The 11 March Budget from the new Chancellor, Rishi Sunak, included £7 billion of expenditure targeting the impact of Covid-19 on employees, the self-employed and businesses. On 17 March a further raft of measures was announced, amounting to an additional £20 billion of support expenditure plus £330 billion of loan guarantees. By 20 March another round of support was announced of such size that no price tag was attached.
The Chancellor’s 17 March statement was accompanied by a repeated promise that he would do “whatever it takes” to counter the impact of the virus. Three days later, his second statement gave an indication of how large ‘whatever it takes’ is becoming, with potentially more to come.
Here is a round-up of the key announcements so far for businesses and individuals including useful links to government sites.
Statutory Sick Pay
For businesses with fewer than 250 employees the cost of providing 14 days of Statutory Sick Pay per employee will be funded by the Government in full. This is to be paid from the first day of absence, not the fourth, where people have the virus or have to self-isolate, or care for such people. 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 online (https://111.nhs.uk/covid-19) and those who live with someone that has symptoms can get a note from the NHS website (https://www.nhs.uk/conditions/coronavirus-covid-19/self-isolation-advice).
A rebate scheme is currently being developed by the government.
Coronavirus Job Retention Scheme (CJRS)
For all employees who remain on the payroll but would otherwise be laid off, the Government will pay 80% of their basic salary up to a cap of £2,500 per month. These payments remain subject to PAYE as normal. Employers will have the ability to top-up the salary to 100% of salary if they choose.
- It will be in place for three months and then reviewed every month. The money will be available from the end of April and be backdated to 1st March 2020 and will be initially open for 3 months, to be extended if necessary.
- It can apply to anyone who was on the payroll at 29 February 2020, even if they have subsequently been made redundant, as long as they are reinstated on the payroll
All businesses are eligible for this scheme but in order to access it they need to designate affected employees as ‘furloughed workers’ (which just means they are being retained but would normally be laid off) and notify those employees of this change. See appendix for further detailed information on furloughed employees.
HMRC are now working to set up a system for reimbursement as existing systems are not set up to facilitate payments to employers and once available will publish further guidance here: https://www.nhs.uk/conditions/coronavirus-covid-19/self-isolation-advice
Coronavirus Business Interruption Loan Scheme (CBILS)
The Government intends to support businesses that have short-term cash flow needs and need money before the end of April with the Job Retention Scheme that kicks in through business loans which will be interest free for 12-months, rather than the six months previously announced. The scheme provides the lender with a Government-backed guarantee against the outstanding facility balance.
It will be administered through the British Business Bank and launched this week commencing 23 March. It will be available through high street banks and 40 other accredited finance providers: https://www.british-business-bank.co.uk/ourpartners/coronavirus-business-interruption-loan-scheme-cbils-2/current-accredited-lenders-and-partners/
The limit of funding has increased from the £1.2 million announced on the 11 March to £5 million for companies with a turnover of less than £45 million.
Finance terms are from three-months up to ten years for term loans and asset finance and up to three-years for revolving facilities and invoice finance.
To be eligible the Scheme, the business must:
- Be UK-based, with turnover of no more than £45 million per annum.
- Operate within an eligible industrial sector (a small number of industrial sectors are not eligible for support or subject to limitations – see link below).
- Be able to confirm that they have not received de minimis State aid beyond £200,000 equivalent over the current and previous two fiscal years.
- Be unable to meet a lender’s normal lending requirements for a fully commercial loan or other facility but would be considered viable in the longer-term.
You can find out more here:
COVID Corporate Financing Facility (CCFF) and Bank Lending
Many businesses with banking covenants will be in danger of breaching them as the pandemic drags on. The breaches could be on performance covenants or an inability to provide financial information due to loss of staff. Banks will be expecting this so early communication is advisable and, where possible, covenant waivers should be sought. For businesses with serious cash constraints, it is also recommended that the subject of payment holidays is discussed.
