Business Support

HMRC’s guidance on the Coronavirus Job Retention Scheme has recently been updated. HMRC will reimburse 80% of furloughed workers' wage costs, capped at £2,500 per month per employee. The scheme will run for at least 3 months, backdated from 1 March 2020, but will be extended if necessary.

Company directors and other office holders can be furloughed under the scheme. However, only PAYE income – generally salary – can be furloughed, and so the common practice of taking most of directors' earnings as dividends will limit a director's claims to salary only. 

The guidance is clear that where one or more individual directors are furloughed this should be formally adopted as a decision of the company, noted in the company records and communicated in writing to the director(s) concerned.

Under the scheme no work can be undertaken by furloughed employees who remain technically employed by the company. In many scenarios, especially for sole directors, this would be untenable as all business would have to be technically suspended.

The guidance does make it clear that company directors can do what is reasonably necessary to fulfil the statutory obligations they owe to their company. These actions are not specified but do not include any work undertaken to generate commercial revenue or provide services to or on behalf of their company.

These measures also apply to salaried individuals who are directors of their own Personal Service Company (PSC). Salaried Members of Limited Liability Partnerships (LLPs) are also entitled to be furloughed but should refer to the terms of their LLP agreement in the first instance.

The Coronavirus Job Retention Scheme (CJRS) allows UK employers to access government support to help retain staff that they would otherwise may have considered laying-off, reducing pay / hours or making redundant. If your employee is furloughed, they should not be undertaking any work. This includes providing services or generating revenue.

HMRC has published useful guidance concerning the employees you can claim for. You can only claim for furloughed employees that were on your PAYE payroll on or before 28 February 2020. Employees hired after 28 February 2020 cannot be furloughed and claimed for in accordance with this scheme.

Employees can be subject to any type of employment contract including full-time, part-time, agency, flexible or zero-hour contracts. Foreign nationals are eligible to be furloughed.

To be eligible for the grant, when on furlough, an employee cannot undertake work for, or on behalf, of the organisation. This includes providing services or generating revenue. Employers are free to consider allocating any critical business tasks to staff that are not furloughed. While on furlough, the employee’s wage will be subject to usual Income Tax and other deductions.

Note, that employees who have had their hours reduced, but who are still working, are not eligible for the scheme.

An interesting quirk of the Coronavirus Job Retention Scheme is that furloughed workers are not entitled to the minimum wage. HMRC's guidance categorically states that 'individuals are only entitled to the National Living Wage (NLW)/National Minimum Wage (NMW)/ Apprentices Minimum Wage (AMW) for the hours they are working or treated as working under minimum wage rules.'

This means that workers that earned the minimum wage will end up with less than the hourly minimum wage when they are furloughed. There is also no requirement for their base salaries to be increased to reflect the new minimum wage rates that came into effect on 1 April 2020. These rates would obviously need to be paid if and when the furloughed workers start working again.

However, if time is spent on training whilst furloughed then the relevant Apprenticeship Minimum Wage, National Living Wage or National Minimum Wage must be paid for all relevant hours and the minimum wage increases from 1 April 2020 must also be considered.

If there is a shortfall between the amount paid whilst an employee is on furlough leave and the appropriate minimum wage, the employer will need to cover the difference.

Small-and medium-sized businesses and employers can reclaim Statutory Sick Pay (SSP) paid for sickness absence due to COVID-19. You are eligible for the scheme if your business is UK based, small or medium-sized and employs fewer than 250 employees as of 28 February 2020.

The scheme will cover up to 2 weeks’ SSP per eligible employee, who has been off work because of COVID-19, either because they have Coronavirus or cannot work because they are self-isolating at home.

The Coronavirus Statutory Sick Pay Rebate Scheme will repay employers the current rate of SSP paid for periods of sickness starting on or after 13 March 2020.

The online service to reclaim SSP is not available as yet. HMRC is working to set up the repayment mechanism for employers as soon as possible.

Employers should maintain and hold records of staff absences and payments of SSP for at least 3 years following a claim.

These records include:

• the reason why an employee could not work
• details of each period when an employee could not work, including start and end dates
• details of the SSP qualifying days when an employee could not work
• National Insurance numbers of all employees to whom you have paid SSP

Employees will not be required to provide a GP fit note in order for their employer to make a claim. 

If you are self-employed and qualify for the Self-employment Income Support Scheme you will receive a cash grant from HMRC based on 80% of profits, capped at £2,500 per month. The initial grant will be for the three months, from 1 March through to the end of May 2020, but could be extended for a longer period. The grants are expected to be paid out at the beginning of June.

You can apply if you are a self-employed individual or a member of a partnership and you:

• have submitted your Income Tax Self-Assessment tax return for the tax year 2018-19
• traded in the tax year 2019-20
• are trading when you apply, or would be except for COVID-19
• intend to continue to trade in the tax year 2020-21
• have lost trading/partnership trading profits due to COVID-19

Your self-employed trading profits must also be less than £50,000 and more than half of your income from self-employment. This is determined by at least one of the following conditions being true:

• having trading profits/partnership trading profits in 2018-19 of less than £50,000 and these profits constitute more than half of your total taxable income
• having average trading profits in 2016-17, 2017-18, and 2018-19 of less than £50,000 and these profits constitute more than half of your average taxable income in the same period

There is no need to apply as HMRC will use data on 2018-19 returns already submitted to identify those eligible and will risk assess any late returns filed before the 23 April 2020 deadline in the usual way. If you are eligible, you will be invited to apply.

The government has confirmed that there will be an eviction freeze for commercial tenants who miss rent payments as a result of the Coronavirus crisis. The protection for businesses on commercial leases is one of the measures in the Coronavirus Act 2020.

