Welcome to my blog page. Like many reading this, I worked through 9/11 and the 2008 financial crisis, but this current situation is unprecedented. Here I try to succinctly summarise, using as many sources as I am able, recent announcements from the UK Government to support businesses and individuals during these unprecedented times in tackling the global COVID-19 (Coronavirus) pandemic. I hope you find this useful in your battle to protect the health of your business, your family and yourselves. This is a free resource to anyone that needs it.
You can find more details on the overall UK Government Action plan here.
If you are looking for specific support relating to businesses and individuals in Scotland, please look here.
Last updated 4th May 2020
a) Businesses:
Content:
1 - Coronavirus Job Retention Scheme (updated 24th April)
2 - Coronavirus Business Interruption Loan Scheme (CBILS) (updated 15th April)
3 - Coronavirus Large Business Interruption Loan Scheme (CLBILS)
4 - VAT Deferral
5 - SSP Reclaim
6 - HMRC Time to Pay
7 - Business Rates Relief and Direct Grants
8 - Corporate Debt Issues
9 - Commercial Insurances
10 - Landlord Eviction Ban (updated 26th April)
11 - Coronavirus Tech Funding
12 - Changes to Insolvency Rules to help Companies Trade
13 - Bounce Back - micro loan scheme (added 27th April - updated 4th May)
The government guidance on how businesses should be considering helping tackle the coronavirus impact can be found here.
1 - Coronavirus Job Retention scheme
Government grants will cover 80% of the salary of PAYE employees who are not working but are furloughed and kept on payroll, up to a total of £2,500 a month. The scheme, open to any employer in the country, will cover the cost of wages backdated to 1 March 2020 and will be open before the end of April. It will continue for at least three months, and can include workers who were in employment on 19 March (previously 28 February - changed 15th April), and workers in charities. See the government website here.
To claim under the scheme employers will need to: a) designate affected employees as ‘furloughed workers’, and notify employees of this change. Changing the status of employees remains subject to existing employment law and, depending on the employment contract, may be subject to negotiation; and b) 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.
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.
Plus 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. This gives a maximum cap of £2,500 +£245 (employers’ NIC) + £59 (auto- enrolled pension contribution) = £2,804 of total possible grant that can be applied for per employee per month.
Updated 31st March: Company directors that receive salaries through PAYE can be furloughed and apply for a grant of 80% of their salary during the coronavirus pandemic, ICAEW understands. After examining HMRC guidance ICAEW believes that individuals who are directors of their own family companies and who are themselves paid via PAYE should be eligible for the coronavirus job retention scheme, although the same rules will apply as to other businesses and their employees. The scheme could run for longer if the restrictions in movements to halt the COVID-19 pandemic remain in place.
We are awaiting full details of how the scheme will operate from HMRC, including for directors paid via PAYE but not receiving a consistent, regular monthly salary. We understand the intention of the scheme is to include those on irregular earnings, but full details on how the amount of the grant will be calculated for these individuals have yet to be released.
As with other businesses, such directors would need to have been on the payroll on 28 February 2020 and they cannot work while they are on furlough leave. We do not yet know the extent to which minor directorial duties would be disregarded, or whether the requirement that a furloughed employee should do 'no work' would prohibit this.
COMMENT: Applications opened via the new HMRC portal on 20th April. One of the requirements to be considered a ‘furloughed worker’ is that the employee is not working for the business. This is effectively excluding businesses that need both support on paying their payroll and to keep their employees working, albeit largely in a reduced capacity. A furloughed employee can take part in volunteer work or training, as long as it does not provide services to or generate revenue for, or on behalf of your organisation. Further clarification and interpretation is provided in Appendix 4 below (added 27th March).
See the government site advising businesses here
See latest CJRS guidance on the ICAEW website - updated 22nd April
See ICAEW guidance as at 23 March in Appendix 3 below (added 25th March)
See the definition being used for 'furloughed workers' below
2 - Coronavirus Business Interruption Loan Scheme (CBILS)
According to a British Business Bank statement, the scheme became available in week commencing 23 March 2020. Key details include:
- a growing number of banks / providers are participating - currently 43 - see the current list here
- term loans, overdrafts and other facility types available
- 12m interest and fee free (government paid) period on up to a £5m facility
- repayment terms of up to 6 years on term loans; up to 3 years for overdrafts and invoice finance facilities
- some lenders are now offering repayment holidays for the first 6 months
- sound borrowing proposal required
- government backed to handle insufficient security; 80% government backed guarantee to the lender, subject to an overall cap per lender. NO LONGER 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, personal security may be required.
- where security is required, potentially in the form of a personal guarantee, this cannot include the primary residential property of the guarantor
- the borrower always remains 100% liable for the debt
- businesses up to £45m pa turnover qualify
- some sectors excluded - see here
COMMENT:
Unsecured loans, including no personal guarantees, up to £250k are available. The government confirmed this approach on 3rd April. A term loan facility, with no fees or interest for 12 months, potentially a 6-12 month repayment holiday, and no personal guarantee requirements, may provide a valuable safety net for businesses concerned about their cashflow in the coming months. Improving working capital should be an acceptable reason for lenders to approve on.
The government are also considering whether the guarantee should be increased to 100%, similar to Switzerland and Germany, although this is at an early stage (added 15th April)
See Appendix 2 below for example detailed terms and conditions from HSBC, including documentation required to support the application. (added 24th March)
Here is a link to the Lloyds CBIL Scheme which is offering 6 month repayment holidays, but may require personal security.
