We know you are likely to have many questions about the various support measures on offer from the Government and the various changes to existing rules regarding your business.
To help we have collated various frequently asked questions and provided answers to these to help you navigate these new arrangements.
Coronavirus Business Interruption Loan Scheme (CBILS)
You will need to submit a detailed application for the funding you need to the lender. This will vary from lender to lender.
The British Business Bank also advises that you will need to provide certain evidence to show that you can afford to repay the loan. For larger facilities, this may include:
- Management accounts
- Cash flow forecast
- Business plan
- Historic accounts
- Details of business assets
The above requirements will also vary from lender to lender. If you do not have access to everything listed above, that does not mean you will be ineligible for a CBILS loan, but it may affect your ability to access finance.
Yes, you are free to make as many applications as you like. If you were rejected previously by a bank at the start of the crisis it is advised that you consider reapplying as the Government has changed the rules to encourage lenders to support more businesses.
Alternatively, if you are finding it difficult to access finance via CBILS you could consider making an application for up to £50,000 of finance via the Bounce Back Loan Scheme (BBLS).
Due to the volume of requests being made to banks, and the strict controls they have in place, it is taking quite some time to process loan applications and release funds. If you urgently require finance to cover costs within your businesses then you should see what other support is available to you.
CBILS supports a wide range of business finance products, including overdrafts, as well as term loans, invoice finance and asset finance facilities. The type of finance offered varies by lender, so you should use the British Business Bank’s finance finding tool on its website here.
CBILS will be interest-free for the first 12 months, as the Government has guaranteed to cover these payments during this period.
Most facilities are being offered over a six-year period, which means that businesses will have to repay the debts plus interest over the additional five years. However, some banks may extend repayment under the Government’s Winter Economy Plan based on their own discretion.
The Government and the British Business Bank, which is helping to administer the CBILS, have confirmed that no setup fee will be charged.
The British Business Bank has confirmed that the lender can only require personal guarantees for facilities of £250,000 or more. However, where personal guarantees are required:
- they exclude the Principal Private Residence (PPR), and
- recoveries under these are capped at a maximum of 20 per cent of the outstanding balance of the CBILS facility after the proceeds of business assets have been applied
The borrower will remain 100 per cent liable for the debt. An 80 per cent guarantee offered by Government is simply to provide some recourse for the lender in the event of a borrower defaulting on their debt in future.
Rejected applications should not affect your businesses credit rating, but non-payment of an accepted loan will.
Multiple companies within a group can be considered for the CBILS facility, but the consolidated group must not have a combined turnover in excess of the £45 million annual threshold.
The Coronavirus Large Business Interruption Loan Scheme (CLBILS) is aimed at large businesses with annual turnovers above £45 million.
Like CBILS, a Government guarantee of 80 per cent will be provided to enable banks to lend in circumstances where they might not otherwise be able to.
Unlike CBILS, which only provides loans of up to £5 million, CLBILS will provide loans of up to £25 million.
However, while CBILS provides loans that are interest-free for 12 months, CLBILS loans will be provided at normal commercial rates of interest.
Applications were originally due to end in October, and were then extended until the end of November. In light of the recent restrictions that have been imposed, business now have until 31 March 2021 to submit an application.
Bounce Back Loan Scheme (BBLS)
The Bounce Back Loans scheme (BBLS) will allow small businesses to borrow up to 25 per cent of their turnover, up to a maximum of £50,000.
The Government will also adjust the Bounce Back Loan Scheme rules to allow those businesses who have borrowed less than their maximum (i.e. less than 25% of their turnover) to top-up their existing loan.
The BBLS is 100 per cent backed by a Government guarantee, unlike the Coronavirus Business Interruption Loan scheme (CBILS) and will offer an interest-free period for 12 months. Businesses won’t pay any fees and no repayments will be due during the first 12 months.
The loans are provided by a network of accredited lenders, similar to CBILS, which means some loan agreements may vary, but the Government level of fixed interest at 2.5 per cent for the remaining period of the loan.
The BBLS is open to businesses from most sectors and those applying must be able to self-certify the following to lenders:
- It is UK-based in its business activity and established by 1 March 2020;
- It has been adversely impacted by the Coronavirus (Covid-19);
- It is not currently using a government-backed Coronavirus loan scheme (unless using BBLS to refinance a whole facility);
- It was not a business in difficulty at 31 December 2019; and
- It is not in bankruptcy, liquidation or undergoing debt restructuring.
Some organisations are excluded from BBLS finance, this includes:
- Credit institutions (falling within the remit of the Bank Recovery and Resolution Directive)
- Public sector bodies,
- State-funded primary or secondary schools
- Insurance companies.
