Text in Purple denotes an Update made week commencing 4 May 2020.
On the 26 March 2020 the government published guidance entitled ‘Claim a grant through the coronavirus (COVID-19) Self-employment Income Support Scheme’ this paper has been written to assist the self-employed obtain that grant, but also explains other sources of financial assistance that are available and how the self-employed should look to maximise income and reduce costs of their business during this crisis.
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: email@example.com. If you are already a client, please speak to your usual contact
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. Please see the VAT section in this article.
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
A self-employed individual does not need to apply for this grant. If you are self-employed and eligible, HMRC will advise you and invite you to apply. Once HMRC has received your claim they will access your eligibility and the amount due to you. They will then inform you what you will get and pay a maximum of £2,500 per month for 3 months, directly into your bank account. To make sure that you will be considered, your tax returns for the last 3 tax years to 2018/19, must have been submitted. All 3 returns should have already been filed with HMRC, but HMRC is extending the deadline for the submission of the 2018/19 return to the 23rd April 2020.
- If your return has not been filed and you need assistance, please contact us immediately.
You are eligible, if you are 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
- 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 profit must also be less than £50,000 and more than half of your income come from self-employment. This is determined by at least one of the following conditions being true:
- having trading profits/partnership trading profits in 2018-19 of less than £50,000, and these profits constituting more than half of your total taxable income
- having average trading profits in 2016-17, 2017-18, and 2018-19 of less than £50,000 and these profits constituting more than half of your average taxable income in the same period
If you started trading between 2016-19, HMRC will only use those years for which you filed a Self-Assessment tax return.
If you have not submitted your Income Tax Self-Assessment tax return for the tax year 2018-19, you must do this by 23 April 2020.
HMRC will use data from the 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.
You will receive a taxable grant which will be 80% of the average profits from the tax years (where applicable):
- 2016 to 2017
- 2017 to 2018
- 2018 to 2019
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.
It will be up to a maximum of £2,500 per month for 3 months.
HMRC will pay the grant directly into your bank account, in one instalment.
HMRC will contact you if you are eligible for the scheme and invite you to apply online.
Individuals do not need to contact HMRC now and in doing so will only delay the urgent work being undertaken to introduce the scheme.
You will access this scheme only through GOV.UK. If someone texts, calls or emails claiming to be from HMRC, saying that you can claim financial help or are owed a tax refund, and asks you to click on a link or to give information such as your name, credit card or bank details, it is a scam.
Once HMRC has received your claim and you are eligible for the grant, they will contact you to tell you how much you will get and the payment details.
If you claim tax credits you will need to include the grant in your claim as income.
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.
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.
If you have already received a loan under the Coronavirus Business Interruption Loan Scheme, you cannot also apply for a Bounce Back Loan, but you may be able to transfer the CBILS loan into a Bounce Back Loan. You will have to arrange this with your lender before 4 November 2020.
Future Fund – to be launched in May 2020
- This Scheme will issue convertible loans between £125,000 to £5 million to innovate companies, which are facing financing difficulties due to the Coronavirus outbreak.
- The Future Fund will provide government loans to UK-based companies ranging from £125,000 to £5 million, subject to at least equally matched funding from private investors.
- These convertible loans may be a suitable option for businesses that rely on equity investment and are unable to access the Coronavirus Business Interruption Loan Scheme.
- The scheme will be delivered in partnership with the British Business Bank.
- You are eligible if:
- Your business is based in the UK
- Your business can attract the equivalent matched funding from third party private investors and institutions
- Your business has previously raised at least £250,000 in equity investment from third party investors in the last 5 years
Full eligibility criteria will be published in due course.
Tax Matters to Consider
If you are registered for VAT
- No business will have to pay any VAT from now until mid-June.
- The payment will be deferred, and businesses will have until the end of the 2020-21 tax year to settle any liabilities that have accumulated during the deferral period.
- The deferral applies automatically and businesses do not need to apply for it.
- On the 25th March HMRC confirmed that it will not automatically cancel collection of VAT payments by direct debit. Businesses that have a direct debit mandate in place to pay their VAT and wish to defer payment will need to contact their bank to cancel that mandate. This needs to be done before the direct debit is due to be collected. Businesses will also need to remember to reinstate their direct debit mandate once the deferral is over and to make arrangements to pay the accumulated VAT by the end of the 2020/21 tax year.
- VAT refunds and reclaims will be paid by the government as normal.
Income tax – can you obtain a refund?
- Self-employed individuals can defer tax payments for six months, making the next payments due by 31 January 2021, instead of 31 July 2020. This is an automatic offer with no applications required. No penalties or interest for late payment will be charged in the deferral period.
- Self-employed will be able to access Universal Credit at an equivalent rate to the Statutory Sick Pay that employees qualify for.
- As we near the end of the tax year 2019/2020, get your income tax return in as soon as possible after 6 April 2020, for a potential refund of part of your January 2020 tax payment. Then you will know the exact amount that should have been due in July, but will now not be payable until January 2021.