This BBC article from 26th March identifies some of the differences in various funders' offerings. It identifies RBS and Natwest will offer business interruption loans without asking business owners for personal guarantees - proving that more generous terms can be offered.
Also, some providers are upping their game in putting applications for small loans online and offering deferred capital payments on existing loans. Here is just one example with Barclays:
"Our broader support package for Business Banking customers, includes:
12-month capital repayment holidays on existing loans over £25,000
Increased or new overdraft facilities and other working capital solutions
Access to funding – 360,000 SMEs have pre-assessed lending limits which can be accessed via the Barclays app or online banking"
3 - Coronavirus Large Business Interruption Loan Scheme (CLBILS) - added 3rd April
A new Coronavirus Large Business Interruption Loan Scheme (CLBILS) was announced overnight to tackle the so-called ‘squeezed middle’ businesses not covered by the original measures. This provides a government guarantee of 80% to banks making loans of up to £25m to businesses with an annual turnover of between £45m and £500m.
A government statement said the move will offer banks “the confidence to lend to more businesses which are impacted by coronavirus but which they would not lend to without CLBILS”. Loans backed by the guarantee will be offered at commercial rates of interest, but the government will not cover interest or fees in the same way as the small business scheme. Further details of the CLBILS scheme will be announced later this month.
According to the statement, the Chancellor will be speaking to bank Chief Executives next week to discuss how the schemes are operating, and to “ensure everybody is playing their part”.
4 - VAT Deferral
The next quarter of VAT payments will be deferred, meaning businesses will not need to make VAT payments until the end of June 2020. Businesses will then have until 31st March 2021 to settle any liabilities that have accumulated during the deferral period.
The deferral applies automatically and businesses do not need to apply for it. VAT returns do still need to be submitted, even if payment is being deferred. VAT refunds and reclaims will be paid by the government as normal.
See the government site here
5 - SSP Reclaim
This refund will cover up to two weeks’ SSP per eligible employee who are either ill or been told to self-isolate because of COVID-19. This is in line with the recommended isolation period. Guidance on self-isolation can be found here. Employers with fewer than 250 employees will be eligible. The size of an employer will be determined by the number of people they employed as of 28 February 2020. 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, but employees will not need to provide a GP fit note. The eligible period for the scheme began on 13 March. The government will work with employers over the coming months to set up the repayment mechanism for employers as soon as possible. Existing systems are not designed to facilitate employer refunds for SSP. See more details here.
6 - HMRC Time to Pay
The government has announced extra resources to assist those struggling to pay their tax liabilities and in financial distress. HMRC will be committing 2,000 experienced call handlers to support taxpayers. This includes a dedicated COVID-19 helpline to help those in need. The helpline number is 0800 0159 559. Opening hours are Monday to Friday 8am to 8pm, and Saturday 8am to 4pm. Support will include agreeing a bespoke Time To Pay arrangement with HMRC. You should have your company tax reference available when you make this call. This will help those struggling with cash flow and allow those who enter into arrangements to spread liabilities owed over a pre-agreed period. In addition, HMRC will waive late payment penalties and interest where businesses experience administrative difficulties contacting HMRC or paying taxes due to COVID-19. It will be important to get upfront agreement from HMRC before a payment deadline. There is also a commitment to suspend debt collection proceedings
See further details here.
Also, see Appendix 1 below - Detailed considerations prior to calling HMRC
7 - Business Rates Relief & Direct Grants
No rates are now payable for the 2020-2021 tax year for any business in the retail, hospitality or leisure sectors. This includes nurseries. In those sectors, if your rateable value is between £15K and £51k, you'll also receive a cash grant of up to £25,000 per property. Local authorities will be fully compensated for these business rates measures. It is stated that no action is required. This will apply to the next council tax bill in April 2020.
Any business which gets small business rates relief, including those in the retail, hospitality or leisure sectors, will receive a cash grant of £10,000 (increased from £3,000 announced in the 11 March Budget). The rates holiday and cash grants will be administered by local authorities and should be delivered automatically, without businesses needing to claim (see here).
8 - Government buying newly issued corporate debt
For larger businesses, able to issue corporate debt as part of their suite of funding, there is to be a special funding arrangement, the Covid Corporate Financing Facility (CCFF), available through the Bank of England. Businesses will need to issue special 1 year corporate bonds which the Bank of England will purchase to give businesses liquidity. The Bank of England has set up this scheme to finance working capital by purchasing commercial paper from larger business ‘making a material contribution to the UK economy’. Businesses do not need to have previously issued commercial paper in order to participate. The scheme will operate for at least 12 months.
See Bank of England announcement here.
See the Chancellor's announcement here.
9 - Commercial Insurances
Although not a government policy, it is worth adding a key step for most businesses is to review their current insurances in place, particularly in the area of business interruption, to assess whether the Coronavirus situation is an insured risk. The government has stated that hospitality businesses should be able to claim on their business continuity insurance as a result of government guidance to the public.
Businesses that have cover for both pandemics and government-ordered closure should be covered. The government and insurance industry confirmed on 17 March 2020 that advice to avoid pubs, theatres, etc., is sufficient to make a claim as long as all other terms and conditions are met. Insurance policies differ significantly, so businesses should check the terms and conditions of their specific policy and contact their providers.
Reaching out to brokers or the insurance company directly may provide further clarity.