No – You cannot apply if you are already claiming under the Coronavirus Business Interruption Loan Scheme (CBILS). However, if you’ve already received a loan of up to £50,000 under CBILS and would like to transfer it into the Bounce Back Loan scheme, you can arrange this with your lender until 4 November 2020.
Under the Pay-as-you-Grow scheme, announced on 24 September 2020, businesses have the option to repay over a period of up to 10 years. There is also an option for businesses to move to interest-only repayments for up to three six-month periods or to take one six-month payment holiday. The six-month payment holiday is only available to businesses that have already made six repayments.
Once a business has selected an accredited lender via the British Business Bank website here, they will be required to fill in a short online application form on their chosen lender’s website.
This self-certifies that they are eligible for a Bounce Back Loan facility. The bank will then undertake standard customer fraud, Anti-Money Laundering (AML) and Know Your Customer (KYC) checks.
If the bank is satisfied that the borrower meets the conditions of the BBLS then they should be able to release funds within a matter of days – in some cases within 24 hours.
Applications were originally due to end in October, and were then extended until the end of November. In light of the recent restrictions that have been imposed, business now have until 31 March 2021 to submit an application.
Coronavirus Job Retention Scheme (CJRS)
The Coronavirus Job Retention Scheme (CJRS) is a temporary scheme open to all UK employers until 31 March 2021 that is designed to support employers whose operations have been severely affected by the pandemic.
Employers can use HM Revenue & Customs’ (HMRC) dedicated portal to claim for 80 per cent of furloughed employees’ usual monthly wage costs, up to £2,500 a month, for any hours not worked.
However, they must pay for the associated employer National Insurance contributions and minimum automatic enrolment employer pension contributions on that wage, as well any wages for hours that are worked.
The Government has reserved the right to review the scheme in January 2021, which may lead to additional contribution requirements.
Any UK organisation with employees can apply for the scheme including:
- recruitment agencies (agency workers paid through PAYE).
Publicly funded organisations are not expected to use the scheme, but partially publicly funded organisations may be eligible where their private revenues have been disrupted.
Employers do not need to have used the CJRS previously. However, you only have until this Friday 13 November to agree to retrospectively furlough or flexibly furlough an employee from 1 November.
Employers across the UK can claim, whether their business is open or closed.
The scheme is open to all employees for whom a Real Time Information (RTI) submission had been made on or before 30 October 2020.
Neither the employer nor the employee needs to have used the CJRS previously to use the extended scheme.
The scheme will otherwise operate as it has done previously and will be open to employees on any type of contract. You will also be able to top-up employee wages above the value of CJRS grant if you wish to do so.
You will need to agree full furlough or flexible furlough arrangements with employees, in accordance with employment law and their contracts of employment.
There is no maximum number of employees you can claim for from 1 November 2020.
Employees can work for any amount of time, and any work pattern and claim the grant for the furloughed hours, with reference to hours the employee would usually have worked in that period.
This means furloughed employees will be able to work reduced hours, paid by their employer in full, while the employer can claim a CJRS grant in respect of 80 per cent of the pay for usual hours not worked.
Although flexible furlough agreements can last any amount of time, unless otherwise specified the period claimed for must be for a minimum claim period of seven consecutive calendar days.
When launched in March the scheme was initially only due to run for a month or so, but the Government then extended the scheme until 31 October 2020.
In light of the month-long lockdown in November, the scheme was extended until 2 December 2020 but has now been extended further until 30 April 2021.
When the scheme closes next year, you must decide to either:
- bring employees back to work on their normal hours
- reduce employees’ hours
- terminate employees’ employment.
The extended CJRS operates as the previous scheme did, in several respects. Firstly, employers must report and claim for a minimum period of seven consecutive calendar days.
Secondly, employers will need to report actual hours worked and the usual hours an employee would be expected to work in a claim period.
Finally, for hours worked, employees will be paid by their employer subject to their employment contract and employers will be responsible for paying the tax and NICs due on those amounts.
Under the rules, the claim period must also start and end within the same calendar month.
Where the pay period includes days in more than one month, separate claims will need to be submitted covering the days that fall into each month. These claims should be calculated separately, based on the specific rules and contributions for that period.
A claim can be made in anticipation of an imminent payroll run, at the point an employer runs their payroll or after they have run their payroll.
There is no gap in eligibility of support between the previously announced end-date of CJRS on 31 October 2020 and this extension starting 1 November 2020.
However, all claims for periods from 1 July 2020 to 31 October 2020 must be submitted no later than 30 November 2020.
You will be able to claim from 8am on Wednesday 11 November 2020 for the extended furlough. Please be aware that claims relating to November 2020 must be made by 14 December 2020.