Whilst not directly applicable to small to medium sized business, this fund aims to provide essential liquidity amongst banks and in turn allow them to lend to the small and medium sized businesses who depend on them. This adds to the previous launch by the Bank of England of a new Term Funding Scheme (TFSME) with additional incentives for lending to SMEs. This will, over the next 12 months, offer four-year funding to banks of at least 5% of participants’ stock of real economy lending at interest rates at, or very close to, Bank Rate. Additional funding will be available for banks that increase lending, especially to small and medium-sized businesses. The CCFF is being made available through the Bank of England for the next 12 months who will purchase 1 year corporate bonds subject to an assessment of their credit rating prior to the pandemic.
The Government has pledged that it will make £330 billion (equivalent to 15% of GDP) of guaranteed funding available to any business that needs it. The Chancellor has also stated that, if demand is greater than the £330 billion of funding, he will provide additional funds. With this in place, all of the UK’s main clearing banks are now creating funds which they will make available to small businesses under their own schemes. For example, Lloyds now has a £2bn fund and NatWest has earmarked £5bn. If you anticipate financial difficulties, you should begin discussions with your bank as early as possible.
Cash Grants and Business Rates
Businesses which pay minimal or no business rates and are eligible for small business rate relief (SBBR) or rural rate relief will be eligible for a one-off grant of up to £10,000 from April 2020 onwards. These grants will be provided by Local Authorities and it is understood that small businesses will be contacted by their Local Authority shortly (rather than having to proactively approach their Local Authority) with information on exactly how to access these grants.
A further grant of £10,000 to £25,000 is being made available to businesses operating from smaller premises in the retail, hospitality and leisure sectors, which have a rateable value of £15,000 to £51,000 and business rates for businesses in these sectors will be suspended for the 2020/2021 tax year. This is designed to assist the payment of rent in particular.
If any business which qualifies for this relief does not receive a letter from their local council, they should contact them directly to claim it. You can check your business’ rateable value here: https://www.gov.uk/correct-your-business-rates
Self-Employed and Universal Credit
The self-employed will not have to make a tax payment on account in July 2020 and the payment will be deferred until January 2021. The minimum income floor for Universal Credit has been removed and it has been increased by £1,000 per year, ensuring the self-employed will get this Universal Credit at the statutory sick pay level. A further £1bn to cover 30% of house rental costs for the self-employed has also been made available.
Self Employment Support Scheme (SEISS)
The Self-employment Income Support Scheme (SEISS) supports self-employed individuals including members of partnerships whose income has been impacted by COVID-19.
- The scheme will provide grants to self-employed individuals/partnerships, worth 80% of their profits, capped at £2,500 per month for the next 3 months.
- HMRC will use average profits from tax returns in 16/17, 17/18 and 18/19 to calculate the size of the grant.
- The scheme will be open to those where more than half of their income comes from self-employment and who have profits of less than £50,000.
- Be self-employed or member of a partnership
- Have lost trading profit due to coronavirus
- Filed a tax return for 18/19 as self-employed. Those who have not yet filed for 18/19 have an additional 4 weeks from 26/03/20
- Have traded in 19/20, and intend to continue to trade in tax year 20/21
- Have trading profits of less than £50k and more than half of your total income come from self-employment. Trading profits will be calculated using one of the following conditions;
– Trading profits and total income in 18/19
– Average trading profits across the past 3 years
– If you started trading between 16/17 to 18/19, HMRC will only use those years for which you filed a Self Assessment Tax Return
Accessing the Scheme
HMRC will use existing information to contact you if you are eligible and invite on-line applications. The grants will be directly paid to eligible claimants’ bank account. Grants are expected to start being paid in June 2020.
HMRC are publishing continually updated guidance on the scheme, available here:
Deferred VAT payments
Business VAT payments due from 20 March 20 until 30 June 20 can be deferred to the end of the tax year ended 5 April 2021. This is an automatic offer and no applications are required. VAT reclaims and refunds will be paid by the government as normal. If you normally pay by Direct Debit, you need to cancel that Direct Debit if you are unable to pay the VAT liability in sufficient time. Otherwise HMRC will attempt to automatically collect on receipt of your VAT return.