10 - Landlord Eviction Ban (updated 26th April)
New measures to protect UK high street (and other businesses)from aggressive rent collection and closure. High street shops and other companies under strain will be protected from aggressive rent collection and asked to pay what they can during the coronavirus pandemic
High street shops and other companies under strain will be protected from aggressive rent collection and asked to pay what they can during the coronavirus pandemic, the Business Secretary has set out today (23 April 2020). The majority of landlords and tenants are working well together to reach agreements on debt obligations, but some landlords have been putting tenants under undue pressure by using aggressive debt recovery tactics.
To stop these unfair practices, the government will temporarily ban the use of statutory demands (made between 1 March 2020 and 30 June 2020) and winding up petitions presented from Monday 27 April, through to 30 June, where a company cannot pay its bills due to coronavirus. This will help ensure these companies do not fall into deeper financial strain. The measures will be included in the Corporate Insolvency and Governance Bill, which the Business Secretary Alok Sharma set out earlier this month.
Government is also laying secondary legislation to provide tenants with more breathing space to pay rent by preventing landlords using Commercial Rent Arrears Recovery (CRAR) unless they are owed 90 days of unpaid rent. This will further safeguard the high street and millions of jobs by helping to protect them from permanent closure during this time. However, while landlords are urged to give their tenants the breathing space needed, the government calls on tenants to pay rent where they can afford it or what they can in recognition of the strains felt by commercial landlords too.
COMMENT:
The sensible guidance is for those businesses and charities that need to protect themselves in these extraordinary times through seeking to reduce or delay their rent cash outflows, to engage with an active dialogue with their landlords to identify if a mutually acceptable agreement can be reached, at least in the short term. I am seeing and hearing more landlords recognising that just deferring rent for another day is not going to cut it with some organisations who are seeing an immediate and material decrease in their revenue and thus cashflow, potentially on a permanent basis, and are thus offering 50%-100% rent reductions for 3-6 months.
Please see the government announcement here for more details.
11 - Coronavirus Tech Funding
£500,000 of funding is available for technology companies who come up with digital support solutions for people who need to stay at home because of coronavirus. The funding will be available to innovators who can find digital ways to support people who need help during the coronavirus (COVID-19) outbreak.
The ‘Techforce19’ challenge aims to support those who need to stay at home for several weeks and need help. This could include people who need mental health support or who have social care needs. Funding of up to £25,000 per company is available.
The programme is looking for digital solutions that can be launched in the next few weeks, and could include:
providing remote social care – for example, by locating and matching qualified carers to those in need
optimising the volunteer sector – for example, by developing tools to recruit, train and coordinate local volunteers into clinical and non-clinical workers
improving mental health support – for example, by making it easier to discover and deliver mental health services and support
any other solutions to ease pressures on services and people during this time
This technology will supplement existing support for those who may be most affected by staying at home for long periods of time. The programme is being launched by NHSX and managed by PUBLIC, a GovTech venture firm. PUBLIC will not receive any payment for running this competition.
You can find more details here
12 - Changes to Insolvency Rules to Help Companies Trade (added 30th March)
Over the weekend, the government announced changes to the UK Insolvency Law. Speaking at the daily press conference on Saturday, Alok Sharma, the Business Secretary, said changes would be made to the Insolvency Law to protect businesses and Directors during the COVID-19 crisis and to allow companies to “emerge intact on the other side”. Under the plans, the UK’s Insolvency Framework will add new restructuring tools including:
a moratorium for companies giving them breathing space for from creditors forcing administration for a period of time whilst they seek a rescue or restructure;
protection of their supplies to enable them to continue trading during the moratorium;
a new restructuring plan, binding creditors to that plan; and
key safeguards for creditors and suppliers to ensure they are paid during the moratorium.
In addition, the government will also temporarily suspend the wrongful trading provisions to give Directors greater confidence to use their best endeavours to continue to trade without the threat of personal liability should the company ultimately fall into insolvency. The government will legislate for this temporarily suspension to be applied retrospectively from 1st March 2020 for a period of three months. However, the existing laws on fraudulent trading accompanied by the threat of director disqualification will continue to be fully in force. Mr Sharma said “Today’s measures will also reduce the burden on business, giving bosses much-needed breathing space to keep their workers employed and their companies going.”
The government site commenting on this, and other matters, can be found here.
13 - Bounce Back micro loan scheme (added 27th April - updated 4th May)
A new 'Bounce Back' micro loan scheme was announced recently by the Chancellor. Focussed on smaller businesses and seeking to reduce the red tape in order to fast track cash to support liquidity.
The Bounce Back Loan Scheme goes live today (4th May) and the British Business Bank have published more detailed guidance. The main eligibility criteria for a business are:
it is engaged in trading or commercial activity in the UK and was established by 1st March 2020;
it is not registered as a business in difficulty at 31st December 2019;
it has been negatively affected by the COVID-19 pandemic;
it is not using any of the other COVID-19 schemes backed by the British Business Bank unless the Bounce Back Loan will refinance the whole of the existing facilities;
it is not in bankruptcy or liquidation or undergoing debt restructuring at the time it submits its application for finance;
it derives more than 50% of its income from its trading activity; and
is not in an excluded sector which are:
banks, insurers and reinsurers (but not insurance brokers)
public-sector bodies
state-funded primary and secondary schools.
The key terms for the scheme itself are as follows:
Loans range from £2,000 up to 25% of a business’ turnover capped at a maximum loan amount is £50,000.
The scheme provides the lender with a 100% government-backed guarantee against the outstanding balance of the finance, both capital and interest. However, the borrower remains fully liable for the debt.
The Government will make a Business Interruption Payment to cover the first twelve months of interest payments.
