Monthly Archives: April 2020

I’m a director of a small company – what support is open to me during the Coronavirus outbreak?

If you are a director of a company where you are the sole employee, navigating the support available to help you throughout the Coronavirus outbreak could look like a daunting prospect.

To help you make the most of the support available, we have compiled the following top tips:

  1. You can furlough yourself, receive up to 80 per cent of your usual wages and work for a new employer – The Government’s Coronavirus Job Retention Scheme enables employers to furlough workers and receive a grant for 80 per cent of their usual wages, capped at £2,500 per month, and the associated employer National Insurance Contributions and automatic enrolment pension contributions.

    Furloughed workers remain on the payroll but may not carry out any work for the employer during the period of furlough.

    The good news if you are a director of a small company is that you can furlough yourself. However, the rules appear to be extremely restrictive and limit you to fulfilling only your filing duties under the Companies Act.

    While you are furloughed, you can work elsewhere as long as it is not for a linked or associated organisation, but continue to receive your furlough payment.

  2. You can defer your July Income Tax payment – All taxpayers who are due to pay their second Self-Assessment payment on account on 31 July 2020 can defer their payment until 31 January 2021. This is an automatic offer with no application required.
  3. You can ask to defer your business taxes – HM Revenue & Customs has launched a dedicated Time to Pay helpline to arrange tax payments in instalments. The number is 0800 024 1222.

    Time to Pay is only available where all other avenues of financing have been exhausted.

  4. You can apply for a Coronavirus Business Interruption Loan (CBILS) – These loan facilities are provided by more than 40 lenders accredited with the British Business Bank and are for sums of between £1,000 and £5 million. The facilities are interest-free for 12 months and are backed by an 80 per cent Government guarantee.

  5. You can apply for a three-month mortgage holiday – These are available to all homeowners who are up to date on their mortgage repayments. However, you will continue to accrue interest and so will likely have to pay more when payments resume.

    You may be able to claim Child Benefit – if you have children and were previously earning more than £50,000, and opted out of Child Benefit in order not to pay the High Income Child Benefit Charge, you may wish to apply again for Child Benefit.

    If you have been paying the High-Income Child Benefit Charge, while still receiving Child Benefit, the situation is more complicated. In these circumstances, your income must fall below £50,000 for a whole tax year before you can stop paying the charge.

For detailed advice, please contact us today.

Government launches Business Support Finder tool

With an increasing array of Coronavirus business support measures available to different types and sizes of business, the Government has launched a new Support Finder tool to help businesses identify what support packages they could be eligible for.

The new tool asks for some basic information about a business, including turnover and the number of people it employs, before highlighting packages that could be suitable.

These include measures such as:

  • The Coronavirus Job Retention Scheme (CJRS), which allows employers to furlough eligible staff and claim a grant in respect of up to 80 per cent of their usual wages, capped at £2,500 a month, plus employer National Insurance Contributions (NICS) and minimum automatic enrolment pension contributions.
  • The Coronavirus Business Interruption Loan Scheme (CBILS), which enables businesses with a turnover of up to £45 million to access Government-backed loans of between £1,000 and £5 million.
  • A three-month VAT payment deferral.
  • A range of business rates breaks and grants.

The Business Support Finder can be found at: https://www.gov.uk/business-coronavirus-support-finder.

Government announces Future Fund for fast-growing businesses

The Government has announced a new scheme to help businesses with the impact of Coronavirus. The Future Fund is aimed at rapidly growing businesses that typically rely on equity investment.

These businesses are often pre-revenue or pre-profit and have been unable to access existing schemes, such as the Coronavirus Business Interruption Loan Scheme (CBILS).

The scheme will provide loans from the Government worth between £125,000 and £5 million, which must be at least matched by private investors.

Loans under the scheme will automatically convert into equity on a firm’s next qualifying funding round or if the funds have not been repaid by the end of the loan period.

The scheme will be delivered in partnership with the British Business Bank and full details of how to apply are expected to be announced shortly.

Administering the Coronavirus Job Retention Scheme

We appreciate that you are probably hard at work making the necessary arrangements and sourcing the required information for the Coronavirus Job Retention Scheme (CJRS) at the moment.

The portal went live this week and can be accessed by clicking here. Initial reports suggest that more than 140,000 businesses have made an application so far.

To help you make sense of the CJRS and the application process, we wanted to share some useful documents and calculators with you:

Step-by-Step Guide 

HM Revenue & Customs (HMRC) has created a useful step-by-step PDF guide to help with the application process, which can be downloaded and followed here.

