Support through the Covid-19 outbreak
Sole traders and Partnerships
The Chancellor announced on the 26th March 2020 that there are additional financial measures being introduced targeting the self-employed.
As with all the announcements at the moment, the details are still vague and we will have to wait for the legislation to be issued for the finer details, but this is what we know so far:
- A cash grant is available for self-employed individuals for 80% of their average monthly trading profit over the last 3 years up to a maximum of £2,500.
- It is open to those with a trading profit of less than £50,000 in the 2018/19 tax year, or an average trading profit of less than £50,000 over the 3 previous tax years (2016/17, 2017/18 and 2018/19)
- In order to qualify, more than 50% of your income in these periods must come from self-employment
- HMRC will identify eligible taxpayers and contact them directly with guidance on how to apply..
- The scheme will cover March, April and May 2020 and the grant will be paid as a single lump sum covering this period at the start of June 2020.
- You should not contact HMRC now as HMRC will be using existing information to check eligibility and will invite you once the scheme is operational.
- HMRC will use the average profits from the 3 years (2016/17, 2017/18 and 2018/19) in order to determine the size of the grant.
- The scheme is also available to members of partnerships.
- The grant is taxable income.
- The grant will be paid as a single lump sum payment in June.
Before the grant payments are made, the self-employed will still be able to access other available government support for those affected by Covid19 including Universal Credit, including the advance payments paid under Universal Credit.
As the basis of the eligibility of the grant scheme is that HMRC already have your details, you need to have submitted a Self-Assessment Tax Return in the 2018/19 tax year. This is also an anti-fraud measure. Therefore, if you have only started self-employment since April 2019, you will fall outside of the scope of this scheme, and you best route of funding will be Universal Credit.
What information will the HMRC use?
HMRC will use your tax computations to assess your claim. Your tax computations for the last two years are digitally stored here if you would like to access them. We also send you a physical copy of this documentation for your records each year.
If you are sick, or having to self isolate then you are able to claim Universal Credit (UC) or new style Employment Support Allowance (ESA) at the same rate as someone who is employed and would receive sick pay – this is £94.25 per week.
This will help if your income is the sole income to the home, or if both parents are self employed and are affected. Unfortunately, if one parent is employed and/or you have significant savings, you may not meet the eligibility criteria, and currently nothing is available.
In addition to UC, you should be able to claim Housing Benefit. The restrictions and payment thresholds have been temporarily lifted.Details of eligibility and rates of payments can be found here:
It has been announced that all VAT payments can be delayed, and that no one willpay any VAT until the end of June.
The deferral period will apply from 20th March to 30th June 2020. This is an automatic offer and no applications are required. Tax payers will be given until theend of the 2020/21 tax year (5th April 2021) to pay any liabilities that have accumulated during the deferral period.
This is currently all of the detail provided by the government.
But I would assume that if your VAT period end was 29th Feb, you would normallymake a payment on or before 7th April – and this has now been deferred until 30th June 2020.
All payments on account that were due to be collected in July 2020 have been deferred until January 2021. Again this is an automatic application.
No penalties or interest for later payment will be charged in the deferral period.
If you have other outstanding liabilities (from previous tax years), HMRC have scaled their Time To Pay offer, so you can call them on 0800 0159 559.
If you have PAYE staff, and they are sick or needing to self isolate, then they will need to be paid Statutory Sick Pay (SSP).
Usually this is not claimable, and is a cost to the business. But currently, you will be able to recover this from HMRC for 2 weeks of sickness. SSP will be payable from day one of the sickness (rather than the normal Day 4).
However, if your member of staff has to self isolate for 12 weeks, you, as the employer you can reclaim the first 2 weeks, but will need to meet this cost for the remaining 10 weeks. The method in how to reclaim the first 2 weeks SSP this has not been announced, but if we process your PAYE then we should be able to do this for you.
If your staff are well, but you have suffered a lack of trade and are struggling to pay your staff, then there has now been an announcement that the government will pay 80% of your staff costs (up to £2500). However, you will need to “furlough” the employees, which means they do not complete any work and they would remain as an employee rather than you having to lay off your staff during this crisis.
Whilst a lot of the detail is still not available, and we will have to wait for the legislation to be drafted I can provide some information.
