COVID-19 reliefs for businesses suffering as a result of the coronavirus crisis

Coronavirus is generating significant economic disruption in the UK exacerbated by the current lockdown. HM Government has announced a package of COVID-19 reliefs to assist businesses (including startups) with getting through the crisis. These are summarised here.

For incorporated businesses

Job retention scheme

HMRC will reimburse 80% of the wages (based on historic PAYE records) of employees who are “furloughed”. Furlough means that employees remain employed by the business, but have no work to do. For example, a waiter in a restaurant that is now closed during the lockdown. It does not apply to employees who remain actively working.

Businesses must designate affected employees as “furloughed workers” and agree this change with them. Businesses should check that they are able to do this in accordance with the employment contracts of their staff. Businesses are looking for a contractual right to change the role, job description and/or nature of work of the employee. The furlough scheme applies to full time, part time and zero hours employees, so long as they have a PAYE history with HMRC.

HMRC have developed a new system to handle payments for workers on furlough which is due to be launched on 20 April 2020. Businesses will need to submit information to HMRC about the workers participating in the furlough scheme. HMRC will make payments direct to businesses so that they can pay furloughed workers.

Many businesses may have a contractual obligation to continue paying employees on furlough 100% of salary (i.e. the employer contributing the balancing 20% of salary). Businesses may discuss with employees the option of them waiving on a voluntary basis their right to receive that 20% until things return to normal. If staff are prepared to agree to this, they should be asked to confirm their decision in writing. Businesses should not forget that they remain entitled to make staff redundant if they do not wish to furlough them. Businesses should take legal advice before commencing a redundancy process, particularly if the business has furloughed workers.

Please see our article on the furlough scheme for detailed information. Detailed guidance can be find in the Treasury Instruction to HMRC.

Deferral of VAT and Income Tax payments

HMRC have announced that business will be able to defer payment of VAT falling due between 20 March 2020 and 30 June 2020. Businesses do not need to contact HMRC in advance, but do need to file their VAT return on time. Unpaid VAT will be due by the end of the 2020/2021 tax year.

For entrepreneurs subject to income tax self-assessment, payments due on 31 July 2020 may be deferred until 31 January 2021. Entrepreneurs do not need to contact HMRC in advance and no penalties or interest will be payable.

Outside of the above, businesses and entrepreneurs may contact HMRC to agree time to pay arrangements where taxation is, or is about to become, in arrears. It is always advisable to contact HMRC by telephone before the tax becomes due.

Coronavirus Business Interruption Loan Scheme

HM Government have provided high street banks with funding to lend to businesses suffering from the impact of coronavirus. This can be provided via loans, overdrafts, invoice financing and asset finance of up to £5,000,000 and for up to 6 years. HM Government will cover the first 12 months of interest payments and any bank charges. HM Government is guaranteeing up to 80% of each loan. No personal guarantees will be required for loans below £250,000. The banks are permitted to require personal guarantees from directors for loans in excess of £250,000 which would make the directors personally liable for up to 20% of the outstanding balance of the CBILS facility after the proceeds of business assets have been applied after any default by the business on the loan. This shifts some of the risk to the directors.

Businesses borrowing more than £30,000 are only eligible if they are not a “business in difficulty”. A “business in difficulty” is one that, as at 31 December 2019, had:

(i) accumulated losses of more than half of its subscribed share capital for limited companies, or for unlimited liability companies its capital; or
(ii) started, or had fulfilled the criteria to be put into, collective insolvency proceedings; or
(iii) previously received rescue aid that was yet to be reimbursed (or, in the case of a guarantee, terminated); or
(iv) received restructuring aid, and was still under a restructuring plan; or
(v) (where it not meet the SME criteria) has fallen below solvency ratios for the previous two years.

The CBILS definition of a “business in difficulty” includes businesses that have accumulated losses that are greater than half of their subscribed share capital, as at 31 December 2019. For a limited liability company, this means having accumulated losses greater than half of its capital, if deducting accumulated losses from the company’s reserves leads to a negative amount that exceeds half of the company’s subscribed share capital. These criteria do not apply to SMEs that, on 31 December 2019, had existed for less than three years. That means that certain fast-growth businesses may not be eligible for the scheme (unless they are less than three years old).

Business are eligible if UK based with a turnover of no more than £45 million per year and the business meets the eligibility requirements set by the British Business bank here.

For retail, hospitality and leisure businesses

All of the above apply to these businesses.

Business Rates Holiday

In addition, HM Government announced a 12 month business rates holiday for retail, hospitality and leisure businesses running through the 2020/2021 tax year. There was previously a cap on eligibility, but this appears to have been removed by the Government meaning that it is now open to businesses regardless of their rateable value. The relief is calculated as 100% application of the Expanded Retail Discount which was introduced in the 2019/20 tax year for retail and leisure businesses.

This relief relates to the following:

shops, charity shops, opticians, post offices, display rooms, car showrooms, second hand car lots, markets, petrol stations, garden centres, art galleries;

hair and beauty services, shoe repairs, key cutting, travel agents, ticket offices, dry cleaners, launderettes, domestic appliance repairs, funeral directors, photo processing, tool hire, car hire, employment agencies, estate agents and letting agents, betting shops;

restaurants, takeaways, sandwich shops, coffee shops, pubs, bars;

live music venues and cinemas;

sports grounds and clubs, museums and galleries, nightclubs, sport and leisure facilities, stately homes, theatres, tourist attractions, gyms, wellness centres, casinos, gambling and bingo halls;

public halls, clubs; and

hotels, guest houses and boarding houses, holiday homes, caravan parks and sites.