The borrower does not have to make any repayments for the first twelve months.
The interest rate for the facility is set at 2.5% per annum with the lenders unable to vary this rate.
The length of the loan is six years but early repayment is allowed without early repayment fees.
Lenders are not permitted to take personal guarantees or take recovery action over a borrower’s personal assets.
There is no fee to access the scheme for either businesses or lenders.
For those businesses looking to access there scheme, the first port of call should be your current bank so long as they are on the British Business Bank accredited lenders list here. All the main Hight Street banks are on this list. However, you can apply to any lender on this list under the scheme.
COMMENT:
With 25% of UK businesses having now stopped trading, more than 1.5m new claims for Universal Credit, and over 4m employees furloughed, this is much needed. But is a loan the right answer for many businesses now struggling to generate sufficient revenue?
b) Individuals:
Content:
1 - Self Employed Grant
2 - Self Assessment Payment Delay
3 - Furloughed Workers
4 - SSP
5 - Universal Credit Increases
6 - Mortgage and Rent Payment Holidays
7 - Delayed IR35
1 - Self Employed Grant
Self-employed people will be able to apply for a grant worth 80% of their average monthly profits over the last three years, up to £2,500 a month.
At least half their income needs to have come from self-employment as registered on the 2018-19 tax return filed in January - anyone who missed the filing deadline has four weeks from now to get it done and still qualify.
The scheme is open to those who earn under £50,000 a year - up to 3.8 million of the 5 million people registered as self-employed.
Unlike the employee scheme, the self-employed can continue to work as they receive support.
The money, backdated to March, will arrive directly into people's banks accounts from HMRC, but not until June (March - May).
The grants will be taxable, and will need to be declared on tax returns by January 2022.
Company owners who pay themselves a dividend are not covered
2 - Self Assessment Payment Delay
Income Tax Self-Assessment payments due on the 31 July 2020 will be deferred until the 31 January 2021. This is an automatic offer with no applications required. No penalties or interest for late payment will be charged in the deferral period.
3 - Furloughed Workers (as part of the Job Retention Scheme above)
Guidance from the government here, summarised as:
"If your employer cannot cover staff costs due to COVID-19, they may be able to access support to continue paying part of your wage, to avoid redundancies. If your employer intends to access the Coronavirus Job Retention Scheme, they will discuss with you becoming classified as a furloughed worker. This would mean that you are kept on your employer’s payroll, rather than being laid off. To qualify for this scheme, you should not undertake work for them while you are furloughed. This will allow your employer to claim a grant of up to 80% of your wage for all employment costs, up to a cap of £2,500 per month. You will remain employed while furloughed. Your employer could choose to fund the differences between this payment and your salary, but does not have to. If your salary is reduced as a result of these changes, you may be eligible for support through the welfare system, including Universal Credit. We intend for the Coronavirus Job Retention Scheme to run for at least 3 months from 1 March 2020, but will extend if necessary."
4 - SSP
You can get £94.25 per week Statutory Sick Pay (SSP) if you’re too ill to work. It’s paid by your employer for up to 28 weeks. If you are staying at home because of COVID-19 you can now claim SSP. This includes individuals who are caring for people in the same household and therefore have been advised to do a household quarantine.
To check your sick pay entitlement, you should talk to your employer, and visit the Statutory Sick Pay (SSP) page for more information. The government are legislating for SSP to be paid from day 1, rather than day 4, of your absence from work if you are absent from work due to sickness or need to stay at home due to COVID-19. Once the legislation has been passed, this will apply retrospectively from 13 March. You should talk to your employer if you are eligible for SSP and need to claim.
Claiming SSP for an SME self-employed director/self-employed individual If you're a director of a limited company with less than 250 employees, you can pay yourself two weeks of SSP if you need to self-isolate subject to meeting the minimum payroll requirement for SSP. The government will refund £94 per week, maximum £188, to your company.
Those who are not eligible for SSP, for example the self-employed or people earning below the Lower Earnings Limit of £118 per week, can now more easily make a claim for Universal Credit or Contributory Employment and Support Allowance:
For the duration of the outbreak, the requirements of the Universal Credit Minimum Income Floor will be temporarily relaxed for those who have COVID-19 or are self-isolating according to government advice, ensuring self-employed claimants will receive support.
HOWEVER, the support so far for the millions of self-employed is seen by many commentators as too low at or around the £94.25 a week Statutory Sick Pay level. This, in turn, is encouraging people to continue to work in circumstances where perhaps they shouldn't. The government is being pressed to deliver a mechanism that will cover 80% of their income in a similar manner to the furloughed workers.
5 - Universal Credit Increases
Self employed people can now access full universal credit at a rate equivalent to statutory sick pay (see above). People will be able to claim Universal Credit and access advance payments upfront without the current requirement to attend a job centre if they are advised to self-isolate. Contributory Employment and Support Allowance will be payable, at a rate of £73.10 a week if you are over 25, for eligible people affected by COVID-19 or self-isolating in line with advice from Day 1 of sickness, rather than Day 8.
6 - Mortgage & Rent Payment Holidays
On 17 March, the Chancellor announced that mortgage lenders would offer an initial three-month mortgage payment holiday for those in financial need as a result of the COVID-19 crisis. Lenders should be approached directly. Mortgage borrowers can apply for a three- month payment holiday from their lender. Both residential and buy-to-let mortgages are eligible for the holiday. It is important to remember that borrowers still owe the amounts that they don't pay as a result of the payment holiday. Interest will continue to be charged on the amount they owe.