- All employers (regardless of size) are eligible for assistance where an employee has been designated as a “furloughed worker”
- HMRC will reimburse 80% of furloughed workers wage costs, up to a cap of £2,500 per month.
- Employers must set out which of their employees are “furloughed workers” and inform the particular employees – note, not all employees have to be furloughed at once.
- “Furloughed workers” are on “furlough leave”. During this time, they will continue to be employed but will not be required to work for a temporary period.
- The grant is to reimburse the company for part of the salaries that they pay to those employees who are laid off because of the downturn in work.
- The scheme is in place for 3 months at present – and will be reviewed as and when necessary.
- The details are yet to be announced about how to apply for reimbursement. There will need to be legislation drafted, and a portal built to be able to accommodate this scenario. Current indications are that it will be available by the end of April/early May.
- A “furloughed employee” is someone who is kept on the payroll rather than dismissed or made redundant for a period when the employer does not have any work for that employee.
- Whilst an employee has been furloughed – they must undertake NO work for their employer. So if you have an employee working from home or doing menial admin tasks – they are NOT furloughed.
- As a result of the above point, it is unclear to what extent this can apply to a director – as a director will usually be continuing to work for the company from an admin/marketing type position. Also, generally, a director does not have a contract of employment with their own company.
- It is up to the company whether they top up the salary of the employee from the 80% to 100% of wages – the government will only pay 80% though.
- All obligations like pension contributions and employers NI are still due.
- Technically, the company will still have an obligation to pay it’s employees at the end of April, as they are still employed – but if the company does not have the funds due to lack or no work, you would have to advise your staff that they will be paid once HMRC reimburses you.
On this last point, there is an argument of “what can the employee do?” if they took you to court, it’d take months, and by then you would have paid them, so it will become a moot point!
You also need to agree with the members of staff that they will be furloughed. The alternative is either redundancy or unpaid lay off (if their employee contract permits), so I can’t think of a circumstance where an employee will refuse!
There are a lot of questions about various individual circumstances for example:
- Is your employee already self isolating due to sickness and currently receiving SSP?
- Is your employee already self isolating as they are high risk, and receiving SSP?
- Is your employee not working due to childcare issues since the schools shut?
Currently, I don’t know the answers as to whether they can be “changed” to a furloughed member of staff if the rest of your staff are furloughed.
As we are at the end of March, most payroll’s will be processed already. So, hopefully we will get more information and the draft legislation before the monthly payroll is run at the end of April. It is unclear whether anyone will look behind the scenes to test if there is indeed a downturn in work to justify “furloughing” employees (and so it is arguably open to abuse) but you must work on that basis that it could be checked and so you must comply with the rules of the scheme.
With regards to directors, there are A LOT of questions about whether it can be claimed. As a furloughed employee is someone who is NOT working for the company in any way, it is very difficult to argue that a director (especially of an owner managed business) is not doing anything, as there is always admin, marketing, business planning etc to be completed.
The legislation will clarify this point. And I will relay this information as soon as it is available.
HMRC are working to set up a portal to be able to make this claim. They hope this should be up and running by the end of April. So you will need to continue paying staff until that point. If continuing to pay your staff in the short term creates cash flow issues, you may be eligible to apply for a Coronavirus Business Interruption Loan:
The theory is, is that you could apply for the finance to pay your staff, and then repay it once your PAYE claim has been processed and you receive the funds. This support for businesses to retain their staff will only apply for businesses that have stopped working, so it doesn’t help those that are limping along. So it may be the case that you review your current working scenario to take advantage of what is available.
In addition to the above, the government have announced cash grants of £10,000 for those businesses that are in receipt of Small Business Rates Relief. The details of when this will be received are a bit vague, but current indications are that it will be early – mid April.
– domestic and landlords
The government has agreed with mortgage lenders that they will offer repayment holidays of 3 months to households in financial difficulty due to COVID-19.
This also applies to landlords whose tenants are experiencing financial difficulties. At the end of this period, landlords and tenants will be expected to work togetherto establish an affordable repayment plan, taking into account the tenants’ individual circumstances.
So, if you are a tenant, please have a conversation with your landlord in anticipation of your next rental payment.And if you are a landlord, please reach out to your tenants to understand their current situation and apply for mortgage holidays where required.
The government have stated that evictions of tenants are banned for 3 months, so it would be in your interests to understand the situation with the tenants now.