CJRS claim calculator 

To help calculate your claim and check it, the Government has designed a dedicated calculator. This is useful for calculating a basic regular salaried claim but is not able to calculate complex claims involving TUPE, top-up payments or pension contributions made outside of auto-enrolment, so please be aware. The calculator can be accessed here.

Webinar

HMRC has also created a 25-minute webinar that covers the CJRS basics and how applications can be made. This can be accessed here.

What we are learning from those who are applying for the scheme is that this isn’t a one size fits all process and certain employees or businesses will have requirements that are outside of the usual parameters of the scheme.

You should prepare all of the necessary information for the application beforehand, including calculations for those staff members that have been furloughed to make administering this task easier.

We thoroughly recommend that you seek advice if you are struggling to apply for the scheme or if you need help calculating your payroll.

Coronavirus Job Retention Scheme (CJRS) cut-off date extended to 19 March 2020

The Government has announced that the cut-off date for the Coronavirus Job Retention Scheme (CJRS) has been extended from 28 February 2020 to 19 March 2020, potentially enabling employers to furlough employees taken on during that period.

The CJRS allows employers to retain employees on the PAYE Payroll who are not carrying out work for them by placing them on furlough and to claim a grant of 80 per cent of a furloughed employee’s usual pay, plus employer National Insurance Contributions (NICS) and minimum employer auto-enrolment pension contributions.

The updated guidance published on Wednesday 15 April 2020 states that to be eligible for the scheme, an employee must have been on the employer’s PAYE payroll on or before 19 March 2020 and HM Revenue & Customs (HMRC) must have been notified of a payment through Real Time Information (RTI) by that date.

The Treasury says that it expects the extension of the cut-off date to benefit more than 200,000 employees, who employers would otherwise have been unable to furlough.

The new guidance also changes the arrangements for employees made redundant or who left their employment voluntarily in recent months. The guidance now states that anyone on an employer’s payroll on 28 February 2020 and notified to HMRC on an RTI submission on or before that date who stopped working for their employer prior to 19 March 2020 can be re-employed and furloughed.

At the same time, the Treasury has issued a Direction, giving instructions to HMRC for making payments under the CJRS.

Crucially, the direction confirms that the scheme applies to anyone who is furloughed “by reason of circumstances as a result of Coronavirus disease.”

The Direction also provides an exemption for company directors who are also furloughed employees to carry out duties “relating to the filing of company accounts or provision of other information relating to the administration of the director’s company…”

At the same time, it confirms that there must be a written agreement between the employer and the furloughed employee “that the employee will cease all work in relation to their employment”.

HMRC has confirmed that it expects the scheme to come into effect next week.

Accounting for grant payments

Thousands of business hope to make use of the various grant payments being made available by the Government and local authorities in response to the Coronavirus pandemic.

 

However, those in receipt of the new funding will need to make sure it is properly accounted for, which raises the question, how do you account for grant income?

 

The first and most important point to consider in regards to grant income is whether the income really is a grant or whether it is instead a loan or some other form of financing. 

 

The simple definition is that grant income is income received by you or your company for which you do not have to provide anything in return. 

 

Although you may be required to report your use of the grant or be limited in how it is spent, you will not have to make any form for repayment or reparation, such as the provision of goods or services.

 

If the grant is for expenditure that you would normally record in the profit and loss account, the grant income is reflected as income in your profit and loss account. 

 

Where a grant relates to specific equipment or another fixed asset then the grant income is deferred and should be released to the profit and loss account to match with the depreciation of the grant purchased asset.

 

You’re meant to account for the income when it becomes receivable, in the case of the Small Business Grants Fund and Retail, Hospitality and Leisure Grant Fund on the 20 March, not when it is received. This may mean that those with March year-end accounts may need to check how the income is reported. 

 

Corporation Tax 

 

As 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. 

 

VAT

 

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. 

 

Complexity

 

Many businesses may not have used grant funding before and it is easy to make an error by either failing to record grants as income or misreporting the amount received or when it was received. This being the case, we recommend that businesses making use of the Government’s grant funding seek advice and support when preparing their accounts to ensure grant income is correctly reported. 

CGT reporting of property sales to be given more time

It was announced that from the start of April all Capital Gains Tax (CGT) from residential property sales would have to be reported and paid to HM Revenue & Customs (HMRC) within 30 days where tax is due.

However, HMRC has now confirmed that it will not charge late filing penalties for reports of CGT on disposals of UK residential property by UK residents made by 31 July 2020 that are made after 30 days.

The announcement, revealed in an HMRC question and answer factsheet shared with ICAEW’s Tax Faculty indicates that despite the change in rules, taxpayers will not be fined for a breach of the regulations.