After this, claims relating to each subsequent month should be submitted by day 14 of the following month (unless this falls on a weekend and then it is the next working day).
To apply you will need a Government Gateway user ID and password, which will have been given to you when you registered for PAYE online.
If you do not finish a claim in one session, you can save a draft, but it must be completed within seven days of starting it.
Businesses looking to make a claim can do so now via HMRC’s portal, by clicking here.
To make a claim, you will need:
- to be registered for PAYE online
- your UK, Channel Island or Isle of Man bank account number and sort code (only provide bank account details where a BACS payment can be accepted)
- the billing address on your bank account (this is the address on your bank statements)
- your employer PAYE scheme reference number
- the number of employees being furloughed
- each employee’s National Insurance number
- each employee’s payroll or employee number (optional)
- the start date and end date of the claim
- the full amounts that you’re claiming for including:
- employee wages
- employer National Insurance contributions (for claims up to 31 July 2020)
- employer minimum pension contributions (for claims up to 31 July 2020)
- your phone number
- contact name.
You also need to provide either:
- your name (or the employer’s name if you’re an agent)
- your Corporation Tax unique taxpayer reference
- your Self-Assessment unique taxpayer reference
- your company registration number.
If you’re claiming for employees that are flexibly furloughed, you’ll also need:
- the number of usual hours your employee would usually work in the claim period
- the number of hours your employee has or will work in the claim period
- you will also need to keep a record of the number of furloughed hours your employee has been furloughed for in the claim period.
Following the extension of the scheme, the Government has confirmed it will operate on similar terms to those in place in August 2020.
CJRS grants will cover 80 per cent of a furloughed employee’s usual wages, capped at £2,500 a month, while employers will be required to cover employer National Insurance and pension contributions. They will not be required to contribute to employees’ wages, as had been required in September and October 2020.
Although the Government has reserved the right to review the scheme in January 2021, which may lead to additional contribution requirements.
Employers are responsible for calculating the correct amounts to claim from the scheme, with HMRC expected to take a hard line on errors that are not corrected quickly.
HMRC’s guidance walks employers through the various calculations needed to work out the amounts they need to claim in respect of furloughed employees.
If you’ve already claimed for an employee who was on furlough during October, and they are paid a fixed salary, you can follow the same usual wage calculation for claim periods after 31 October 2020.
The amount you should use when calculating 80 per cent of your employees’ wages for hours not worked, is made up of the regular payments you are obliged to make, including:
- regular wages you paid to employees
- non-discretionary payments for hours worked, including overtime
- non-discretionary fees
- non-discretionary commission payments
- piece-rate payments.
You cannot include the following when calculating wages:
- payments made at the discretion of the employer or a client – where the employer or client was under no contractual obligation to pay, including:
- any tips, including those distributed through troncs
- discretionary bonuses
- discretionary commission payments
- non-cash payments
- non-monetary benefits like benefits in kind (such as a company car) and benefits received under salary sacrifice schemes (including pension contributions) that reduce an employee’s taxable pay.
The entirety of the grant received to cover an employee’s subsidised furlough pay must be paid as money and should not be netted off to pay for the provision of benefits or a salary sacrifice scheme.
Where the employer provides benefits to furloughed employees, these benefits should be in addition to the wages that must be paid under the terms of the Job Retention Scheme.
Employees cannot switch freely out of most salary sacrifice schemes unless there is a life event. However, HMRC has confirmed that coronavirus counts as a life event that could warrant changes to salary sacrifice arrangements if the relevant employment contract is updated accordingly.
To help employers deal with the potentially wide range of permutations, HMRC has published example calculations in the guidance dealing with different situations. To read the latest guidance, please click here or to use the Government’s own calculator click here.
Grants payments are anticipated within six working days of a new claim.
If you receive an overpayment and you are making further claims, it is possible to offset the overpayment against the amount of your next claim (your new claim will be reduced and you’ll need to keep a record of the adjustment for six years).
If you do not intend to make another claim you must obtain a payment reference number and pay HMRC back within 30 days.
If you do not do this, you may have to pay a penalty and it will prevent any potential tax liability in respect of the overpayment of CJRS.
If you made an error in your claim that has resulted in you receiving a smaller grant, you must still pay your employees the correct amount and should contact HMRC on or before 30 November to amend your claim.
For claims relating to periods after 1 November 2020, you will only be able to increase the amount of your claim if you amend the claim within 28 calendar days after the month the claim relates to (unless this falls on a weekend and then it is the next working day).
Employees that were employed and on the payroll on 23 September 2020 who were made redundant or stopped working for their employer afterwards can be re-employed and claimed for.
