Financial Assistance for the Self-Employed During the Coronavirus Crisis

coronavirus and the self employed

This summary is for the self-employed, explaining the government assistance available to them throughout the COVID-19 Pandemic and ways that they can help themselves. We are keeping this summary up to date with the current assistance available and removing the sections that no longer apply. The last time this advice was updated was after the Chancellor’s statement on 4 5 November 2020.

Professional Assistance for the Self-Employed

Dixcart has lawyers, accountants and tax advisers that can assist your business to apply for financial assistance, at this challenging time.  Please phone: 0333 122 0000 to speak to one of our directors or email: hello@dixcartuk.com. If you are already a client, please speak to your usual contact. 

Cash Flow

The overriding principal, in this type of crisis, is to stop measuring your business in terms of profit but instead worry about cash. A lack of cash will close the business much quicker than a lack of profit, and therefore the most important report that you should be producing is a forecast cash flow.

The UK Government has announced a number of measures to assist businesses to survive this crisis. Every business no matter how small, should take advantage of some of these measures. You will only know which are appropriate for your business, by going through them all, to decide which will help you. Following this an action list should be produced and quickly undertaken, to take advantage of the government measures.

As further measures are announced, these too should be reviewed to see if they are helpful to you, and appropriate action quickly taken.

Although the government is giving more time for accounts to be completed and tax returns filed, this not the time to stop recording your transactions and keeping up-to-date with your financial situation. After all, if you do not know where you are, how are you going to know where you are going? In the current crisis, sales and most importantly cash is reducing quickly, and you must stay on top of record keeping to know what is happening.

Whilst the government is giving extra time to pay taxes such as VAT they are still expecting the returns to be completed on time. 

You will also require your latest accounts and management accounts, if you are going to apply for loans (please see below), or to ask for extra time to pay landlords and/or other lenders and creditors (please see below), as they may well ask to see them. It is therefore important to have accounts prepared and records up to date.

Coronavirus (COVID-19) Self-employment Income Support Scheme

The Chancellor, under the Winter Economic Plan announced on the 24th September 2020, that the government is going to continue to support self-employed individuals by extending the Self-Employment Income Support Grant. An initial taxable grant will be provided to those who are currently eligible for SEISS and are continuing to actively trade but face reduced demand due to coronavirus. The details were changed a number of times until the 5th November 2020, increasing the amount being made available. The initial lump sum will cover three months’ worth of profits for the period from November 2020 to the end of January next year. This is worth 80% of average monthly profits, up to a cap of £7,500, the online service for this grant will be available from 30th November 2020.

An additional grant, which may be adjusted to respond to changing circumstances, will be available for self-employed individuals to cover the period from February 2021 to the end of April 2021. As yet there are no details, but it is expected that HMRC will contact those that are eligible for the grant at the appropriate times. If you have not received earlier grants and believe that you are eligible, please contact us.

Business Grant Scheme

For businesses under Tier 2 restrictions (which are not required to close) cash grants will be available from local authorities, who will decide how best to distribute them. Funding is being provided to support cash grants of up to £2,100 per month, primarily for businesses in the hospitality, accommodation and leisure sector who has been adversely impacted by the Tier 2 restrictions. These grants will be available retrospectively for areas who have already been subject to Tier 2 restrictions and in addition to the grants announced last week by the Chancellor for businesses in Tier 3 areas (up to £3,000 per month).

On the 23rd October the government released the following information about this scheme:

Local Restrictions Support Grant (Tier 2)

What is the scheme?

We are providing additional funding to allow local authorities to support businesses in Tier 2 areas which are not legally closed, but which are severely impacted by the restrictions on socialising. The funding local authorities will receive will be based on the number of hospitality, hotel, B&B, and leisure businesses in their area, and will assume that these businesses receive grants equivalent to 70% of the grants for which legally closed businesses are eligible.

This would be equivalent to:

  • For properties with an RV of £15k or under, grants of £934 per month
  • For properties with an RV above £15k and below £51k, grants of £1,400 per month
  • For properties with an RV of £51k or above, grants of £2,100 per month

It will be up to Local Authorities to determine what precise funding to allocate to each business – the above levels are only an approximate guide.

Local authorities will also receive a 5% top up amount to these implied grant amounts to cover other businesses that might be affected by the local restrictions, but which may not be in the business rates system.

This scheme will initially run until April, with a review point in January.

Who is eligible?

Local authorities have the freedom to determine the precise eligibility criteria for these grants in their local areas. The guiding principle for local authorities is to use the funding to support businesses which have not been legally required to close, but which are nonetheless severely impacted by reduced demand caused by Tier 2 restrictions on socialising.

How can businesses access the grants?

Grants will be administered by Local Authorities, and businesses are likely to need to apply to their local authority for support. It is up to local authorities to determine the payment schedule and timings for these grants.

What can businesses use the grants for?

Businesses can choose to spend the grants as they wish. We expect that many businesses will use the grants to cover high fixed property-related costs.

What about areas which have been living under Tier 2-equivalent restrictions for several months already? Will you help them?

Some areas have been subject to restrictions on socialising for several months, before the tiering system was introduced. Funding for these areas will be backdated until the point at which these restrictions began.

Dealing with Banks and other Financial Lenders

Although banks are not normally very helpful when there is a downturn in business, the ‘Coronavirus Business Interruption Loan Scheme’ (CBILS), is likely to mean that they will be willing to assist through this crisis. This is available through your normal bank, but 80% of the credit risk is being taken by the government and the loan will be interest free for the first 12 months. If you need additional funds this should be where you turn to first. You will of course need a plan to explain how the loan will be repaid in the future.

As the details of the scheme were announced by the individual banks, some stated that they were looking for personal guarantees.