HMRC stated: “To help those selling properties familiarise themselves with the change in the rules and a new on-line process, HMRC is allowing a period of time to adjust and will not issue late filing penalties for CGT payment on account returns received late up to and including 31 July 2020.

“For UK residents, this means transactions completed between 6 April and 30 June 2020 and reported up to 31 July 2020. Transactions completed from 1 July 2020 onwards will receive a late filing penalty if they are not reported within 30 calendar days. Interest will accrue if the tax remains unpaid after 30 days.”

It is thought that the temporary loosening of the rules is designed to help those struggling to contact agents or report CGT as a result of the Covid-19 pandemic.

ICAEW Tax Faculty said that the Q&A seemed to suggest that the easement only applied to UK residents and not for non-residents who have already had the rules applied to them

Whilst the charging of late penalties has been postponed temporarily interest will still run on the CGT due, so filing and paying as soon as possible is still highly recommended where possible.

Four new Coronavirus Business Interruption Loan Scheme (CBILS) lenders announced

The Government’s British Business Bank, which oversees the Coronavirus Business Interruption Loan Scheme (CBILS), has confirmed the addition of four new lenders businesses can approach to access the scheme.

The Co-operative Bank, Cynergy Bank, OakNorth Bank and Starling Bank are now able to provide CBILS loans to businesses.

The Scheme provides UK-based SMEs with turnovers of up to £45 million access to facilities of between £1,000 and £5 million interest-free for 12 months, backed by an 80 per cent guarantee from the Government.

Amendments to the scheme announced in April mean that any business with turnovers of up to £45 million that has been affected by the crisis can access CBILS loans, even if they would otherwise qualify for facilities on normal commercial terms.

The British Business Banks says that businesses that meet the following conditions must be considered for CBILS:

  • Be UK-based in its business activity
  • Have an annual turnover of no more than £45 million, of which more than 50 per cent is generated through trading activities
  • Have a borrowing proposal which the lender would consider viable, were it not for the current pandemic
  • Self-certify that it has been adversely impacted by the coronavirus (COVID-19).

The latest lenders accredited to offer CBILS loans join more than 40 lenders already lending through the scheme, including the UK’s largest high-street banks.

Detailed guidance published on the Self-Employed Income Support Scheme

HM Revenue & Customs (HMRC) has published detailed guidance on the working of the Self-Employed Income Support Scheme (SEISS), which was announced by the Chancellor as part of the Government’s response to the economic impact of the coronavirus crisis.

SEISS will pay 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. The amount will be paid in a single lump-sum and will be based upon tax returns from 2016-17, 2017-18 and 2018-19.

Crucially, self-employed individuals will still be able to do business while they are in receipt of a grant from the scheme.

To qualify for the scheme, a self-employed individual must have trading profits of no more than £50,000 and must receive the majority of their income from self-employment. They must also have submitted a Self-Assessment Tax Return for 2018-19. Anyone who has missed the deadline has until 23 April 2020 to do so before they become ineligible for the scheme.

The new guidance confirms that 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
  • Training courses
  • Business expenses deducted through the trading allowance
  • Capital allowances, used to buy assets used in the business
  • Qualifying care relief
  • Flat rate expenses.

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.

Applications to the scheme are expected to open in mid-May 2020 via an online portal. HMRC will contact self-employed individuals it identifies as being eligible with details of how to apply.

HMRC has also issued a fraud warning, saying that texts, calls or emails claiming to be from HMRC and asking people to click a link to provide personal information will be a scam.

OBR warns that the UK economy may contract by more than a third before bouncing back by end of 2020

The Office for Budget Responsibility (OBR) has released a new report which suggests that the UK economy may shrink by 35 per cent in June as a result of the Government’s ‘Stay at Home’ guidance, before ‘bouncing back’ in the following months.

The OBR report, which is not considered an exact prediction, suggest that UK gross domestic product (GDP) could drop by more than a third in the second quarter of the year and by 13 per cent for 2020 as a whole.

As a result, it has warned that unemployment may rise by 10 per cent and that people could see a hit to living standards below that of the 2008 financial crisis, but it said that the country’s recovery would be quick, thanks in part to the Governments measures and stimulus package.

The OBR’s report is based on the assumption that the UK lockdown will last for at least three months. It said: “The longer the period of economic disruption lasts, the more likely it is that the economy’s future potential output will be scarred.”

The OBR concluded by saying that GDP could recover to its pre-virus levels as quickly as the end of this year if the right steps were taken and businesses could get back to work.