You must have made a PAYE RTI submission to HMRC from 20 March 2020 to 23 September 2020, notifying a payment of earnings for those employees.
Similarly, an employee who was on a fixed-term contract, on payroll on 23 September, and that contract expired after 23 September can be re-employed and claimed for, provided that the other eligibility criteria are met.
From 1 December 2020 the scheme will prevent claims in respect of employees serving contractual or statutory notice periods.
This includes employees serving notice of redundancy, as well as those who are serving notice of resignation or retirement.
In circumstances from 1 December onwards where you have already submitted a claim and an employee subsequently begins a notice period, you must make an adjustment.
For claims relating to November, you can still claim for employees serving statutory notice periods. However, CJRS grants cannot be used to substitute redundancy payments.
Redundancies must be made in accordance with employment law, while statutory redundancy and statutory notice pay must be calculated based on an employee’s usual wages.
HMRC plans to publish information about claims for periods from December onwards.
HMRC previously confirmed plans to publish the names and registration number of limited companies and Limited Liability Partnerships (LLPs) claiming CJRS grants.
It has now clarified that this applies to all employers claiming from the scheme, including individuals, ordinary partnerships and trusts, unless they can demonstrate doing so would lead to a “serious risk of violence or intimidation”.
HMRC will require evidence of this threat, which could include:
- A police incident number;
- Documentary evidence of a threat or attack; or
- Evidence of possible disruption or targeting.
At the same time, HMRC has also said that, in addition to employer names and reference numbers, it will also publish “an indication of the value of the claim”.
If the employee has been employed for a full 12 months prior to the claim, you can claim for the higher of either:
- the same month’s earning from the previous year
- 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.
As an employer, it is your responsibility to calculate how much of an employee’s salary you can claim for, including the amount of Employer National Insurance contributions and minimum automatic enrolment employer pension contributions.
Employees returning from statutory maternity and paternity leave in the next few months will remain eligible for furlough through the Coronavirus Job Retention Scheme (CJRS) as long as they meet the existing eligibility criteria.
However, employees who wish to return early from maternity leave to be furloughed with the agreement of their employer must give eight weeks’ notice.
Yes, directors of a company can be furloughed. During this period directors should be careful to avoid anything that could be mistaken for work, including posting promotional material on their social media feeds on days where they are furloughed.
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 be judged reasonably necessary.
This also applies to salaried individuals who are directors of their own Personal Service Company (PSC).
Employees can be furloughed where they are unable to work because they are shielding in line with public health guidance (or need to stay at home with someone who is shielding) or have caring responsibilities resulting from coronavirus, including employees that need to look after children
The CJRS is not intended for short-term sickness absences. If, however, you want to furlough employees for business reasons and they are currently off sick, you are eligible to do so, as with other employees.
Furloughed employees who become ill, due to coronavirus or any other cause, must be paid at least Statutory Sick Pay (SSP).
It is up to employers to decide whether to move these employees onto SSP or to keep them on furlough, at their furloughed rate.
You should discuss furlough with staff and make any changes to the employment contract by agreement. Remember the employment, equality and discrimination laws will apply in the usual way.
To be eligible for the grant, you must also have confirmed with the employee or reached a collective agreement with a trade union in writing that they have been furloughed or flexibly furloughed. The employee does not have to provide a written response.
You must keep a written record of the agreement for five years, as well as keeping records of how many hours employees work and the number of hours they are furloughed (for at least six years).
The CJRS allows staff members to undertake volunteer work outside of the business and take part in training courses. Apprentices can be furloughed like any other member of staff.
The CJRS does not cover performance-related pay, but you can voluntarily top up pay to reflect this.
Employees can be on any type of employment contract, including full-time, part-time, agency, flexible or zero-hour contracts to be eligible for the Coronavirus Job Retention Scheme, including where they are employed by umbrella companies.
Furlough should be agreed between the agency or umbrella company, as the deemed employer, and the worker.
Those who are contractually obliged to enhanced maternity, adoption or shared parental pay are eligible for the scheme, but not those on statutory maternity pay. They will be paid in the same way and cannot be additionally furloughed.
In the majority of cases, it will be in the employees’ interest to accept an offer of furlough as it means that their role would otherwise be made redundant.
Employers have a variety of options open to them including reducing their working hours, reducing their pay, short-time working and layoffs and in some cases redundancy.
Remember that existing employment rules continue to apply so you must consider whether your actions could lead to a claim for unfair dismissal or discrimination.
Employees can take holiday whilst on furlough and they should be paid as normal. The Working Time Regulations (WTR) obligates employers to pay time taken as annual leave at the normal rate of pay or, where their rate of pay varies, calculated based on the average pay they received in the preceding 52 weeks.
