So, here’s another update, you’d think as this crisis went on that these updates would be easier to write, things would be becoming clearer. Well, the mud is starting to clear as you will see below, but they certainly are no easier to write, simply because of the wealth of information coming in, much of which is repetitive, even though much is saying, we still don’t yet know.
Critical to business planning is of course how long this lockdown will last, and what resources you are going to need to survive. The reality is no-one knows, hope for the best and plan for the worst, but is the worst a month, or 3 months, or 6 months? Please do get in touch if we can assist with preparing a forecast.
So, my aim in this is to try to summarise and distil and disperse that tense knot at the back of the neck! But please as with all these updates accept that the information provided is given in good faith, without liability, as there is so much that is not yet known, and opinions are being given on the basis of the information available which is highly likely to change.
Investments:
We commented in a separate update on the stock market falls for our charity clients as part of a wider charity update, if you want a copy please let us know.
We understand that plc’s are increasingly announcing that they are cutting or passing on their dividend payments to conserve cash. This is reported to be including household name companies. This will have a profound effect on those dependent on income from such investment portfolios.
Coronavirus Business Interruption Loan Scheme (CBILS):
So, our own relationship bank manager very helpfully rang me last night to explain his banks take on it summarised as follows:
- They are rushed off their feet, so he was ringing at 6.30 and emailed some information at 10.30pm
- HMG is guaranteeing 80% under this scheme but:
-They are only accepting applications that would have gained approval pre-Covid, so if the business wasn’t viable pre-Covid it won’t get help there
-Being linked to the Export Guaranteed Scheme framework, before the loans are given, they need a personal guarantee for larger loans (over £250k?) from the business owner
-The 80% government guaranteed then only applies to the debt that isn’t recovered under the PG.
-The lending criteria adopted by banks used to be scrutinised by HMG to make sure that the Scheme wasn’t applied too loosely by the banks, we don’t know how rigorous it will be under CBILS but I was given the firm impression it was essentially business as normal but keen to lend to businesses that are viable and are prepared to back their own business by giving a PG
-So, businesses that have given a PG won’t be able to rearrange that debt to get away from their PG
-The manager gave two illustrations of rejected business:
- The non-UK owners of a successful UK subsidiary took all the profits abroad, and weren’t prepared to give a PG so no loan
- A business owner with £1m turnover applied for a £1.5m loan so that wasn’t going to fly either!
- But there are genuine opportunities available which was why the call was taking place to make these known, to get an interest free loan for 12m or longer but then bearing interest. I have attached a summary fact sheet from Barclays, Lloyds Bank has a similar scheme set up, see attached also. The other banks may well have similar summaries available now. But I also understand from Lloyds that there is an agreement that at the current time, each bank is only looking after existing customers and are not seeking to re-bank customers from other banks. In part this is to avoid the disruption a move would involve.
- All that said, it does depend on the strength of the business pre-Covid, and then post-Covid once the crisis is over, so a conversation with your relationship manager is critical. Let us know if we can help.
That said, this issue of PGs was picked up in Parliament yesterday, and the Chancellor acknowledged the requirement for a PG was a concern, that this wasn’t a requirement of the Scheme but rather that banks were left the option, so it appears the initiative has really come from the banks to minimise their exposure. So watch this space to see if the Government intervenes with the banks, but perhaps then the banks just get more choosy. This remains to be seen.
Coronavirus – Support for Employers/Employees
Please note we are not employment solicitors and we strongly recommend you take such advice from a recognised Employment expert. We are happy to recommend a suitable solicitor if you wish.
The aim of government support is to help a business retain its workforce and avoid redundancies in the foreseeable future via the introduction of the Coronavirus Job Retention Scheme (CJRS), for which there is limited guidance at present. We will update when there is more clarification. The clear intention is to limit the impact on the economy.
A new website has been launched by the government and hopefully more detail on the CJRS will be uploaded
https://www.businesssupport.gov.uk/coronavirus-business-support/
The CJRS scheme will allow all employers to apply for a grant to REIMBURSE them for part of the salaries paid to those employees who are ‘furloughed’. Furloughed workers will not be allowed to do any work for the period they are on furlough leave. The CJRS will REIMBURSE 80% up to a maximum of £2500 a month. The employer can, if they wish, make up the difference but are not obliged to. We suggest most will be concerned to conserve cash.
Please note the cash flow implications as employers have to claim back once they have paid their employees. Employers with cash flow problems may be able to apply for a Coronavirus Business Interruption Loan to assist.
Government guidance advises:
- Employers will need to designate affected employees as furloughed. Please note employment contracts may need to be examined to ascertain what rights employers have and /or whether employee consent is required.
- Once agreed employers need to submit information to HMRC via a new online portal which is being set up hopefully before the end of April.
- Employers are advised that employees are informed in writing with an explanation of their reasoning. An employee cannot decide they want to be furloughed, it is the choice of the employer.
