Tax

COVID-19: Government support

We thought it would be useful to summarise some of the measures the UK Government has implemented in an effort to support businesses as they navigate the national emergency that is Covid-19.

Please appreciate that the comments below are based on our understanding of preliminary guidance from Government. We will update this document as further information becomes available – last updated Thursday 26 March 2020.

CORONAVIRUS JOB RETENTION SCHEME

Further details have now been released on the new Coronavirus Job Retention Scheme. All UK employers will be able to access support to continue paying part of their employees’ salaries for those employees that would otherwise have been laid off during this crisis.

Grant Available

The maximum grant will be calculated per employee and is the lower of:

  • 80% of ‘an employee's regular wage’; and
  • £2,500 per month.

In addition, employers can also claim the associated employers’ national insurance contributions (NIC) on this amount and the minimum automatic enrolment employer pension contributions on that wage.

Fees, commission and bonuses should not be included.

Please note employers can top up wages to beyond the scheme maximum thresholds if they wish, but there is no requirement to do this.

What Employers need to do

  • designate affected employees as “furloughed workers”, and notify employees of this change, noting that changing the status of employees will remain subject to existing employment law and, depending on the employment contract, may be subject to negotiation. Once “furloughed”, these employees will not be able to undertake work; and
  • submit information to HMRC about the employees that have been furloughed and their earnings through a new online portal (HMRC will set out further details on the information required).

When employers are making decisions in relation to the furloughed process, it is recommended they seek advice of an employment lawyer.

Eligible Employees you can claim for

Furloughed employees must have been on your PAYE payroll on 28 February 2020, and can be on any type of contract, including:

  • full-time employees;
  • part-time employees;
  • employees on agency contracts; and
  • employees on flexible or zero-hour contracts.

The scheme also covers employees who were made redundant since 28 February 2020, if they are rehired by their employer. Employees hired after 28 February 2020 cannot be furloughed or claimed for in accordance with this scheme.

To be eligible, when on furlough, an employee can not undertake work for or on behalf of the business. This includes providing services or generating revenue.

If an employee is working, but on reduced hours, or for reduced pay, they will not be eligible for this scheme and you will have to continue paying the employee through your payroll and pay their salary subject to the terms of the employment contract you agreed.

Employees whose pay varies

If the employee’s salary varies (e.g. staff on zero- hour contracts) and they have been employed for a full twelve months prior to the claim, employers claim for the higher of either:

  • the same month’s earning from the previous year; and
  • average monthly earnings from the 2019-20 tax year.

Employees who have worked less than a 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.

Employees hired after 28 February 2020 cannot be furloughed or claimed for in accordance with this scheme.

How to claim

Employers need to calculate the amount they are seeking to claim in accordance with the actual payroll amounts. Please note HMRC will retain the right to retrospectively audit all aspects of any claim.

Employers can only submit one claim at least every 3 weeks, which is the minimum length an employee can be furloughed for. Claims can be backdated until the 1 March 2020, if applicable.

Once HMRC have received a claim and if eligible, they will pay it via BACS payment direct to your bank account.

CORONAVIRUS BUSINESS INTERRUPTION LOAN SCHEME 

The scheme went live on 23 March 2020 and will initially run for six months.

It will be provided by the British Business Bank through participating providers, with the aim of supporting the continued provision of finance to UK businesses during the Covid-19 outbreak.

The scheme provides the lender with a government-backed guarantee against 80 per cent of the facility. Please note the borrower always remains 100 per cent liable for the debt.

The Government will also cover the first 12 months of interest payments and any lender-levied fees, so businesses will benefit from no up-front costs and lower initial repayments. The business remains liable for repayments of the capital. The maximum value of a facility provided under the scheme will be £5m.

Products supported:

  • term facilities;
  • overdrafts;
  • invoice finance facilities; and
  • asset finance facilities.

Eligibility Criteria

The eligibility criteria has been widened to allow more businesses to benefit from this scheme.

To be eligible you must:

  • be UK based, with turnover of no more than £45m per annum;
  • generate more than 50 per cent of your turnover from trading activity; and
  • have a borrowing proposal which, were it not for the COVID-19 pandemic, would be considered viable by the lender, and for which the lender believes the provision of finance will enable the business to trade out of any short-to-medium term difficulty.

Please note that the stated exclusion of businesses which have received in excess of €200,000 of state aid has now been removed.

Please also note that if the lender can offer finance on normal commercial terms without the need to make use of the scheme, they will do so.

The Enterprise Finance Guarantee Scheme has been temporarily suspended.

Finance Terms

Finance terms are up to six years for term loans and asset finance, and up to three years for overdrafts and invoice finance.

Must Borrowers Provide Security?

It has been confirmed that at the discretion of the lender, the scheme may be used for unsecured lending for facilities of £250,000 and under.

For facilities above £250,000, it requires the lender to establish a lack or absence of security prior to businesses using funds under the Scheme. Please note Primary Residential Property (PPR) cannot be taken as security under the scheme. In addition, a lender cannot require a borrower to enter into a personal guarantee to cover the potential 20 per cent loss to the lender (i.e. the balance not guaranteed by the scheme).

Applications

To apply for this facility, businesses should approach a participating lender to discuss their borrowing needs. Link below:

https://www.british-business-bank.co.uk/ourpartners/coronavirus-business-interruption-loan-scheme-cbils/accredited-lenders/

These lenders will pay a fee to access the scheme.