The CJRS guidance confirms you can make a grant for an annual leave furlough day in the same way as any normal working day.
This would still be paid at 80 per cent of normal rates (capped at £2,500 per month) as you are in effect ‘topping up’ for those annual leave days by paying the difference between that and their normal pay.
Although furloughed employees are not working, they continue to accrue annual leave, as per the terms of their employment contract.
Where staff are furloughed over a bank holiday period, and they usually take bank holidays as part of their holiday allowance, employers must pay them on top of their furlough for this. If staff usually work bank holidays this does not apply.
Grants from the various Government schemes to provide support during the coronavirus outbreak are taxable in the same way as other income.
You must also deduct and pay to HMRC Income Tax and employee National Insurance contributions on the full amount that you pay employees, including any scheme grant.
Self-Employed Income Support Scheme (SEISS)
The first Self-Employed Income Support Scheme (SEISS) paid self-employed individuals an amount equivalent to up to 80 per cent of their average monthly trading profits, capped at £2,500, to cover at least the three months from March.
This was paid in a single lump-sum and based upon tax returns from 2016-17, 2017-18 and 2018-19.
A second round of funding was then made available for applications from August equal to 70 per cent of average monthly trading profits, capped at £6,570 and paid in a single instalment.
The scheme has subsequently been extended and two further rounds of funding have been announced. The next round from 1 November until 31 January will pay up to 80 per cent of average monthly trading profits, capped at £7,500 over three months. Details of the fourth round of funding are yet to be confirmed.
To qualify for the additional grants, applicants must meet these additional criteria:
- Be currently eligible for the SEISS (although it is not necessary to have claimed the previous grants);
- Declare that they are currently actively trading and intend to continue to trade;
- Declare that they are impacted by reduced demand due to COVID-19 in the qualifying period.
These measures will seek to amend or work alongside the existing SEISS eligibility requirements, which state that a taxpayer will be eligible where they:
- Submitted their Self-Assessment tax return for the tax year 2018/19 by 23 April 2020;
- Traded in the tax year 2019/20;
- Intend to continue to trade in the tax year 2020/21;
- Carry on a trade which has been adversely affected by Coronavirus.
An applicant’s trading profits must still also be no more than £50,000 and more than half of their total income for either:
- The tax year 2018/19; or
- The average of the tax years 2016/17, 2017/18, and 2018/19.
Self-employed individuals will still be able to do business while they receive a grant from the scheme. This differs drastically from the Coronavirus Job Retention Scheme, which requires employees not to work to be eligible.
The scheme is only intended for those who have been ‘adversely affected’ due to COVID-19.
Applications for the second round of the scheme opened on 17 August and closed on 19 October 2020.
Applications for the third round of funding will open on 30 November 2020.
Individuals that are eligible for the scheme will see the grant paid into their bank account by 25 May, or within six working days of completing a claim.
Self-employed people are eligible to apply for a Business Interruption Loan if they think they meet the criteria.
Alternatively, the Government has changed the rules around Universal Credit and Employment Support Allowance to ensure self-employed people can access the support they need immediately.
Applications for both these benefits can be found online if needed, as can details of the Business Interruption Loan.
HMRC will use turnover figures provided on tax returns and then to calculate trading profit, it will deduct expenses including:
- Office costs
- Travel costs
- Clothing expenses
- Staff costs (for example, in the case of a partnership)
- Things bought to sell on
- Financial costs, such as insurance or bank charges
- Costs of business premises
- Advertising and marketing, such as website costs
- Train courses
- Business expenses deducted through the trading allowance
- Capital allowances used to buy assets used in the business
- Qualifying care relief
- Flat rate expenses.
HMRC will also take into consideration:
- any business expenses deducted through the trading allowance
- capital allowances used to buy assets used in your business
- qualifying care relief
- flat rate expenses
Any losses carried forward from previous years and the personal allowance will not be deducted from trading profits.
HMRC will also consider other income reported on your self-assessment return. Your total income is the total of all your:
- income from earnings
- trading profits
- property income
- savings income
- pension income
- miscellaneous income (including social security income)
At the same time, HMRC has confirmed that it will not deduct losses carried forward from previous years from trading profits, nor will it deduct an individual’s personal allowance.
Grants from the various Government schemes to provide support during the Coronavirus outbreak are taxable in the same way as other income. Payments made under SEISS are considered to be taxable income.
The position had been set out in the various guidance documents for the schemes but has now been underscored by a series of Government amendments to the Finance Bill 2020.
