On Friday, 20th March, the Chancellor announced some of the most far-ranging peacetime financial measures which aim to further help businesses and individuals through the current COVID-19 pandemic.
We have taken some time to reflect on the measures and summarise our current thoughts and understanding as follows:
Coronavirus Job Retention Scheme
Employers of any UK business can designate employees as ‘furloughed’ workers via an HMRC online portal (which is to be created). HMRC will then reimburse 80% of those workers’ wages costs for up to 3 months backdated to 1 March 2020 initially. There is a cap of £2,500 per month. Our initial observations are as follows:
- This is a welcome step that will do much to ensure continued employment and keep businesses ready to operate once this crisis is over
- It is not clear if the £2,500 cap is before or after tax
- Workers cannot be ‘partially furloughed’. In other words, a furloughed worker cannot do ANY work for their employer during this period. Therefore, if you have put your staff on reduced hours you will not qualify for the scheme
- Workers already laid off as a result of COVID-19, we currently understand, can be furloughed. It is less clear for staff who have already been made redundant but the intention seems to be that they would be covered.
We have spoken to our HR advisors and understand there are a number of issues around this that need to be treated correctly from an HR standpoint. Please therefore ensure that you speak to your advisors before taking this step. If you would like an introduction, then please let us know.
The administrative work behind this from HMRCs perspective is huge. Not only do they need to create the portal, where they can be notified of furloughed employees, but they need to set up a system for actually reimbursing employers because their existing systems are not set up to enable payments from HMRC to employers. We hope that this infrastructure is in place quickly as many businesses do not have time to wait.
Please note that March 2020 wages should be paid by the company as normal and then you will be able to make a reclaim for this amount when the facility is available in April 2020. The scheme will only cover employees who were in employment on 28th February 2020.
We have already spoken to a number of clients taking advantage of HMRC’s time to pay arrangements during this crisis. However, there is now a formal deferral of VAT payments until 30 June 2020 with payment now due before the end of the 2020/21 tax year. VAT refunds and reclaims will be paid by HMRC as normal. This opportunity is automatic and no application to defer is required.
Income Tax Deferral
Income tax payments on account due on 31 July 2020 will be deferred until 31 January 2021. This opportunity is automatic and no application to defer is required. This is designed to ensure your January 2021 payments reflect the income received in the year ended 5 April 2020, rather than making overpayments, which would subsequently need to be repaid and assist with cash flow.
Coronavirus Business Interruption Loan Scheme
The Chancellor announced that the interest-free period for such loans has been extended from 6 months to 12 months.
Although details are not fully in place we understand that 40 banks (including the high street names) have signed up to the scheme. The maximum facility will be £5m and it is open to all businesses that meet the following criteria:
- UK based with turnover under £45m
- Received under €200k of state aid over the current and previous 2 financial years
- Be unable to meet a lender’s normal lending requirements but would be considered viable over the longer term.
Further details are being updated on the British Business Bank website. The loans are provided by the lending partners as such if you are interested in the scheme you should contact your bank in the first instance or check the British Business Bank website for other accredited lenders.
Below is a list of other measures announced both on Friday and over the previous days:
- Statutory Sick Pay relief package for SMEs
- A 12-month business rates holiday for all retail, hospitality and leisure businesses in England
- Small business grant funding of up to £10,000 for all businesses in receipt of small business rate relief or rural rate relief
- Grant funding of up to £25,000 for retail, hospitality and leisure businesses with property with a rateable value between £15,000 and £51,000
- Local councils will be given the authority to decide who can benefit from the business rates holiday and grants, with funds being available from April 2020. Therefore, if you believe you may qualify, please contact your local council. For further guidance on who can qualify for the business rates holiday and grants as a retail, hospitality or leisure business, please use this link.
- Business rates holiday for nurseries in England for the 2020 to 2021 tax year
- To access HMRC’s Time to Pay Scheme call the dedicated helpline: 0800 0159 559. This applies to all taxes including PAYE, corporation tax and VAT;
- Increase in Universal Credit standard allowance and working tax credit basic element by £1,000 over the next 12 months
- Self-employed can now access, in full, Universal Credit at a rate equivalent to Statutory Sick Pay
- Local Housing Allowance to cover at least 30% of market rents and three-month mortgage holidays.
The Forgotten Workers?
We are concerned that the measures outlined (whilst welcome) do not provide the same level of support to self-employed, freelancers and contractors. We understand that the government intends to unveil more measures for these types of workers over the coming days. Stephen Barclay MP, Chief Secretary to the Treasury, has said that there are operational difficulties in applying measures for this sector but with many of our clients in this position we hope that this issue is addressed decisively and quickly.
Keep in Touch
We are all in uncharted territory. We cannot and do not claim to have all of the answers but please do feel free to contact us at DRG Chartered Accountants at any time and we will offer the support and advice we can to help you and your business through these unprecedented times. The situation is constantly moving and the above represents our current understanding. We will keep you informed as the situation continues to evolve or if our understanding changes.
DISCLAIMER: This information is for guidance only, and professional advice should be obtained before acting on any information contained herein. We will not accept any responsibility for loss to any person as a result of action taken or refrained from in consequence of the contents of this publication.