Tenants can apply for a three-month payment holiday from their landlord. No one can be evicted from their home or have their home repossessed over the next three months.
7 - Delayed IR35
The government has delayed the introduction of the off-payroll labour/IR35 reforms for private sector businesses until 6 April 2021. Self-employed individuals will still need to consider their existing IR35 obligations when accepting work but a delay in placing new obligations onto engagers will prevent further disruption to the contractor market for the 2020/21 tax year. Read more on IR35
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Appendix 1 - Detailed considerations prior to calling HMRC - Time to Pay
When to make contact: In general it is advisable to contact HMRC as soon as difficulty making payment is expected. However, HMRC’s systems do not easily facilitate setting up a payment arrangement too far in advance, so the best time to phone HMRC is usually one to two weeks in advance of the due date for payment.
Make sure returns are up to date: HMRC is more amenable to agreeing time to pay if returns are up to date and the correct liability has been established.
Cash flow forecasts and budgets: Before phoning HMRC it is advisable to have financial forecasts and a statement of assets and liabilities available. HMRC will expect the taxpayer to make the best offer they can and will not usually make suggestions about the amount it will accept as a regular payment.
HMRC staff authority to agree time to pay: HMRC will usually expect to set up a regular monthly payment plan with collection by direct debit. Most HMRC debt management contact centre staff have authority to agree time to pay over a period of up to 12 months. Longer periods can be arranged but usually need to be escalated to more senior HMRC staff. It is understood debts of more than £100,000 may have to be referred internally within HMRC. Short suspensions of collection to allow the taxpayer to take a specific action which would enable them to pay are sometimes possible.
Expect robust questioning: We don’t know to what extent HMRC staff will be more sympathetic to requests for time to pay in the current environment but in normal circumstances negotiating time to pay can involve what feels like personal and intrusive questioning. It is important to make HMRC aware of all information which might be relevant to the payment difficulties, as calmly and professionally as is possible in what may well be extremely difficult circumstances.
No agreement may be better than an unaffordable agreement: It is often better to conclude a phone call to HMRC having failed to reach an agreement than to agree to an arrangement which the business can’t afford. If a time to pay agreement is not kept to it is difficult to get HMRC to reestablish it and HMRC will be more reluctant to make agreements in the future. If circumstances change it is advisable to contact HMRC, before missing any payments, to renegotiate the arrangement. If a formal time to pay arrangement cannot be reached it is usually advisable for the taxpayer to pay what they can when they can as this shows willingness to pay and may delay further enforcement action by HMRC (this approach may not be appropriate if insolvency is likely and further advice should be sought in this situation).
Future tax liabilities: A standard term of HMRC time to pay agreements is that future tax liabilities are paid in full as they fall due. Where this is not possible it is necessary to contact HMRC again to renegotiate the arrangement to include the new debt. HMRC is often reluctant to agreed repeated requests for time to pay but may be more amenable in the current situation.
Which debts to prioritise: HMRC is usually more willing to consider agreeing time to pay for profits based taxes such as income tax and corporation tax than for taxes such as VAT (see separate announcement on the automatic VAT 3 month deferral) and employees’ PAYE and national insurance contributions, which businesses are effectively collecting on behalf of the exchequer. The usual advice is to prioritise paying VAT and employer liabilities as HMRC pursues these more actively. We don’t yet know whether this will change in the current situation; there has been some speculation that the Government may be minded to focus assistance on VAT and employer liabilities but no announcement has been made.
Appendix 2 - Example CBILS Terms and Conditions - HSBC
Overview
The Coronavirus Business Interruption Loan Scheme (CBILS) is a government scheme which secures bank loans for UK SME’s with viable businesses who may need to respond to cash flow pressures during the COVID-19 outbreak. The scheme is available to customers with less than 250 employees and whose Businesses have an annual turnover of no more than GBP45 million.
The scheme will support new lending and the refinancing of any existing HSBC lending, including EFG’s.
The scheme is available to businesses;
o Who hold a sound borrowing proposal and robust business plan, but inadequate security to meet our normal business lending requirements.
o Where there are some concerns over the short term business performance due to the impact of the coronavirus, provided;
a. the finance will help the SME trade-out of any short-to-medium term cashflow difficulty;
b. the SME is not subject to collective insolvency proceedings, and does not fulfil the criteria for being placed in domestic insolvency proceedings and
c. if the facility is granted, the SME will not become insolvent in the short-to-medium term, then the proposition may be considered eligible under the CBIL Scheme.
Features and Benefits
· No fee is required for the 80% Government Guarantee (Borrowers were required to pay 2% per annum for the previous EFG scheme).
· HSBC will waive an arrangement fee (usually 1.5% of the total facility).
· No early repayment fee should a SME decide to repay the loan early.
· A capital and interest free period of 12 months will apply. Interest and loan repayments will begin in month 13 post drawdown.
· Loans are provided on a variable interest rate and can be transferred to fixed after the 12 months interest fee period has expired.
· HSBC will waive security fees.
Amounts
· The minimum loan amounts is £10,000
· The maximum loan amount is £5,000,000
· The loan amounts must be justifiable within the SME proposition and demonstrated in a 12/18 months cash-flow forecast of a business plan/proposal
State Aid
· EU rules and restrictions apply around state aid. If a SME, connected SME or a Company Director have received state aid before (eg EFG scheme) then HSBC will need to understand when this was and how much aid has been provided within the last 3 years to comply with EU law.