Coronavirus Statutory Sick Pay Rebate Scheme
The Coronavirus Statutory Sick Pay Rebate Scheme repays employers the current rate of SSP (£95.85 per week) that they have paid to current or former employees for periods of sickness starting on or after 13 March 2020.
Some employers may be contractually obliged to pay more than the current rate of SSP through top-up payments, but HMRC has confirmed that the scheme will only cover the current statutory rate.
The reimbursement scheme covers up to two-weeks of SSP starting from the first day of sickness if an employee is/was unable to work because they either have/had coronavirus, are shielding in line with guidance or are self-isolating at home. Employees do not have to have provided a doctor’s fit note for you to make a claim.
To be eligible for a repayment of SSP, an employer has to:
- be claiming for an employee who is eligible for sick pay due to coronavirus
- have a PAYE payroll scheme that was created and started on or before 28 February 2020
- have had fewer than 250 employees on 28 February 2020.
The scheme covers all types of employment, including agency workers and those on flexible or zero-hour contracts.
Connected companies and charities can also use the scheme if their total combined number of PAYE employees was fewer than 250 on or before 28 February 2020.
HMRC has developed a new online portal for claims, which can be found here. that employers must keep a record of:
- the reason why an employee could not work;
- details of each period when an employee could not work, including start and end dates;
- details of the SSP qualifying days when an employee could not work; and
- National Insurance numbers of all employees who have received SSP as a result of coronavirus.
Businesses must keep these records for at least three years following their claim.
Businesses that are required to close under the new England-wide restrictions and which are in the business rates system will be able to claim grants of between £667 and £1,500 for each two-week period they are required to remain closed.
The arrangements are the same as those in place for businesses in areas of ‘Very High’ (Tier Three) Coronavirus restrictions through the Local Restrictions Support Grant.
The new grants will pay £667, £1,000 or £1,500 for each two-week period a business is required to shut.
Businesses with rateable values of £15,000 or less will receive £667, those with rateable values of £15,000 to £51,000 will receive £1,000 and those with rateable values of more than £51,000 will receive £1,500.
The scheme will be administered by Local Authorities, with £1.1 billion of funding being distributed on the basis of £20 per head to help them support businesses more broadly.
This scheme applies to England only. However, the Devolved Administrations will receive equivalent funding to distribute as they see fit.
The Government will make backdated cash grants for businesses in the hospitality, leisure and accommodation sectors in local lockdown Tier 2/3 areas if they have been suffering from reduced demand for a while. They will receive backdated grants at 70 per cent of the value of closed grants up to a maximum of £2,100 per four weeks for this period.
The Government has made additional financial support available to the UK’s smaller business owners, who may have been excluded from existing schemes, via the creation of Local Authority Discretionary Grants.
More than £617 million has been made available to councils and local authorities, which will have the discretion to offer funding to:
- Small and micro businesses, as defined in Section 33 Part 2 of the Small Business, Enterprise and Employment Act 2015 and the Companies Act 2006.
- Businesses with relatively high ongoing fixed property-related costs
- Businesses which can demonstrate that they have suffered a significant fall in income due to the COVID-19 crisis
- Businesses which occupy a property, or part of a property, with a rateable value or annual rent or annual mortgage payments below £51,000.
Local authorities have been asked by the Government to prioritise grants to businesses that shared operate out of shared spaces, regular market traders, small charity properties that would meet the criteria for Small Business Rates Relief, and bed and breakfasts that pay council tax rather than business rates.
Local authorities have also been given discretionary powers to make payments to other businesses based on local economic need. A decision on who will receive funding will be down to the discretion of each local authority.
To be eligible a business must be small (under 50 employees) and be able to demonstrate that they have experienced a significant drop in income as a result of the COVID-19 pandemic restriction measures.
These include grants of £25,000, £10,000 and small grants of under £10,000 that can be made at the discretion of local authorities.
So far more than 614,000 business properties have benefitted from the grant funding schemes – receiving more than £7.5 billion.
It is hoped that those who missed out on initial grants will be supported by this latest change to the rules. Further details of the scheme are expected shortly.
Grants are generally considered to be a taxable form of income, they can be the taxed the same as any other forms of income, such as money earned through trade, via Corporation Tax.
Where a grant is for expenditure that appears in your profit and loss account and you can defer the grant income, such as through the acquisition of a fixed asset, then you may not have a tax liability on the income as it will be matched with its intended expenditure (i.e. expenditure will cancel out income in your accounts).
In the case of the latest Government COVID-19 grants, it is most likely that you will have to pay Corporation Tax as they are not linked to the acquisition of an asset and cannot be deferred. It is therefore important that you account for this income accurately so that you pay the correct amount of tax in future.