Support for businesses paying tax: Time to pay service
HMRC has set up a dedicated helpline at 0800 0159 559 to help businesses and self-employed individuals in financial distress and with outstanding tax liabilities so they can receive support with their tax affairs. It may be possible to agree a ‘Time to Pay’ arrangement with deferrals being agreed on a case by case basis. This arrangement will see the usual 3.5% annual interest on deferred tax being waived.
Late Filing of VAT and PAYE Returns
If your business is unable to file a VAT or PAYE return due to staff absence, you should contact HMRC before the due date to explain the situation and mitigate any surcharges that may be levied.
Deferral of IR35
HMRC have confirmed that the proposed changes to IR35, which were due to take place with effect from 6 April 2020, have now been pushed back to April 2021.
Whilst much of the attention will be on personal home mortgages, three-month payment holidays are available for business mortgages also. Talk to your lender.
Extension to Filings with Companies House
Companies House and the Financial Reporting Council have confirmed that all companies with imminent filing deadlines – predominantly 30 June 2019 year-ends which are due for filing by 31 March 2020 – will be granted a two-month extension.
If your annual accounts are not yet finalised and may not get completed by the filing deadline, we can contact Companies House, as they are automatically accepting Coronavirus as a reason and providing a two-month extension. In extreme circumstances they can grant a further one-month extension.
Appendix: Coronavirus Job Retention Scheme (CJRS) – Furloughed employees
Does this mean the employer can simply tell the employee that they are a “furloughed worker”?
The starting point to look at is whether the employer has the contractual right to lay off the employee under their contract of employment. If such contractual right exists, the employer will be able to tell the employee that they are a “furloughed worker”.
In the absence of such an express contractual right, the employer will need to obtain the employee’s agreement, consenting to effectively being laid off and becoming a “furloughed worker”.
Is an employee likely to agree to become a “furloughed worker”?
It is highly likely that an employee will agree to become a “furloughed worker”. This is because the alternative to agreeing to the change is likely to be redundancy – in which case the employee would be entitled to redundancy pay: such redundancy pay available only where the employer could afford to pay and where the employer has not gone insolvent. Failing this, they would be left looking to the Government to pay out their redundancy pay. Following redundancy, the employee would also be left to face a very unstable job market. Alternatively, where the employer has the contractual right to lay off an employee, they could simply send them home, without pay.
The employee’s option of receiving 80% of their earnings through the Scheme and yet still retaining their employment, is therefore an attractive option to agree to.
What do employers do once they have designated a “furloughed worker”?
Employers must submit information to HMRC about the “furloughed worker” and their earnings via the online HMRC portal (which is to be set up imminently). Under the Scheme, HMRC will then reimburse up to 80% of the employee’s earnings up to a maximum of £2,500. It is not yet clear whether this maximum limit refers to the employee’s take home pay, or gross pay.
Can the “furloughed worker” still do some work for the employer?
To qualify for the Scheme, the “furloughed worker” must not undertake any work for their employer; otherwise, the employer will not qualify for the Scheme in respect of that employee.
Does the employer have to top up the employee’s earnings to 100%?
Whether to top up the earnings of the employee from 80% to 100% or not, is entirely up to the employer, but there is no obligation to do so. However, if the employer decides against topping up the employee’s earnings, the employer must have the contractual right to do so – namely, a right within the contract of employment or, the employee’s express agreement.
But, as mentioned above, an employee is unlikely to decline the option of becoming a “furloughed worker” and receiving reduced earnings, especially where such agreement will mean that they will not have to turn up for work yet they will remain an employee (particularly where, as mentioned, the other option is redundancy).
Can employees designate themselves as “furloughed workers”?
COVID-19 is affecting the lives of many people. Those affected, particularly those who are vulnerable at this stage or are obliged to stay at home with children while schools remain closed, may find the “furloughed worker” option under the Scheme very attractive. However, an employee is unable to designate himself or herself as a “furloughed worker”.
The employer must select the “furloughed worker” as ultimately, the Scheme has been set up to preserve the jobs of employees that will otherwise be laid off. It is not a Scheme to provide income for those employees who want, or need, to take time off.