Coronavirus business aid update
30th March 2020
Posted in Articles, Coronavirus, Employment Tax, VAT by Forbes Dawson
We summarise below the new self-employment Income Support Scheme. We have also provided more detail to the points raised in our previous article. We will continue to follow up with a detailed commentary and service-offering once the legislation is released.
Self-employment Income Support Scheme
Self-employed individuals or partners in partnerships whose income has been negatively impacted by COVID-19, can claim a grant worth 80% of their profits up to a cap of £2,500 per month.
Profits will be based on the average profits from tax returns in 2016/17, 2017/18 and 2018/19 to calculate the size of the grant. If you are a newer business and did not have self-employment income in all these years then it will be an average of the more recent years you did trade. If you commenced to trade after 6 April 2019 then you are not eligible for this relief at all and will need to consider the other alternatives, such as Universal Credit.
You are eligible if all of the following apply:
- Your profits are under £50,000 (averaged if applicable)
- Over 50% of your income is from self-employment
- You traded in the tax year 2019/20
- You are trading when you apply, or would be except for COVID-19
- You intend to continue to trade in the tax year 2020/21
If your tax returns show the required income levels then HMRC will invite applications, and expect to start to make payments from June 2020. Grants will be subject to income tax and national insurance. For eligible individuals who have not yet submitted their returns for 2018-19, they have 4 weeks from 26 March to do so to be considered.
No guidance has yet been issued as to what HMRC mean by “negatively impacted by COVID-19”.
For the avoidance of doubt, the above scheme will not apply to those individuals who operate through their own personal service company.
Job Retention Scheme Update
HMRC have now published further guidance which we have summarised below.
Who can Qualify?
- Furloughed employees must have been on the PAYE payroll on 28 February 2020, and can be on any type of contract, including: full-time, part-time, employees on agency contracts or employees on flexible or zero-hour contracts.
- The scheme also covers employees who were made redundant since 28 February 2020, if they are rehired by their employer.
- To be eligible for the subsidy, when on furlough, an employee can not undertake work for or on behalf of their employer. This includes providing services or generating revenue for, or on behalf of the employer.
- If an employee is working, but on reduced hours, or for reduced pay, they will not be eligible for this scheme and the employer will have to continue paying the employee through their payroll, subject to the terms of the employment contract.
- Employees hired after 28 February 2020 cannot be furloughed, or claimed for, in accordance with this scheme.
- An employer does not need to place all their employees on furlough.
- Employees on unpaid leave cannot be furloughed, unless they were placed on unpaid leave after 28 February.
- Employees on sick leave or self-isolating should get Statutory Sick Pay, but can be furloughed after this.
- Employees who are shielding in line with public health guidance can be placed on furlough.
What you can claim
The employer 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 should not be included.
An employer can also choose to top-up an employee’s salary beyond this, but is not obliged to under this scheme.
Salaried employees
For full-time and part-time salaried employees, the employee’s actual salary before tax, as of 28 February should be used to calculate the 80% figure. Fees, commission and bonuses should not be included.
Employees whose pay varies
If the employee has been employed for a full 12 months prior to the claim, you can claim for the higher of either:
• the same month’s earning from the previous year
• average monthly earnings from the 2019-20 tax year
If the employee has been employed for less than a year, you can claim an average of their monthly earnings since they started work. Again fees, commission and bonuses should not be included.
Other points
Whist on furlough, the employee’s wage (covered by the grant) will be subject to usual income tax and other deductions.
Individuals are only entitled to the National Living Wage (NLW)/National Minimum Wage (NMW) for the hours they are working. Therefore, NMW/NLW will not apply to furloughed workers.
Employees that have been furloughed have the same rights as they did previously. That includes Statutory Sick Pay entitlement, maternity rights, other parental rights, rights against unfair dismissal and to redundancy payments.
There is no specific mention of directors in the guidance for the Job Retention Scheme. Our view is that in cases where there is only one company director, they will still need to undertake duties as a director, even if the company is not trading and therefore cannot be on furlough. However, in cases where there is more than one company director, we can envisage circumstances where the business has ceased trading, that some of the directors could be furloughed and therefore a claim could be made under the Job Retention Scheme.
Tax treatment of the Coronavirus Job Retention Grant
This will be included as income in the business’s calculation of its taxable profits for Income Tax or Corporation Tax purposes, in accordance with normal principles.
Deferring VAT payments update
If businesses would like to take advantage of the VAT deferral, they should ensure that any direct debit set up with HMRC is cancelled in advance of the payment date, as HMRC will still automatically take the payment if the direct debit is still in place. Once everything is back to normal then the direct debit can be set up again to ensure you do not miss any payment.
Deferring Income Tax payments update
HMRC have amended their guidance that all taxpayers can now defer their 2nd Payment on Accounts for 2019/20 which are due by 31 July until 31 January 2021.
This is automatically available and HMRC will not charge any interest on this late payment.