Term
· The term must in multiples of 3 months. E.g. 3, 6, 9, 12 months etc
· The maximum term is 6 years.
· The minimum term is 3 months.
Security
· Please note, SME’s are 100% liable for the outstanding balance. The 80% CBIL Guarantee, is provided to HSBC by the British Business Bank and allows HSBC to lend where previously we may have been unable to do so. In a default scenarios, HSBC will seek to recover 100% of the outstanding balance from the SME (not 20%), and will call on any security the SME has given for the loan up to 100% of the outstanding balance.
· HSBC will look to take a Personal Guarantee to support the application for amounts of £100,000 and over. (Note HSBC advised on 26th March 2020 this has been increased to £250k)
· HSBC will waive security fees.
· For application of £100,000 plus please could you complete the attached Asset & Liability, print, sign and scan back to me?
Cost
· For all SME applicants the below table represents the variable interest rate margin dependant on the value and term. These rate are non-negotiable:
Loan Value - Tenor - Variable Margin
From GBP10,000 to GBP5,000,000
1 to 3 years - 3.5% over base
Over 3 years to 6 years - 4.0% over base
Business Interruption Letter – (BIP)
· When the facility offer details are loaded onto the government portal, this will trigger a Business Interruption Payment (BIP) letter, which is to be signed and returned by the SME prior to drawdown (listed as a condition precedent in Facility Offer Letter). The ‘BIP’ letter allows HSBC to claim equivalent interest and arrangement fees (that the SME would have paid) from the Government. If the SME does not sign the ‘BIP’ they will be charged the equivalent amount.
HSBC Documentation Requirements
If you would like to apply for a CBILS to support your business during this crisis, I will require the following:
· Last two years set of Annual Accounts
· Management Accounts YTD including profit and loss and balance sheet.
· Please can you provide specific details of any invoices you are due to paid in the next 6 – 12 months that may have been pushed back or delayed.
· A conservative 12/18 Month Cash Flow Forecast
o remodelling your profit and cash flow for a drop in demand domestically and internationally. What does a sustained period of 50% or even zero sales look like? This will be required if you wish to take out a CBILS
· A business plan/strategy will also be required for all applications focusing on what has changed in your business since the Coronavirus outbreak and the impact on sales, costs and supply chain, please include:
o Proposal as to how much is required and why it is required (how did you come to this figure) – salaries, supplier costs etc
o What contingency plans do you have in place – Management Team, Cost Management, Sales Forecast and Supply Chain.
o What measures have you taken within the business to manage costs/impact of COVID-19
o Provide details of what arrangements your have come to with other creditors.
Appendix 3 - ICAEW Guidance - 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.
Furlough is from 1 March 2020, so is to be backdated. 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 as it is intended to support all those employed then, 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.
The grant will be 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.
Scheme will be administered by HMRC: • Relevant employees must be designated as furloughed employees. • Employers will submit information to HMRC through a new online portal. • As this will take time to build, businesses should look to the Coronavirus Business Interruption Loan Scheme to support cash flow in the meantime. The narrative used in the information released so far says ‘if your employer cannot cover staff costs due to COVID-19 they may be able to access support…’. This is a conditional phrase which may relate to existing funds available to the employer. We do not yet know how these might be determined, nor whether there is a bar of some description.
Maximum grant will be calculated per employee and is 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.
Illustration
X Ltd employs Mr A at an annual salary of £24,000, so £2,000 per month. Mr A has opted out of auto enrolment.
Each month, Mr A currently receives net pay of £1,665 which is after deducting PAYE of £191 and employees NIC of £144. On this salary, the employer pays employers' NIC of £174.
The available grant for the employer is the lower of
(a) 80% of (£2,000 + £174), and
(b) £2,500
So a grant of £1,739.
The cash required by X Ltd to furlough based on maintaining the existing salary is £435 per month. It is a matter for employment law whether the employer is required to pay this top up. Discussions with employees may have agreed that the employee has agreed to a different arrangement during their furlough.
Notes to illustration based on an extended understanding of how the scheme will work
If Mr A had not opted out of auto enrolment, X Ltd would also be making pension contributions on his behalf. If so, the available grant is based on 80% of (gross salary + Employers' NIC + employers pension contributions paid), subject to the monthly cap of £2,500.
We understand that the rules for the scheme are being designed with underlying reference to employment law. If the individual is still under contract, Mr A can expect to receive his salary in full. The £1,739 grant paid to X Ltd should not be taken as the new maximum cost of employment to the employer unless the contract has been redrafted.
Subject to the employment contract and any amendment, the salary which the employer actually pays the employee during the furlough period may be different to the pay paid used as the reference period and upon which the grant figure is based.
Pubco - a scenario
In the following illustration, the business has already closed as instructed by the government. We have had a number of enquiries along similar lines and are seeking clarification of our understanding of the rules apply.
Mr & Mrs Fuller are the tenants of a pub. They have a substantial wet and food trade as the pub is in a coastal location and does good trade over the Summer. The pub is open all year round.
Mr & Mrs Fuller operate the pub through a limited company (Pubco). They take salaries of £8,600 each and withdraw profits of £30,000 each in the form of dividends. They live above the pub and work long hours being in the pub every day.
Pubco employs three permanent staff supplemented by extra seasonal staff in the Summer months and at Christmas.
The pub closed on 20 March as instructed by the Prime Minister. and following the Chancellor’s announcement on 20 March, Pubco has furloughed its staff other than Mr & Mrs Fuller who are still living above the pub and dealing with the company administration. The contracts of employment of the other staff have been varied to permit furloughing and the three permanent staff members have agreed to accept a pay reduction to 80% of the previous level. The seasonal staff for this year have not yet been hired.