Grant income is outside the scope of VAT, therefore no VAT is payable when you receive a grant, but you may be able to reclaim VAT from any asset paid for via a grant, as long as it is within the ‘normal’ VAT rules.
Charities that otherwise would meet the necessary criteria, but whose bill for 11 March was reduced to nil by a local discretionary award are still eligible for the RHLG, according to the guidance.
Hereditaments that are occupied for personal use, such as private stables, beach huts, moorings, car parks and parking spaces are excluded from both schemes.
Additionally, businesses that were in liquation or were dissolved as of the 11 March cannot apply for either scheme.
Neither scheme has a mandatory application process. Instead, businesses should be contacted by their local authorities who will outline how they can claim a grant.
In some cases, where a business has an existing direct debit to pay business rates, local authorities can handle the application automatically or they may request additional details via an online form.
If you are not contacted by your local authority and believe you are eligible, we recommend that you speak to the relevant officer at your council to find out how the funding is being delivered.
The grants are given to the ratepayer, who would presumably be the landlord in this case. Unless the rateable value of the hereditament is less than £15,000 (in England) the landlord would not qualify for the grant. The landlord would, in any case, need to decide whether to pass on any grants received.
Businesses in the retail, hospitality and leisure sector can benefit from both. Hereditaments can apply for the funding available and also pay no rates for 2020-21.
If empty property relief is already being claimed then the 100 per cent discount for retail, leisure or hospitality will not increase the value of the relief in tax year 2020/21.
If the local authority had been notified that the property was empty and unused between 1 January and 31 March 2020 then relief from the 2019/20 rates bill would be available for this period.
PAYE Liability Deferral
No, businesses 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.
Self-Assessment Payment Deferral
Income Tax Self-Assessment payments due on 31 July 2020 have been deferred until 31 January 2021 for self-employed individuals. If you are unable to repay liabilities by this date, you may be able to make a Time to Pay arrangement with HMRC that allows you to spread the repayment over time.
Yes, you can delay making your second payment on account. If you choose to delay, you’ll have until 31 January 2021 to pay it. If you are unable to repay liabilities by this date, you may be able to make a Time to Pay arrangement with HMRC that allows you to spread the repayment over time.
VAT Deferral Scheme
All VAT payments, apart from import VAT and VAT MOSS, have been deferred by three months from 20 March 2020 until 30 June 2020. During this period, businesses will not need to make VAT payments to HM Revenue & Customs (HMRC).
In most cases businesses will have until 31 March 2020 to pay any liabilities that have accumulated during this period.
However, in the Winter Economy Statement on 24 September 2020, the Chancellor announced the option for businesses to opt-in to pay the deferred VAT in 11 equal interest-free instalments in the 2021-22 tax year.
The deferral was automatic and businesses did not need to apply to be able to benefit from it.
HMRC will continue to process VAT reclaims and refunds for this period.
Taxpayers that wished to defer VAT payments, but did not cancel their Direct Debits in time can claim a refund, according to HM Revenue & Customs (HMRC).
The tax authority has confirmed that taxpayers that intended to defer VAT payments due between 20 March 2020 and 30 June 2020 that were unable to cancel their Direct Debit to HMRC could now do so.
To obtain a refund, taxpayers should submit a Direct Debit Indemnity Claim to their bank. On this submission, all they must state is that they want to claim a refund under the Direct Debit Indemnity Scheme (DDI) and HMRC has said it will honour the request.
HMRC has also said that there will be no time limit in making this request, but businesses are encouraged to do so soon to obtain a quicker refund.
Taxpayers can also request repayment from HMRC directly rather than contacting their bank, but they must ensure that their bank details are updated using the tax authority’s online service.
Due to COVID-19 restrictions, Payable Orders are not being issued and it may take up to 21 days for a refund to be received if the Direct Debit Indemnity Claim process is not used.
Businesses need to make arrangements to pay VAT falling due from 1 July 2020 to 31 March 2021 if they do not seek an extension.
Businesses must opt-in to benefit from the option of making payments in instalments over the 2021-22 tax year
Other business costs
The Financial Conduct Authority (FCA) has fast-tracked new measures that forced banks to freeze loans and credit card payments for up to three months to help those individuals whose finances are affected by the Coronavirus outbreak. This has now been extend for a further six months.
The FCA wants to ensure that “consumers are no worse off and not paying more than they would have under previous prices.”
It is recommended that you speak with your lender to ensure you can make use of these facilities.
Businesses and individuals currently repaying finance on vehicles were granted a payment holiday under new measures from the Financial Conduct Authority (FCA). This has now been extended by a further six months.
You are recommended to speak with your lender to find out what options are available to you.
