planning permission to serve takeaway hot food and drinks.
In addition, a one-off £10,000 grant will potentially be available to businesses currently eligible for small business rates relief or rural rate relief, to help meet their ongoing business costs. If your business is eligible you should be contacted by your local authority – you do not need to apply.
Any enquiries on eligibility or provision of the reliefs should be directed to the relevant local authority.
Coronavirus Business Interruption Loan Scheme
A new temporary Coronavirus Business Interruption Loan Scheme will launch next week by the British Business Bank to support small and medium sized businesses. This will enable them to access government backed bank lending and overdrafts (of up to £5 million for loans).
Being a loan, the borrower is still responsible to repay the loan, is subject to affordability, and access to the funds is unlikely to be immediate. The government will cover the first 6 months of interest payments. The scheme will become available from 23 March 2020.
To support larger firms, the Bank of England has announced a new lending facility to provide a quick and cost effective way to raise working capital via the purchase of short-term debt. This will support companies which are fundamentally strong, but have been affected by a short-term funding squeeze, enabling them to continue financing their short-term liabilities. The scheme will be available from the week commencing 23 March 2020.
Support for businesses paying tax liabilities
All businesses and self-employed people in financial distress, and with outstanding tax liabilities, may be eligible to receive support with their tax affairs through HMRC’s Time To Pay service. These arrangements are agreed on a case-by-case basis and are tailored to individual circumstances and liabilities.
If you are concerned about being able to pay your tax due to COVID-19, you can call HMRC’s dedicated helpline on 0800 0159 559.
Insurance claims
If you have insurance cover for both pandemics and government-ordered closure you should be covered . The government and insurance industry confirmed on 17 March 2020 that advice to avoid pubs, theatres etc is sufficient to make a claim.
However, the reality is that you may not be covered as standard business interruption insurance policies are dependent on damage to property and will exclude pandemics, so you should check the terms and conditions of your specific policy and contact your insurers.
CASHFLOW AND FINANCING
The saying “turnover is vanity, profit is sanity, cash is king” has become very relevant. You can have a healthy level of paper profits, but if the income’s not flowing quickly enough into your bank account, it will soon start to suffocate your business.
If that looks to be the case, it is important to consider short term financing to give your business some breathing space. In addition to the grants and other government measures mentioned above, also consider some of these other options.
Manage/forecast cashflow
The first place to start is working out where you are and what you might need. Taking out finance that you don’t need may give you some confidence in your temporary bank balance/cashflow abilities, but is likely to be an unnecessary cost as a whole.
Manage your cash sensibly. What income is due to come in, is it guaranteed? What expenditure is essential at the moment? Can any large expenditure/projects be put off for the time being? Do you have cash reserves that can be diverted? Are you making the most of existing credit terms or can some payments be legitimately delayed in order to plug any immediate cashflow shortfalls (whilst ensuring you can still make the later payment)? That said, if cashflow isn’t looking like an issue, can you help out a supplier who may be struggling by making an early payment to them?
Do you have a cashflow forecast? If not, now is the time to put one together. If you already have one, it should be reassessed and likely adjusted. It would also be sensible to stress/scenario test it – what if that receipt doesn’t come in, what if staff productivity falls by 20%? If any issues are identified, can they be managed with existing facilities/resources or will you need to consider external financing?
Please speak to us if you need any assistance in putting together a forecast, or reassessing/testing it. We can assist as little or as much as you need.
Overdrafts
Often the quickest way to access short term funds, especially if you have an existing facility as your bank may be willing to extend your limit. Some banks have earmarked funds specifically to help affected businesses, so talk to them. Bear in mind that any extension may be temporary and could therefore be withdrawn at a later date.
Invoice Finance
If you have a large debt book, these arrangements can be quick to access but potentially
expensive. It will likely provide you with more cash than an overdraft, though the value of the debts will be discounted as the finance company will take on the risk of slow and non-payment.