- If you make a sole trader or partnership tax loss to 5 April 2020, you can generate a tax refund, by carrying the loss back to 2019.
- If you are a start-up, sole trader or partnership, this loss can be carried back three years to generate a tax refund from your previous PAYE job or even from rental income.
- If you are working from home more than usual, claim more costs against your taxable income for your home office.
- The sooner you get tax returns sent in, the sooner you can benefit from the above. Getting your return in early will not bring forward any tax payment dates, but it does bring forward tax refunds.
- HMRC’s ‘Time to Pay’ scheme can enable firms and individuals, in temporary financial distress, as a result of Covid-19 to delay payment of outstanding tax liabilities.
- HMRC’s dedicated Covid-19 helpline provides practical help and advice on: 0800 024 1222 (lines are open Monday to Friday, 8:00 to 16:00).
Business Rates Holidays and Cash Grants
- No business rates are payable for the 2020-2021 tax year, for any business in the retail, hospitality or leisure sectors.
- The list of businesses eligible for relief was expanded on the 25th March 2020 and again on the 2nd May 2020. Following the announcement on 23th March 2020 of further measures to limit the spread of coronavirus, the government has subsequently confirmed that that some of the exclusions for this relief, such as estate agents and letting agents, have been removed. Retail, leisure, and hospitality properties, therefore, that will have been forced to close as a result of the COVID-19 restriction measures, will now be eligible for the relief.
- In those sectors, if your rateable value is between £15,000 and £51,000, you will also receive a cash grant of up to £25,000 per property.
- Any business which receives small business rates relief, including those in the retail, hospitality or leisure sectors, will receive a cash grant of £10,000 (increased from the £3,000, announced in the 11 March Budget).
- The rates holiday and cash grants will be administered by local authorities and should be delivered automatically, without businesses needing to claim.
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.
If you have employees
The most emotional area is dealing with employees and no one enjoys telling members of staff that they no longer have a job, but the salaries are normally the largest cost to a business, and therefore cost savings in this area must be considered. There are however a number of alternatives when cutting the cost of employees and they should all be considered. Especially the new ‘Coronavirus Job Retention Scheme’ that the government announced last week.
If you have PAYE to pay this can be deferred. There does not seem to be a consistent message from HMRC, but they seem to be accepting deferral for the next 3 months. To be certain, call them to agree this quoting your PAYE reference number.
Before deciding on a course of action, consider what is happening to the business. If orders are falling, then the staff dealing with deliveries may be short of work. At the same time the sales team may be working harder than normal and it could be counterproductive to cut staff here. Look at this area by area.
For departments with a shortfall of work consider the following:
- Redundancy. It reduces costs permanently, but normally takes a month or so before the effect is felt. It can be costly to action and it reduces the work force permanently, so you could be short of skilled staff when the upturn comes.
- Reduction in the hours worked. This cuts costs and any excess capacity, but it has to be agreed with the staff affected.
- Coronavirus Job Retention Scheme. The government will pay 80% of the salary cost up to £2,500 per month. The employee has to be not working, due to the impact of Coronavirus, but retained on the payroll and agree to be involved in the scheme.
Coronavirus Job Retention Scheme
- Available to any size of business, in any sector.
- This will be a grant to cover 80% of wages (up to £2,500 per month), for employees who are not working due to the impact of Coronavirus but are retained on the payroll.
- For full time and part time salaried employees, the employee’s actual salary before tax, as of 28 February should be used to calculate the 80%. You can claim for any regular payments you are obliged to pay your 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.
- 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 staff, 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 salary sacrifice scheme unless there is a life event. HMRC agrees the Covid-19 counts as a life event that could warrant changes to salary sacrifice, if the relevant employment contract is updated accordingly.
- For employees whose pay varies: if the employee has been employed (or engaged by an employment business) for a full twelve months prior to the claim, you can claim for the higher of either: (i) the same month’s earning from the previous year, or (ii) the average monthly earnings from the 2019-20 tax year.
- If the employee has been employed for less than a year, you can claim for an average of their monthly earnings since they started work.
- If the employee only started in February 2020, use a pro-rata for their earnings so far to claim.
- Please note for the scheme to operate, it has to be a UK employer with a UK bank account. This is because HMRC cannot ever pay by direct transfer into a non UK bank account.
- The employer will also be able to claim Employer’s National Insurance and Employer’s Auto Enrolment, minimum contributions, on the furloughed salary up to the maximum of £2,500 per month.
- Should businesses wish to top up the salaries they can.
- This will be backdated to 1st March 2020 and will be open initially for a three month period.
- It was originally announced that ‘Employees taken on after 1st March 2020, are excluded from the scheme’, but on the 15th April this was changed to the 19th March. As long as the employee was on the payroll as at 19th March, that individual can be furloughed and included in the claim.
- Businesses can re-employ people who have been made redundant since 1st March, and then furlough them.
- There is no limit on the funding available to the scheme.