Our understanding is that Pubco will be eligible to receive the government grant support under the Coronavirus Job Retention Scheme for the monthly wages of the 3 permanent staff members. No grant support is available to support the living costs of Mr & Mrs Fuller.
Mr & Mrs Fuller will need to look for alternative support while the pub remains closed.
Coronavirus Job Retention Scheme: ICAEW Tax Faculty further details
Introduction
https://www.businesssupport.gov.uk/coronavirus-job-retention-scheme/ says “Under the Coronavirus Job Retention Scheme, all UK employers with a PAYE scheme will be able to access support to continue paying part of their employees’ salary for those that would otherwise have been laid off during this crisis. This applies to employees who have been asked to stop working, but who are being kept on the pay roll, otherwise described as ‘furloughed workers’. HMRC will reimburse 80% of their wages, up to £2,500 per month. This is to safeguard workers from being made redundant. The Coronavirus Job Retention Scheme will cover the cost of wages backdated to March 1st and is initially open for 3 months, but will be extended if necessary”.
The ICAEW COVID-19 hub is at https://www.icaew.com/insights/coronavirus. The tax section is at https://www.icaew.com/insights/coronavirus/uk-practical-business-advice-covid-19.
The following paragraphs describe our understanding of the scheme and are our proposed guidance for member.
Which businesses are eligible?
1. 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.
Owner/managed companies
2. 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.
How is payment going to work in practice?
3. 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.
4. Employers will claim the grant through a new separate portal to be built by HMRC.
What is the £2,500 maximum grant based on?
5. The £2,500 monthly grant covers all employment costs, ie, salary, employer pension contributions required by auto enrolment (if applicable), and employer NIC.
6. The earnings period to be used to determine the maximum grant has yet to be clarified. For new employees in particular, options will be needed and also for seasonal staff. However, clearly there will need to be a base line and options being considered are likely to include:
a. Average for a prior period such as 12 months to 1 March or perhaps the month of February alone for a new employee.
b. For seasonal workers, it might be possible to use the same period last year, such as three months March, April, May 2019.
c. For those working irregular hours or say, on reduced pay (eg, maternity or sick leave) a different previous period may be needed.
Will entitlement to other employment benefits continue during the period of furlough?
7. The rules for the grant will not displace the existing employment contract. So for example, we would expect the entitlement to holiday and sick pay would depend on the contract. Employees eligible.
Employees eligible
8. Eligible employees are those on the payroll on 1 March 2020. It has yet to be clarified whether or not those re-employed under a new contract will qualify, although the policy intent would seem to support this would be reasonable.
9. We have had many questions asking if workers can be moved in and out of being furloughed if work becomes available to an employer and then ceases again? This has yet to be clarified, but we consider it 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. We anticipate that this will be seen as difficult to regulate an anticipate that a minimum period of furlough leave may be built in as a requirement before the person van return to work. So we anticipate that the rules will specifically make provision for:
a. Sickness cover where a continuing employee is now off sick and a furloughed worker can provide cover.
b. Where employees agree to share shifts to enable more of them to continue to be paid.
This will again depend on the employment contracts of those affected.
10. The matter of which employees an employer decides to furlough will be a matter for negotiation with staff and employment law.
11. The impact on job sharing employees and the decision to furlough will be a matter for negotiation with staff and employment law.
12. We presume that, subject to anything different stated in the employment contract, eligible employees would also include apprentices and agency workers.
13. We do not yet know whether the scheme will include deemed employees under the off payroll working rules.
14. An employee does not have to accept furlough if offered, but the employer could then make the employee redundant instead using the usual employment law procedure.
15. We understand that staff can study while they are being furloughed.
16. It is a condition of the scheme that the employee must do no work at all during the furlough period. The intention of the scheme is to allow employers to pay staff who are without work. HMRC will of course have visibility of pay records.
Employees with more than one employment
17. While we understand that an employee who is furloughed can do no work at all, our current understanding is that the employee can hold a separate employment with a different and unconnected employer which will be unaffected.
Additional information
Appendix 4 - Job Retention Scheme - How to Make a Claim (credit CooperFaure) - added 27th March
Overnight HMRC have published their detailed guidance on the eligibility and process for making a claim through the Coronavirus Job Retention Scheme which we have summarised below. Unexpectedly, rather than the employer providing information to HMRC for them to calculate the grant entitlement, the onus is on the employer to make that calculation and submit the claim accordingly. In addition, several questions that we have been repeatedly asked over the last few days have been definitively answered:
A furloughed worker is defined as being on a leave of absence. The employee cannot undertake any work for or on behalf of the company whilst on furlough.
Employees on reduced hours and/or pay are not eligible for the scheme.
A business owner on a salary and dividends remuneration is eligible to be a furloughed worker on the salary element only and if that salary is paid through a PAYE payroll.
For employees on variable pay, the claim amount can be based on their average monthly earnings for the 2019-20 tax year.
Fees, commission and bonuses are not included in calculating the wage costs.
For a furloughed worker, the employer can claim 80% usual monthly wage costs, up to £2,500 a month, plus the associated Employers National Insurance contributions and minimum automatic enrolment employer pension contributions on that wage.
Whilst on furlough, the employee’s wage will be subject to usual Income Tax, National Insurance and other deductions.
The minimum furlough period is three weeks.