The relief does NOT apply to:

financial services (banks, building societies, bureaux de change, short term loan providers);

medical services (vets, dentists, doctors, osteopaths, chiropracters);

professional services (solicitors, accountants, insurance brokers, financial advisers); and

post-office sorting offices.

Cash Grants

HM Government have introduced the Retail and Hospitality Grant Scheme which provides businesses detailed above with a cash grant up to £25,000 per property. Businesses in the sector with a property with a rateable value of up to £15,000 will receive a grant of £10,000. Businesses in these sectors with a property that has a rateable value of between £15,000 and less than £51,000 will receive a grant of £25,000.

Business do not need to do anything. Their local authority will write to them confirming eligibility for the grant. Any enquiries on eligibility should be addressed to the local authority.

For nurseries

Businesses that operate as nurseries (for children) based in England will be entitled to a business rates holiday throughout the 2020/2021 tax year. This applies to properties that are occupied by providers on Ofsted’s Early Years Register and wholly or mainly used for the provision of the Early Years Foundation Stage.

Business do not need to do anything. Their local authority will write to them confirming eligibility for the grant. Any enquiries on eligibility should be addressed to the local authority.

For businesses that pay little or no business rates

HM Government will provide additional Small Business Grant Scheme funding to local authorities to enable them to support small businesses that already pay little or no business rates because of small business rate relief (SBRR), rural rate relief (RRR) and tapered relief. This will provide a one-off grant of £10,000 to eligible businesses to meet their ongoing business costs.

Businesses are eligible if based in England, a small business and already receiving SBRR and/or RRR and occupy property.

Business do not need to do anything. Their local authority will write to them confirming eligibility for the grant. Any enquiries on eligibility should be addressed to the local authority.

For entrepreneurs and self-employed

HM Government published the Self-Employment Income Support Scheme on 26 March 2020 which is a support package provided to those who are self-employed or a member of a partnership and have lost income due to Covid-19.

You can apply if you:

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

Your self-employed trading profits must be less than £50,000 and more than half of your income must originate from self-employment which is determined by one (or more) of the following being true:

i. 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; or
ii. 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.

In the event started trading in the years 2016-19, HMRC only consider the years in which you filed a Self-Assessment tax return. If granted, you will get a taxable grant up to 80% of the average profits from the applicable tax years you submitted. Average is determined by reference to the total trading profit for 3 (or less where applicable) divided by 3 (or less). The maximum you can get is £2,500 per month for 3 months and this will be paid directly to your bank account in one instalment.

This scheme is not available yet and HMRC will contact you if you are eligible. Therefore, should you not be contacted the position is that self-employed who are not eligible for the Self-Employment Income Support Scheme and who are now unable to work should apply for Universal Credit (which has been increased by £1,000 per month). Eligibility requirements are as follows:

(i) you are on a low income or out of work;
(ii) you are 18 or over (there are some exceptions if you’re 16 to 17);
(iii) you are under State Pension age (or your partner is);
(iv) you and your partner have £16,000 or less in savings between you; and
(v) you live in the UK.

Individuals can apply using the link here.

For Charities and Social Enterprises

Charities

The Chancellor has announced a £750mn package of support for frontline charities (including hospices and domestic abuse charities). This is split in two: (1) £360mn direct from the government to charities providing key services and supporting the vulnerable; and (2) £370mn for small-medium sized charities.

The 360mn package will be directly allocated by government departments to charities providing key services and supporting vulnerable people during the crisis. Those eligible for support are:

(i) hospices to help increase vital capacity and give stability to the sector;

(ii) St Johns Ambulance to support the NHS;

(iii) victim’s charities, including domestic abuse, to help with potential increase in demand for charities providing these services;

(iv) vulnerable children charities, so they can continue providing these services on behalf of local authorities; and

(v) Citizens Advice to increase the number of staff providing advice during this difficult time.

The 370mn package for small-medium sized charities will support those organisations at the heart of local communities making a difference (i.e. delivering food, medicines and providing financial advice).

Further details of the schemes can be found here.

Social Enterprises

An initial £100mn programme of loans and investment is in place for emergency funding to social enterprises, charities and small businesses. The new programme includes:

(1) The Resilience and Recovery Loan Fund (RRLF) which is a new fund for social enterprises and charities affected by Covid-19. RRLF will enable social lenders to provide emergency loans, with an initial £25mn investment provided by Big Society Capital and loans backed by the Government’s existing Coronavirus Business Interruption Loan Scheme.

(2) Small, emergency loans available on an initial £29mn on a no fee, no interest for 12 months basis for small businesses and social enterprises in deprived areas.

(3) Up to a further £50mn to address emerging funding needs among social enterprises and charities which can be provided through whatever method is deemed appropriate.

Summary

Businesses should apply for relief where available. HMRC will publish updated guidance from time to time on the schemes and how to apply for them. In particular, they will need to provide access to the online portal for claiming salary of furloughed workers.

We would advise businesses to avoid the loan schemes unless absolutely necessary. Loans have to repaid. In particular, directors should be extremely careful about giving a personal guarantee in respect of a loan in this environment.

We are holding online seminars detailing how the schemes work and how to access them. Please see our events page here for details.

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