- It is not clear whether employers can make multiple requests for grants such that they ask for further wages at a later stage and/or for different groups of people. The reality is the longer the lockdown continues, the more staff may need to be furloughed.
- It is also not clear whether the CJRS scheme applies to those on short time working or those working only certain days of a working week.
- It is unclear, but seems likely, the current scheme will not apply to agency workers or the self-employed although separate measures are being considered for this group.
- Employees who are currently on paid holiday may wish to continue on that basis as it would seem to be more favourable to them.
- It is unclear what rights employees who are already on sick leave will have or those that are self isolating – further guidance is anticipated.
- Employees who are on maternity leave will remain so until the end of their leave and at that point it can be decided to designate them as furloughed although this again is not completely clear.
You might find the link below helpful:
The overall objective is to keep people at home while enabling employers to retain staff who will be needed when they begin to rebuild their businesses in the future. This will enable work to begin again with a critical core who have the necessary knowledge.
So, in more detail the rules as outlined in official statements released at 23 March 2020:
- Furloughed members of staff must not work for the employer during the period of furlough.
- It will last for at least 3 months and will be extended if necessary.
- Note that while the scheme is backdated to the beginning of March, a firm will only be eligible to claim the grant once they have agreed the furlough with their staff and staff have stopped working for the employer. This will of course be subject to employment law in the usual way.
- It is available to employees on the payroll at 29 February 2020.
- All UK businesses are eligible, ‘any employer on the country, small or large, charitable or non-profit’ to use the Chancellor’s words. The scheme pays a grant (not a loan) to the employer paid to the employer through a new online system which is being built for this purpose.
- The employer will pay the employee through payroll, using the Real Time Information (RTI) system as usual, as required by the employment contract. This contract may be renegotiated but that is a matter for employment law. So RTI system reporting of payroll will continue as normal.
- The Scheme will be administered by HMRC
- Maximum grant will be calculated per employee and is understood to be the lower of:
- 80% of ‘wages’. The notes published so far, use the phrase ‘wage for all employment costs up to a cap of £2,500 per month’. It is our understanding that this includes employers’ NIC and pension contributions. Wages will be determined by reference to a defined period (yet to be announced).
• £2,500 per month.
Other information:
- Eligible businesses include charities and not-for-profit organisations and will include single director companies, although the same rules will apply as to other businesses. The grant applies to all UK based businesses.
- Many owner managed company director/shareholders pay small salaries and the balance of income as dividends. The scheme does not extend to dividends. Only the salary is relevant to the scheme.
- We understand that the employer will pay the contractually agreed amounts as required by the employment contract in the usual way. This will involve paying the employee, and HMRC the PAYE and both primary and secondary National Insurance Contributions. The grant will be paid directly to the employer. We do not know how this will operate for employers which use a payroll agency.
- Employers will claim the grant through a new separate portal to be built by HMRC.
- The £2,500 monthly grant covers all employment costs, ie, salary, employer pension contributions required by auto enrolment (if applicable), and employer NIC.
- Whether workers can be moved in and out of being furloughed if work becomes available to an employer and then ceases again has yet to be clarified, but the thinking is that it is very likely that they will. The scheme is being designed to allow for flexibility so that furloughed staff can be brought back to work to replace those still working who later become sick. It is anticipated that this will be seen as difficult to regulate and anticipate that a minimum period of furlough leave may be built in as a requirement before the person can return to work.
We’ve been asked if we have a pro-forma letter to employees. We have attached a pro-forma provided by a firm that provides consultancy services to accountancy firm, sourced from a large firm of solicitors at their own cost. We have further been sent a pro-forma from Peninsula via the link below. Their comments are:
The Government announced on 20th March that any employer in the country – small or large, charitable or non-profit – will be eligible for the Coronavirus Job Retention Scheme if they Furlough their employees.
There is no need to wait until the Government issues further guidance on this scheme and you can Furlough your employees now.
All you are required to do is inform your employees that their employment status has been updated to Furlough. You should then follow this up with written correspondence via email attaching a letter, or by letter informing them of this change, which the HMRC may request and which will enable you to claim the grant.
We have created this draft letter for you to use which will allow you to Furlough your employees now.
As noted above and attached, we take no responsibility if you choose to use either pro-forma, we are not employment solicitors and are not qualified to judge if either is suitable to your circumstances. If you choose to use this without taking specialist advice, that is and must remain solely your decision. If you want a recommendation for a suitable firm to advise you, please get in contact.
VAT Deferral:
Based on an update from the Taxation Faculty of the ICAEW, the deferral applies from 20 March 2020 until 30 June 2020 and generally means the deferral of one quarter’s VAT being the payment due on 7 April, 7 May or 7 June 2020 or the monthly payments due on each of these dates. This is an automatic offer and no application is required. Businesses will not need to make a VAT payment during this period.
