Coronavirus business aid
27th March 2020
Posted in Articles, Coronavirus by Andrew Marr
We are aware that many of our clients and contacts are awaiting the ‘small-print’ on various aspects of support that are available to businesses which are impacted by the Covid-19 pandemic. We had been hoping to provide a commentary on the detail by now but this is not currently available.
In the meantime we thought that it would be worth summarising the information that we have to date and the various queries that we still have. We will follow up with a detailed commentary and service-offering once the legislation is released which will hopefully take place over the next few days.
Coronavirus Job Retention Scheme
- Under the Coronavirus Job Retention Scheme, all UK employers will be able to access support to continue paying part of their employees’ salary for those employees that would otherwise have been laid off during this crisis. This will be backdated to 1 March 2020 and will run (initially) for 3 months.
- You will need to designate affected employees as ‘furloughed workers,’ and notify your employees of this change. This does remain subject to existing employment law and employment contracts. It is therefore probably worth getting input from an employment lawyer (although there may be more legislation around this).
- Once HMRC launch their system you will need to submit information to HMRC about the employees that have been furloughed and their earnings. This will be achieved through a new online portal.
- HMRC will reimburse 80% of furloughed workers wage costs, up to a cap of £2,500 per month per employee. Employers can also top-up salaries above these amounts.
- All UK employers qualify for this scheme irrespective of their size or business structure.
- The government will retain the right to retrospectively audit all aspects of the scheme and will seek to claw back fraudulent or erroneous claims. Therefore, you should retain all documentation and calculations.
- Workers cannot claim redundancy pay while part of this scheme.
Does the scheme applies to zero hour contracts?
We need to see the ‘small-print’ here. Whilst the Chancellor indicated it may apply to some people on these kinds of contracts under PAYE it is unclear how, because they will not have a clear-cut monthly salary.
How is pay calculated?
There is no guidance on how pay will be calculated for the 80% rule. What about pension payments and salary sacrifice arrangements? There has been press speculation that the February pay month may be used for a basis period.
Can directors (employed by their own company) be furloughed workers?
There is no guidance on whether this scheme applies to directors. However a furloughed worker cannot do any work while they are furloughed which may be unrealistic for an employed shareholder. This may not be of great help to many directors (in any event) because they will often pay themselves a relatively low salary and top up with dividends.
When will payments be made?
HMRC are aiming to get funds flowing ‘before the end of April’ (although anecdotally we have heard May is a more realistic date). Government loan schemes may be a more practical immediate way to assist with cash-flow.
Deferring VAT payments
All VAT payments due between 20 March 2020 until 30 June 2020 can be deferred. Therefore quarters ending 29 February, 31 March and 30 April 2020 can all be deferred. This is automatically available and you do not need to apply. HMRC will not charge any interest on this late payment. You must ensure you have paid any outstanding liabilities by 1 April 2021. You still need to submit your VAT return on time as late submission penalties will still apply.
Importantly, the VAT liability which can be deferred is the net VAT liability (Box 5 figure) and NOT the output tax (Box 3 figure). In other words you are not able to reclaim input VAT and then defer payment of output VAT.
Deferring Income Tax payments for the self-employed
All 2nd Payment on Accounts for 2019/20 which are due by 31 July can be deferred until 31 January 2021.
This is automatically available and HMRC will not charge any interest on this late payment.
Importantly, this is only available for the self-employed and therefore this is not available in respect of dividends paid to company directors.
Government Guidance states “If you are self-employed, you are eligible.” Does this mean that if you have any self-employment income this deferment can be enjoyed even if the majority of your payments on account arise from investment income (say)? We suspect not but let’s wait and see.
HMRC Time To Pay Scheme
If you are in financial distress and cannot pay a tax liability you can use HMRC Time to Pay scheme. This is a long standing scheme and we can see no changes proposed although there may now be a log-jam in reaching an agreement. Here interest is still charged on any late payments, although HMRC interest rates are relatively low with the rate falling to 2.6% from 7 April 2020.
Clearly there is no need to seek a time to pay arrangement for payments which are already subject to automatic deferral (above).
Our next steps
We will continue to keep abreast of developments and keep all our clients and contacts provided with insightful analysis as these arise. As always, the devil will be in the detail and will need to be considered on a case by case basis. We hope to be in a position to provide further commentary over the next few days.