The measures will stay in place until 30 June 2020. There is an option for the government to extend this deadline if necessary. The protection applies to commercial leases for commercial tenants in England, Wales and Northern Ireland. There are similar measures in place in Scotland extending the notice period from 14 days to 14 weeks.

Many landlords and tenants across the country are already reaching voluntary arrangements regarding rental payments. However, these measures will provide some further assurance to businesses struggling with cashflow due to Coronavirus disruption.

It is important to note that commercial tenants will still be liable for the rent due.
 

The Coronavirus Large Business Interruption Loan Scheme (CLBILS) will be made available to enable banks to make loans of up to £25m (the present limit for the smaller scheme is £5m). This will allow firms with an annual turnover of between £45m and £500m access to the 80% government guarantee. The CLBILS is expected to be launched later this month. Facilities backed by a guarantee under CLBILS will be offered at commercial rates of interest.

The government will provide commercial lenders with an 80% guarantee on individual loans for businesses that would be otherwise unable to access the finance they need.

Lenders will still be expected to conduct their usual credit risk checks, but this scheme allows them to specifically support business that were viable before the COVID-19 outbreak but are facing significant cash flow difficulties that would otherwise make their business at risk in the short term.

The new scheme will support a range of finance products including short term loans, overdrafts, invoice finance and asset finance.

The Coronavirus Business Interruption Loan Scheme (CBILS), delivered by the British Business Bank, is designed to help support primarily small and medium-sized businesses to access bank lending and overdrafts.

The government will provide lenders with a guarantee of 80% on each loan (subject to a per-lender cap on claims) to give lenders further confidence in continuing to provide finance to SMEs. The government will not charge businesses or banks for this guarantee, and the Scheme will support loans of up to £5 million in value. Under the scheme, businesses can access the first 12 months of that finance interest free, as the government will cover the first 12 months of interest payments.

If you have clients looking to submit an application, they should be aware of what they need to submit when making an application.

Firstly, your clients will need to provide loan details: the amount they would like to borrow, what the money is for and the period over which they will make the repayments.

They will also need to provide certain evidence to show that they can afford to repay the loan. This is likely to include management accounts, cash flow forecasts, business plan, historic accounts and details of assets.

For clients approaching their existing lenders for a smaller facility, the process may be automated and therefore may not require the same level of documentation.

Many small businesses that have applied for a government backed CBILS loan thus far have been offered standard overdrafts and loans – without the Government's 80% guarantee – on the basis that they fit the banks’ criteria for this type of lending.

The Chancellor has now confirmed that this is not the intention of his CBILS scheme and that from now on all businesses affected by the COVID-19 disruption should be offered a CBILS loan with the government guarantee. This change is underlined by the following statement in the press release:

“To maximise the support available, the Chancellor is extending the CBILS so that all viable small businesses affected by COVID-19, and not just those unable to secure regular commercial financing, will now be eligible should they need finance to keep operating during this difficult time” 

A summary of other changes to CBILS are set out below. 

• Lenders will be banned from requesting personal guarantees on loans under £250,000.
• For loans over £250,000 personal guarantees will be limited to 20% of any amount outstanding on the CBILS lending after any other amounts have been recovered from business assets.    

These two changes will provide further reassurance for business owners. Not only will their homes be protected – lenders are already prohibited from asking business owners to put their house on the line – but will also limit the exposure to other personal assets. Reassuringly, these changes will apply to finance already offered under CBILS.

Further changes include:

• The Government encouraging operational changes to speed-up applications under the scheme. 
• The government still covering the first twelve months of interest and bank fees.
• A new Coronavirus Large Business Interruption Loan Scheme (CLBILS) is to be made available to enable banks to make loans under the scheme of up to £25m (the present limit for the smaller scheme is £5m). This will allow firms with an annual turnover of between £45m and £500m access to the 80% government guarantee.
• The Government actively requesting that banks keep interest rates to “a reasonable level”. After all, base rates are at a record low…

These changes should make it easier for small and mid-sized firms to get access to funding that will support their efforts to survive the COVID-19 disruption. Readers who need to make an application would be wise to revise their business cashflow and other projections prior to making an application. This funding is a loan not a grant. The impact of loan repayments and interest charges after the first twelve months need to be considered as part of this planning process.

We can help you consider your options and prepare the necessary forecasts.

During and after any period when economic activity is depressed, companies that survive the process are those that manage their cashflow effectively.

A number of businesses will be in the fortunate position of heading into the current COVID-19 crisis with adequate cash reserves to see them through, many others will not.

In both cases, minimising expenditure and maximising cash inflows should be the name of the game.

Last week we stressed the importance of gathering in monies due from customers. This week we offer a number of additional ideas to bolster cash inflows. They are:

• If you have stock gathering dust in your storeroom offer it to customers at a discounted price – set an initial price reduction to cost – converting these items to cash makes sense. It is also a win-win strategy: you free up space and add to cashflow, and your customers will perceive that they are getting a bargain.
• If stock items are perishable, food for example, set up distribution to food banks and relevant charities and make sure that local press and radio stations are made aware of your generosity – this may not create cashflow, but it will provide free publicity.
• Can you sub-let space office or factory space for storage?
• Do you have any redundant plant or IT equipment that you could sell online – eBay etc.
• Keep your accounts up to date. If you have made losses you may be able to carry losses back in time and recover tax paid in previous years.

You can also achieve the same benefits by reducing expenditure. See our further article on this aspect in our newsfeed next week.

And we can help. Call if you want to brainstorm options that you may have, to convert assets into cash.