VAT DEFERRAL SCHEME

VAT payments for all UK businesses that would normally arise during the period from 20 March 2020 to 30 June 2020 will be deferred for 3 months. This is an automatic deferral with no applications required, however businesses will need to cancel the direct debit mandate if they wish to prevent the VAT liability being collected by HMRC. Where VAT has been deferred, businesses will be given until the end of the 2020/21 tax year to pay any liabilities that have accumulated during the deferral period.

SELF EMPLOYED INCOME SUPPORT SCHEME

The Chancellor has confirmed that the Government will pay self-employed individuals, who have been adversely effected by COVID-19, a taxable grant equal to 80 per cent of their average monthly trading profits from the tax years 2016/17 to 2018/19, up to a maximum of £2,500 per month for the next 3 months.

Eligibility Criteria

To be eligible you must:

  • Be self-employed or a member of a partnership;
  • Have traded in the tax year 2019/20;
  • Have an ongoing trade (or would have except for COVID-19);
  • Intend to trade in the tax year 2020/21 (commencing 6 April 2020);
  • Have self-employed trading profits of less than £50,000 in either the 2018/19 tax year or in the average of the 2016/17 to 2018/19 tax years; and
  • Receive the majority of your total income from self-employment (over the same period).

HMRC will contact all eligible individuals directly (using data held on 2018/19 returns already submitted) and provide an online form for completion. It is anticipated that the grant will be issued by early June 2020, if not before, and will be paid in one instalment.

For those who have not already submitted their income tax return for 2018/19, you must do so by 23 April 2020.

SELF EMPLOYED INCOME TAX DEFERRAL

If you are a self-employed tax payer, your payments on account normally due on 31 July 2020 will automatically be deferred until January 2021. No penalties or interest for late payment will be charged in this deferral period.

We anticipate further measures to assist the self-employed.

STATUTORY SICK PAY (SSP)

Employers with fewer than 250 employees are now able to reclaim up to 2 weeks’ Statutory Sick Pay (SSP) per employee for sickness absence due to COVID-19.

Please note the number of employees will be determined by the number of people the business employed as of 28 February 2020. Employers should maintain records of staff absences and payments of SSP, but employees will not need to provide a GP fit note.

We await further details on the mechanism for repayment of SSP.

SUPPORT FOR BUSINESSES PAYING TAX – TIME TO PAY WITH HMRC

All businesses and self-employed people can be eligible to receive support with their tax affairs through HMRC’s Time to Pay service. This can allow businesses and self-employed people extended periods of time to pay outstanding amounts.

Separately, the government has confirmed that it will be cancelling penalties and interest where you have administrative difficulties.

These arrangements are agreed on a case-by-case basis and are tailored to individual circumstances of each business. HMRC has a dedicated helpline to assist (0800 0159559).

PROPERTY RATES

The NI Executive announced an emergency £100m rates package to assist Northern Ireland ratepayers impacted by COVID-19.

For businesses, there will be a 3-month holiday for all business ratepayers (excluding public sector and utilities). This means that no rates will be charged for April, May and June 2020 and amounts to a 25 per cent discount on the annual rate bill for business ratepayers.

For domestic ratepayers, their rates bills (which were due to be issued in April 2020) will now not be issued until June 2020. Ratepayers can still choose to pay their bill in monthly instalments between June 2020 and March 2021, with monthly direct debit plans automatically updated.

GRANT SCHEME

The grant scheme announced by the Northern Ireland Executive will come in two parts:

  • An immediate grant of £10,000 will be provided to all small businesses who are eligible for the Small Business Rate Relief Scheme; that is all businesses with a Rateable Net Annual Value (NAV) up to £15,000; and
  • An immediate grant of £25,000 will be provided to companies in the retail, tourism and hospitality sectors with a NAV between £15,000 and £51,000.

The first payments under the £10,000 Small Business Support Grant Scheme will be made on 31 March 2020, if not before.  Registration is now open and can be applied for here: https://www.covid-19smallbusinessgrants.economy-ni.gov.uk/

Details on how to apply for the grant of £25,000 have not yet been released.

UNIVERSAL CREDIT AND WORKING TAX CREDIT

The universal credit allowance and working tax credits have been increased by £1,000 for the next 12 months.

Those who are self-employed will also be able to apply for a full Universal Credit at a rate equivalent to statutory sick pay, with the suspension of the minimum income floor. However, this is not without criticism as the UK statutory sick pay scheme at just £94.25 per week, is one of the lowest in Europe.

The Chancellor also pledged £1bn to help cover 30 per cent of house rental costs by increasing the housing benefit and Universal Credit.

IR35

The government has provided some breathing space for businesses that are reviewing the impact of ‘off payroll workers’ by delaying the introduction of IR35 until 6 April 2021.

Grant Thornton will continue to closely monitor the evolving situation regarding COVID-19 and will issue further updated guidance for businesses when received from Government or HMRC.

In the meantime, you may also find the following links helpful:

UK Government: https://www.gov.uk/government/news/coronavirus-covid-19-guidance-for-employees-employers-and-businesses#history

 https://www.gov.uk/government/publications/guidance-to-employers-and-businesses-about-covid-19/covid-19-support-for-businesses

British Business Bank: https://www.british-business-bank.co.uk/ourpartners/coronavirus-business-interruption-loan-scheme-cbils/accredited-lenders/

Republic of Ireland assistance: https://www.grantthornton.ie/insights/blogs/covid-19---government-supports/