Employees That Are Eligible For The Scheme
The scheme is open to all UK employers that had created and started a PAYE payroll scheme by 28th February 2020 and the scheme starts from 1st March 2020. This includes recruitment agencies where agency workers are paid through PAYE.
The scheme is initially set to run for three months and an employer can use the scheme at any time during this period.
The only qualification for a furloughed worker is that they must have been on your PAYE payroll on 28th February 2020 irrespective of their type of contract.
As a result, the scheme is open to full-time employees, part-time employees, employees on agency contracts and employees on flexible or zero-hour contracts.
The scheme also covers employees have been made redundant since 28th February 2020 so long as they are rehired by their employer.
If an employee is working but on reduced hours or for reduced pay, they will not be eligible for this scheme. You will need to continue to the employee through your payroll and pay their salary subject to the terms of the employment contract you agreed.
As the employer, you need to discuss the situation with your staff and make any changes to the employment contract by agreement. Bear in mind in making decisions that equality and discrimination laws will apply in the usual manner.
To be eligible to claim the grant, employers need to write to their employee confirming that they have been furloughed and keep a record of this communication.
Employees on unpaid leave cannot be furloughed, unless they were placed on unpaid leave after 28th February.
Employees on sick leave or self-isolating should receive Statutory Sick Pay but can be furloughed after this period ends. However, employees who are shielding in line with public health guidance can be placed on furlough.
For an employee who has more than one employment, they can be furloughed for each job and, as each job is seen as separate, the furlough cap applies to each employer individually.
A furloughed worker can undertake volunteer work or training, as long as it does not directly provide services to or generate revenue for the business.
If you decide to require a furloughed worker to complete, say, an online training course, bear in mind that they must be paid at least the National Living Wage or National Minimum Wage level for the time spent training even if this is more than the 80% of their wage that will be subsidised.
For an employee on Maternity Leave, the normal Statutory Maternity Pay rules will apply. However, if you offer enhanced contractual pay above the Statutory Maternity Pay level, this is included as a wage cost that you can claim through the scheme.
The same principles apply where your employee qualifies for contractual adoption, paternity or shared parental pay.
Calculating What You Can Claim
For eligible furloughed workers, you will receive a grant from HMRC to cover the lower of 80% of an employee’s regular wage or £2,500 per month, plus the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on that subsidised wage. Fees, commission and bonuses are not included.
At a minimum, employers must pay the employee the lower of 80% of their regular wage or £2,500 per month. An employer can also choose to top up an employee’s salary beyond this but is not obliged to under this scheme.
There will be more guidance from HMRC on how to calculate the claims for Employer National Insurance Contributions and minimum automatic enrolment employer pension contributions before the scheme becomes live.
For full-time and part-time salaried employees, the employee’s actual salary before tax as at 28 February should be used to calculate the 80%.
For employees whose pay varies and has been employed for a full twelve months prior to the claim, you can claim for the higher of either:
the same month’s earnings from the previous year; or
average monthly earnings for the 2019-20 tax 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.
Once the amount of an employee’s pay to be claimed has been calculated, you need to then work out the amount of Employer National Insurance Contributions and minimum automatic enrolment employer pension contributions you are entitled to claim.
If you decide to top-up the pay to furloughed worker, the resulting additional Employer National Insurance Contributions and automatic enrolment contribution will not be funded through this scheme.
Likewise, any voluntary automatic enrolment contributions above the minimum mandatory employer contribution of 3% of income will not be funded through this scheme.
What You Need To Have In Place To Make A Claim
You need to discuss the with your staff and make any changes to their employment contract by agreement. If you are unsure on this, it would be advisable to legal advice on the process. If a large number of staff are involved, it may be necessary to engage a collective consultation processes to secure agreement to changes to terms of employment.
To claim, you will need:
your ePAYE reference number;
the number of employees being furloughed;
the claim period start and end date;
amount claimed for at least the the minimum length of furloughing of three weeks;
your bank account number and sort code;
your contact name;
your phone number.
The employer is responsible for calculating the amount that is being claimed and HMRC has the right to retrospectively audit all aspects of your claim. You can only submit one claim at least every three weeks which is the minimum length an employee can be furloughed for and the claims can be backdated to the 1st March, if applicable. Once HMRC has received your claim and you are eligible for the grant, they will pay it via a BACS payment to a UK bank account. The claim should be made in line with actual payroll amounts at the point at which you run your payroll or in advance of an imminent payroll. You must pay the employee all the grant you receive for their gross pay and no fees can be deducted from the money that is granted. You can choose to top up the employee’s salary, but you do not have to.
What Happens When The Coronavirus Job Retention Scheme Ends?
When the government ends the scheme, you must decide based on your circumstances at that point, as to whether employees can return to their duties. If not, it may be necessary to consider termination of employment through a redundancy process. Employees that have been furloughed have the same rights as they did previously which includes Statutory Sick Pay entitlement, maternity rights, other parental rights, rights against unfair dismissal and to redundancy payments. Once the scheme has been closed by the government, HMRC will continue to process remaining claims before terminating the scheme.
Tax Treatment of the Coronavirus Job Retention Grant
Payments received by a business under the scheme are made to offset payroll costs that are a deductible business expense. As a result, the grant must be included as income in the calculation of the taxable profits of a business for Income Tax and Corporation Tax purposes. The employment costs will be deducted as normal when calculating taxable profits. We expect the HMRC portal to process the Coronavirus Job Retention Scheme claims to go live in around three weeks and the first grant payments to be made by the end of April.
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