HMRC recognises that businesses will already have been in a formal VA when the crisis began and that the impact of the economic slump is likely to affect their ability to trade and meet the obligations of the existing arrangement.
HMRC will support an automatic minimum three-month break from contributions from customers impacted by Coronavirus. The tax authority has also said that any deferral of tax that the business is entitled to under the Government’s COVID-19 financial support package will not be deemed a breach of a VA.
The Government has retrospectively suspended restrictions around wrongful trading from the 1 March 2020.
Under English law, where a company continues to trade, even in the face of unavoidable insolvency, the company’s directors can be found personally liable for the losses suffered to creditors as a result, potentially leading to a court-ordered contribution to the assets of the insolvent company.
By suspending the rules, directors of struggling business who continue to operate, in the full knowledge that they face the prospect of insolvency, will not be penalised for doing what they can to keep their business operational.
Various organisations, such as Action Fraud, the ICAEW and the police have issued warnings regarding an increase in fraud as a result of the pandemic. This can take various forms including fraudulent invoices, advanced fee fraud for services and phishing.
To give you some idea of the scale of the danger, the National Cyber Security Centre (NCSC) is understood to have already removed more than 2,000 online coronavirus scams over the last month, including 471 fake online shops selling fraudulent coronavirus-related items, 555 malware distribution sites set up to inflict significant damage to visitors and 832 advance-fee frauds.
In light of this, you and your employees must take additional care at this time and seek additional verification on all transactions. If you remain unsure of whether a communication or request is fraudulent, seek professional advice.
Working from home
Employers can reimburse costs tax-free where there is a ‘homeworking arrangement’ between an employer and an employee and the employee must work at home under the terms of these arrangements.
A notable exception here is costs that are unaffected by whether or not an employee is working from home or not, like mortgage repayments or rental payments.
Similarly, the cost of existing broadband connections cannot be reimbursed tax-free, although new connections can be, where the employee does not already have a broadband connection.
In circumstances where the employer does not meet the additional costs of an employee working from home – such as heating, water and electricity – but requires the employee to work from home, it may be possible for the employee to claim tax relief in respect of these costs. Expenses for both personal and business use are not eligible for tax relief.
Employees can use HMRC’s online tool to determine whether particular expenses would be eligible for tax relief. The tool can be viewed here.
Businesses affected by the COVID-19 pandemic can apply to Companies House to request an extension to file their accounts, reports and confirmation statements.
Companies House is offering a maximum extension of three months for struggling businesses, but they must meet stringent conditions, including a rule that an appeal to extend must be lodged before a company’s current filing deadline.
Appeals will be treated on a case-by-case basis and the process will mirror the existing criteria based on cases for unforeseen poor health.
Companies House has made it clear that any company accounts filed late will still incur an automatic penalty.
Directors of a company that are furloughed are not permitted to do work for the business that generates an income, but they are permitted and expected to fulfil their duties under the Companies Act, including statutory annual accounts.
There are strict rules governing the circumstances in which a company may pay a dividend to its shareholders, some of which could affect directors’ income.
Companies must have sufficient distributable reserves to pay the dividend at the time it is paid. Broadly, distributable reserves are accumulated profits from prior years that haven’t been paid out as dividends, together with current year profits/losses. In the current circumstances directors must be confident that the firm has built up sufficient profits, allowing for losses that may have arisen since the last year end, equal to or greater than the amount of the dividend to be declared.
The directors also need to consider whether, having regard to the whole of the Company’s business, and the actual and contingent liabilities inherent in the business, it is reasonably foreseeable that the dividend would cause the Company to be unable to pay its debts as they fall due. It would be unlawful for the directors to declare such a dividend. Directors should therefore ensure that provisions for future tax and other liabilities have been considered.
Whether a board can do this with ease will depend on the type of dividend agreed upon. An interim dividend is decided on and announced by directors, which only becomes a binding obligation to shareholders of a company once it is paid.
A final dividend is one which is recommended by directors to shareholders that is approved by shareholders via an ordinary resolution and which is binding at the point of approval.
This latter classification of dividend may be more difficult to cancel and could be more likely to lead to action through the courts or other legal disputes, which is something businesses should be aware of. It is best to discuss the cancellation of dividends with those affected and to explain the needs of the business.
The impacts of COVID-19 on an audit report or financial statement will vary depending on the individual business and should be considered on a case-by-case basis. The ICAEW has said there is “no standard response to COVID-19 with regard to audits or disclosures in the accounts”.
The Financial Reporting Council have also confirmed that they will not be providing boilerplate wording to be used in audit reports in respect of the coronavirus pandemic and stressed the importance of the auditor ensuring any disclosures they do make are entity-specific and useful to users of the financial statements.