HMRC has confirmed that businesses will need to cancel their direct debit mandate. 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.
Taxpayers have until the end of the 2020/21 tax year to pay any liabilities that accumulate during the deferral period. VAT refunds and reclaims will be paid by the government as normal. 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. As your tax agent, this isn’t something we can do for you, you need to do this for yourselves with HMRC.
Businesses should continue to file their VAT returns by the due date.
Income tax Deferral
The deferral of income tax applies to the second payment on account for 2019/20 due on 31 July 2020 and is now deferred until 31 January 2021.
Eligibility is limited to the self-employed i.e. the deferral does not apply to those that are in self-assessment but are not self-employed. The Tax Faculty has sought clarification from HMRC, but the current understanding is that the deferral applies to any taxpayer who was self-employed in the 2018/19 tax year on which the payment on account is based.
This is an automatic offer and no application is required. Very few taxpayers pay their self-assessment liabilities by direct debit because the system requires a separate direct debit mandate to set up for each individual payment. Any taxpayer that qualifies for the deferral and has already set up a direct debit mandate for the payment on account due on 31 July 2020 should consider cancelling it.
Self-assessment returns should still be filed by their normal due date and it may be advantageous to file the 2019/20 return as soon as possible after 5 April 2020. This might facilitate planning for the tax payment due in January 2021 and perhaps crystallise any refund due, including as a result of any loss relief available.
No penalties or interest for late payment will be charged in the deferral period.
Sick Pay
HMRC are bringing forward legislation to allow small-and medium-sized UK based businesses and employers to reclaim Statutory Sick Pay (SSP) paid for sickness absence due to COVID-19 as follows:
- up to 2 weeks’ SSP per eligible employee who has been off work because of COVID-19
- employers with fewer than 250 employees as of 28 February 2020are eligible
- employers will be able to reclaim expenditure for any employee who has claimed SSP (according to the new eligibility criteria) as a result of COVID-19
- employers should maintain records of staff absences and payments of SSP, but employees will not need to provide a GP fit note. If evidence is required by an employer, those with symptoms of coronavirus can get an isolation note from NHS 111 onlineand those who live with someone that has symptoms can get a note from the NHS website
- eligible period for the scheme will commence the day after the regulations on the extension of SSP to those staying at home comes into force
- the government will work with employers over the coming months to set up the repayment mechanism for employers as soon as possible
You are eligible for the scheme if your business is UK based, small or medium-sized and employs fewer than 250 employees as of 28 February 2020.
A rebate scheme is being developed and further details will be provided in due course once the relevant legislation has passed. As with other measures, it may be some time before employers can access the rebates to which they are entitled.
Business rates holiday for retail, hospitality and leisure businesses
The government is introducing a business rates holiday for retail, hospitality and leisure businesses based in England for the 2020-21 tax year. Businesses that received the retail discount in the 2019-20 tax year will be rebilled by their local authority as soon as possible.
Properties that will benefit from the relief will be occupied premises that are wholly or mainly being used:
- as shops, restaurants, cafes, drinking establishments, cinemas and live music venues;
- for assembly and leisure;
- as hotels, guest & boarding premises and self-catering accommodation.
There is no action that you need to take. The relief will apply to your next council tax bill in April 2020. However, local authorities may have to reissue your bill automatically to exclude the business rate charge. They will do this as soon as possible.
Retail and Hospitality Grant Scheme
This provides businesses based in England in the retail, hospitality and leisure sectors with a cash grant of up to £25,000 per property. Businesses with a rateable value of under £15,000, will receive a grant of £10,000. Businesses with a rateable value of between £15,001 and £51,000, will receive a grant of £25,000.
Properties that will benefit from the relief will be occupied premises that are wholly or mainly being used:
- as shops, restaurants, cafes, drinking establishments, cinemas and live music venues;
- for assembly and leisure;
- as hotels, guest and boarding premises and self-catering accommodation.
Your local authority will write to you if you are eligible for this grant and any enquiries on eligibility for, or provision of, the reliefs and grants should be directed to the relevant local authority.
Contract Cancellations or Problems:
We were sent a link by Hill Dickinson to their article on contractual issues in these challenging times and replicate below in case this is relevant.
Hill Dickinson are one of the largest law firms, if you want a more local firm for advice, please do get in touch and we will be happy to offer some suggestions.
Small Businesses:
The government will provide additional Small Business Grant Scheme funding for local authorities to support small businesses based in England that occupy property and already pay little or no business rates because of small business rate relief (SBBR), rural rate relief (RRR) and tapered relief. This will provide a one-off grant of up to £10,000 to eligible businesses to help meet their ongoing business costs.
You do not need to do anything and your local authority will write to you if you are eligible for this grant. Any enquiries on eligibility for, or provision of, the reliefs and grants should be directed to the relevant local authority.
Please see the CBIL Fact Sheet and Job Retention Scheme linked.