Alternative finance loans
Non-bank lending accelerated during the 2008 financial crisis. There are many products that exist outside of banks which are often more flexible, simple and faster to access.
Practical/business planning
Leadership and people skills are going to be key in the coming weeks and months.
Communicate
Everyone is feeling nervous, or at least uncertain, at some level about the immediate future, so communication is key in order to provide some element of certainty. As a leader in your business, people will look for you to lead with purpose, positivity and integrity.
Communicate with your customers and clients to ensure them that you are open for business, even though it might look a little different for a while.
Communicate with your staff and contractors to ensure them that your business isn’t going into lockdown and that there is work that needs to be done, again even though it might look a little different for a while.
And keep communicating. Evaluate how and when you need to communicate, especially if you find yourself with a home working team.
Remote working
Working from home (WFH) has become more popular over in recent years, with many new businesses adopting an exclusively remote working model. But for a large proportion of people, for both staff and business owners, this new approach will be unchartered territory and potentially unsettling.
Practically, if you and your staff are able to carry out your work from home then ensure you have the infrastructure to support this. If you already work off of a remote server then this may be simple to achieve. If you have an on-site server then you may be able to set up a secure remote connection.
In terms of people, be clear, but also realistic, about expectations. For many it will be hard to transition from office to home in such a short space of time and with the distractions of what is going on. Consider giving them a framework or boundaries to help guide (and not hinder) them in this change.
You will expect your staff to work, as much as they can, as they would at the office including being available to take calls, answer emails etc. But be realistic that there will be distractions (not least children, concerned relatives etc) and a certain amount of ‘getting used to this way of working’ which may mean they are not as productive as at the office. Communicate that, clear the air, to try and reduce some of the guilt that may be felt by those conscientious employees. Put trust in them, empower them to make the right decisions.
Most importantly, keep communicating. Remote working, social distancing, isolating is only in the physical context. People still need people, and even more so at the moment. Set up a WhatsApp group, arrange regular phone/video calls between your team to stay in touch both on an operational level and also a personal one.
And don’t forget your own needs as a business owner. All of the above is relevant to you, too. Business can be lonely at the best of times, ensure you find your own support through your business contacts and networks. Give us a call to check in, run some ideas past us or just to stay sane.
Review systems/processes
This will all pass. Prepare to come out the other side in the best way possible. The landscape may look a little different, hopefully for the better, but the fundamentals will remain. Make sure you’re in a good position for when things start to improve.
If you find yourself with some downtime that you want to fill, give some time to work on those things that you’ve been too busy for.
Reflect on where you started and how far you’ve come. Systems or ways of doing things may have worked really well back then or until now, but are they still working for you or are there now better ways of doing things? What’s worked really well for your business – can that be tweaked or improved?
Imagine, without restrictions, what you would like your ideal business to look like. What steps or changes can you start to make now that will help you get closer to that?
If you’re not already using cloud accounting software then take a look at what’s available – we recommend FreeAgent or Xero depending on your requirements. If you’re already using this in your business, take a look at other add-on apps that might be useful – for chasing debts, cashflow management and projections, stock control etc. Many of them have free trial periods, so pick one or two that you think have potential for you and give them a go.
Again, give us a call if you need a starting point, need a steer or have any questions.
Future planning
There are always things to be learnt from difficulties, and unfortunately there is no getting away from difficulties. What you can do is be well prepared to take them on. It’s fair to say that these current events have caught most people off-guard. What will you do differently to ensure you are better prepared for difficulties in the future? Will you:
- be permitting more homeworking so that it’s an easier transition for staff/you?
- put more cash aside as an ‘emergency reserve’?
- move to a cloud-based strategy so you have offsite access to the files and software you
need? - carry out more cashflow projections and/or scenario testing of those projections?
Hopefully you have found this helpful. Do feel free to pass it on to anyone who you feel may also benefit from it.
We are more than happy to discuss any of these points with you, or support you however we can at this time. Please get in touch with us in the usual way.
Regards,
The Auker Hutton team