- To claim the grant businesses should designate affected employees as ‘furloughed workers’ and notify employees of this change in writing, the employee should confirm acceptance in writing and this document needs to be kept for 5 years. Changing the status of employees remains subject to existing employment law and, depending on the employment contract, may be subject to negotiation. Employers may need to seek legal advice on the process. If sufficient numbers of staff are involved, it may be necessary to engage in collective consultation processes to procure agreement to changes to terms of employment.
- To qualify for the payment, an employee must be furloughed for a minimum of three weeks. They can then come off furlough. This means that employers cannot rotate staff weekly between furlough and non-furlough.
- Employees on furlough leave, can do volunteering or training, providing it does not generate any money for their employer.
- Submit information to HMRC about the employees that have been furloughed and their earnings through a new online portal. To claim, you will need:
- your ePAYE reference number
- the number of employees being furloughed
- the claim period (start and end date)
- amount claimed (per the minimum length of furloughing for 3 consecutive weeks)
- your bank account number and sort code
- your contact name
- your phone number
You will also need to calculate the amount you are claiming. HMRC will retain the right to retrospectively audit all aspects of your claim.
- The aim is for the first grants to be paid before the end of April, but the existing systems are not set up to facilitate payments to employers, so the timing of the receipt of funds is uncertain. The system to handle the refunds is still being built, so exactly how this will work is still uncertain. Employers should be prepared to fund the payments through to at least May, before receiving the refund. The Government is constantly updating the advice on what can be claimed. The last advice can be found here.
- Businesses that have cover for both pandemics and government-ordered closure, should be able to make a claim.
- The government and insurance industry confirmed on 17 March 2020, that advice to avoid pubs, theatres, etc., is sufficient to make a claim as long as all other terms and conditions are met. There is more certainty now that these businesses have been ordered to close.
- Insurance policies differ significantly, so businesses should check the terms and conditions of their specific policy and contact their providers.
Mortgage Holidays for Individuals
- Mortgage borrowers can apply for a three month payment holiday from their lender. Residential and buy-to-let mortgages are eligible for the holiday. It is important to remember that borrowers still owe the amounts that they do not pay as a result of the payment holiday. Interest will continue to be charged on the amounts that they owe.
If sales are falling, look to see what could be done to reverse the trend, but be careful with the credit that you are extending. Having extra sales is of no use, unless it is paid for and hopefully meeting the agreed terms. Sales people often do not think about the recoverability of debt, only getting the sale, so emphasise the importance of cash and do not pay commissions until the invoice is paid.
Every cost should be reviewed to see if the service is still needed, or if it can be obtained for less cost. As an example, if the premises are empty, does the heating need to be on, or on as high as normal? Are the lights all off? If you are paying for the service based on last year’s usage, which is only adjusted at the end of the year, try for a reduction now. Many costs are related to how busy the business is, but the cash out flow does not necessarily fall as quickly as the inflow.
If there are any capital projects, such as new plant or vehicles planned, review these to see if they can be cancelled or deferred. Review any maintenance and other non-essential work to decide if it can be postponed.
Holidays for Employees
It is unlikely that many employees will wish to take much holiday whilst there are restrictions on the ability to travel. The government have recognised this and are relaxing the rules on carrying over annual leave. Employers need to recognise the difficulty and communicate to their employees what their policy will be. The policy needs to be fair and clear. It also needs to be applied to all. It will be easy to consider that furloughed staff and others, that are having to stay at work and cannot work, are ‘already on holiday’ and therefore should not accrue holiday time through this period, which they could take afterwards. This however, will be seen as unfair by the employees in question, who probably had little choice about whether they were told to remain at home and not work. What will be of particular concern to the business, is that after the crisis is over that the whole workforce may rush to take their whole year’s entitlement to holiday, in the remainder of 2020. This is why the government is extending the period to use this holiday over the next 2 leave years. Employers should reflect the new rules in their holiday procedures, but at the same time protect their business from all staff trying to take holidays at once.
All workers who have not taken all of their statutory annual leave entitlement due to COVID-19, will now be able to carry it over into the next 2 leave years.
Currently, almost all workers are entitled to 28 days holiday including bank holidays each year. However, most of this entitlement cannot be carried between leave years, meaning workers lose their holiday if they do not take it.
There is also an obligation on employers to ensure their workers take their statutory entitlement in any one year – failure to do so could result in a financial penalty.
The regulations will allow up to 4 weeks of unused leave to be carried into the next 2 leave years, easing the requirements on business to ensure that workers take the statutory amount of annual leave in any one year.
This will mean that staff can continue working as part of the national effort against the coronavirus without losing out on annual leave entitlement.
The changes will also ensure all employers affected by COVID-19 have the flexibility to allow workers to carry over leave, at a time when granting annual leave could leave them short-staffed in some of Britain’s key industries, such as food and healthcare.
The changes will amend the Working Time Regulations, which apply to almost all workers, including agency workers, those who work irregular hours, and workers on zero-hours contracts.
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: firstname.lastname@example.org. If you are already a client, please speak to your usual contact.