The government has made it clear that the requirement for personal guarantees is at the discretion of the lender. However, a lender is not allowed to take a personal guarantee against a borrower’s principle residence, under the scheme. Therefore, even if a personal guarantee is required under the lender’s credit policy, it cannot be taken against the borrower’s home.

Some major lenders have announced that they are not going to require personal guarantees on loans, under the CBILS scheme, of any size. As a further update on the 4th April, the Government announced: personal guarantees are not required to secure lending below £250,000. For anyone borrowing above £250,000 personal guarantees will be capped at 20% of the outstanding value of the loan, as the Government is providing the guarantee for the remaining 80% of the finance. This will apply to all customers that have secured a loan under the scheme since its launch on 23rd March. 

If you use factoring or invoice discounting, do not assume that the historic facility levels will be available during the crisis. Normally the level of borrowing is limited to a percentage of the invoices that the bank will allow to be included in the discounting. As your sales fall, the invoices available will reduce and so will your facility. In addition, the banks will normally restrict the age of the invoice that can be included, therefore as payment slows and debt ages, invoices can fall outside the limit, further restricting the amount that can be borrowed. The banks also have a habit of restricting further which customers’ invoices they will allow to be used in the facility.

If you use other funding such as leasing equipment, or have a mortgage on your property, talk to relevant lenders and see if they will give you a payment holiday. This will not come without a cost, but reducing the cash outflow is the important consideration.

For businesses who have taken a loan under this scheme, the Chancellor, under the Winter Economic Plan announced on the 24th September 2020, that the borrower will be able to speak to their lender to extend the length of the loan to a maximum of 10 years. Further applications for these loans were to close at the end of September, but were extended until the end of November 2020.

Coronavirus Bounce Back Loan

  • The scheme was announced on 27 April and was launched on 4 May.
  • The Bounce Back Loan scheme will help small and medium-sized businesses to borrow between £2,000 and £50,000.
  • The government will guarantee 100% of the loan and there will not be any fees or interest to pay for the first 12 months.
  • Loan term loans will be up to 6 years. No repayments will be due during the first 12 months. The government has worked with lenders, to agree a low rate of interest of 2.5% for the remaining period of the loan.
  • The scheme will be delivered through a network of accredited lenders.
  • Applications will be made through a short online form. There will be no forward looking tests of business viability.
  • You can apply for a loan if your business:
    • is based in the UK
    • has been negatively affected by Coronavirus
    • was not an ‘undertaking in difficulty’ on 31 December 2019.

For businesses who have taken a loan under this scheme, the Chancellor, under the Winter Economic Plan announced on the 24th September 2020, outlined the ‘pay as you grow’ flexible repayment system. The system extends the length of the scheme from 6 years to 10 years, with interest only periods of up to 6 months and payment holidays also available. Further applications for these loans were to close at the end of September, but were extended until the end of January 2021. The Bounce Back Loan Scheme rules are also being amended to allow businesses who have borrowed less than their maximum (i.e. less than 25% of their turnover) to top up their existing loan. This option will be available to businesses from next week and can only be used once. 

Tax Matters

Deferring Tax Bills

Self assessment tax payers were entitled to a deferral and from the Chancellor’s announcement of the Winter Economic Plan on 24th September 2020, will be able to benefit from an additional 12 month extension on the Time to Pay self service facility. This means that payments deferred from July 2020 and those due in January 2021, will not need to be paid until January 2022.

VAT

The Chancellor, under the Winter Economic Plan announced on the 24th September 2020 that where business have deferred their VAT payments, which were due to be paid in one lump sum on 31st March 2021, through a new payment scheme, businesses will have the option to pay back the VAT deferred in 11 smaller interest free payments during the 2021-2022 financial year. He also stated that the previously announced reduction in the VAT on hospitality and tourism from 20% to 5% would be extended to 31 March 2021. More details to follow.

Dealing with your Landlord

If you do not own but rent your premises, speak to your landlord and try to negotiate a reduction in your rent for a period; again there may be a long term cost in doing this, but the landlord will not want an empty property at present, so it is in their interest to help keep you in business.

On the 23rd March the government announced that commercial tenants who cannot pay their rent because of coronavirus will be protected from eviction.

The announcement stated:

  • Commercial tenants who cannot pay their rent because of coronavirus will be protected from eviction.
  • Many landlords and tenants are already having conversations and reaching voluntary arrangements about rental payments due in the near future, but the Government recognises that businesses struggling with their cashflow, due to coronavirus, remain worried about eviction.
  • These measures, included in the emergency Coronavirus Bill currently going through Parliament, will mean no business will be forced out of their premises, if they miss a payment in the next three months.
  • This builds on the unprecedented package of support announced for businesses who are affected by coronavirus.
  • Commercial tenants will still be liable for the rent after this period. The Government is also actively monitoring the impact on commercial landlords’ cash flow and continues to be in dialogue with them.

Coronavirus Job Retention Scheme (The Furlough Scheme) and Job Support Scheme

The Chancellor announced that a new Job Support Scheme will be introduced from the 1st November 2020 and last for six months, on the 31st October 2020 this was put on hold and it was announced that the Coronavirus Job Retention Scheme was being extended until 31st March 2021. The details about the extended Coronavirus Job Retention Scheme can be found here.

Assistance

Dixcart has lawyers, accountants and tax advisers that can assist your business to apply for financial assistance, at this challenging time.  Please phone: 0333 122 0000 to speak to one of our directors or email: hello@dixcartuk.com. If you are already a client, please speak to your usual contact.

The data contained within this document is for general information only. No responsibility can be accepted for inaccuracies. Readers are also advised that the law and practice may change from time to time. This document is provided for information purposes only and does not constitute accounting, legal or tax advice. Professional advice should be obtained before taking or refraining from any action as a result of the contents of this document.