The weekend has given everyone a chance to consider the implications of the initiatives which were introduced and enhanced last week.
The Job Retention Scheme (“Furlough”) has caused a lot of questions to be asked, particularly where the business is an owner-managed limited company.
Grey areas identified include:
- What happens about director/shareholders who typically receive a small, basic salary through the payroll, with the balance of their remuneration being covered by dividends? It has to be accepted that this structure has come into existence because the owners wish to minimise their overall tax/NIC bills and whilst this is unpalatable for many members of the salaried public, it has been reluctantly accepted by HMRC for many years. It is impossible for owners to stop working for their companies and go into furlough, which they are of course required to do in order to qualify for the 80% grant. In addition, dividends are not paid through the payroll and therefore do not qualify in any case. This puts director/shareholders on a similar standing to those who have chosen not to operate through a limited company because self-employed workers do not qualify for any grants either, apart from a small extension to the Universal Credit system. The Government may well feel that business owners are, by definition, financially sound and able to cope with temporary difficulties, but as we all know, this is not an accurate assessment of the situation.
- The amount of the grant is expressed as 80% of pay up to a maximum of £2,500 per month. This remains ambiguous because the £2,500 could be the 80% figure (i.e. based on a normal salary of £3,125 per month) or could be the maximum pay figure, meaning that the maximum grant will be £2,000 per month.
- How is the status of “furloughed” going to be determined? Most businesses will not be closing down, and the owners will therefore have to decide which workers they will not require to work, who can then be furloughed, and who will still be needed. There is currently no flexibility in these provisions, particularly to cope with business scenarios where it is impossible to predict how many staff will be required in order to ensure efficient, continued running of the business.
It may appear churlish to many that points like those above have to be made, but they are valid, practical issues and we hope that clarification will be forthcoming very shortly, bearing in mind the imminent payroll preparation dates for March, although for some, they may have already been processed.
The Self Employed
There is still only very limited support on offer to the self-employed (i.e. those not operating through limited companies), and we are hoping that further help will be forthcoming. There is the provision for deferring Vat and self-assessment tax, but for people who depend on their day to day earnings to pay for their basic living costs, there is still no safety net other than the benefit system. As referred to in the preceding section, this is a problem that is shared with the director/shareholders of limited companies, but they do not even qualify for the deferral of their self-assessment tax bills on 31st July 2020 (see below).
Self-assessment Tax Deferment
We are waiting for clarification of the income taxes which will qualify for deferment from July 31st 2020 to 31st January 2021. The guidance states that it is available to the self-employed, but it is not clear whether this will extend to the whole of their tax bills. Where self-employed people have other sources of taxable income such as rental, dividend and investment income, we need to know how the deferrable element will be calculated.
Good news today for nursery businesses – they have been included in the business sectors that qualify for the business rates holiday for 2020/21. As in the case of the retail, hospitality and leisure sectors, this will be applied automatically when the bills are issued for the year ending 31 March 2021. However, there does not appear to be an equivalent grant system (£10,000 or £25,000) to the one that is available to the original qualifying sectors.
Landlords of residential properties are being encouraged to find out whether their tenants are in financial difficulty as a result of the crisis and if so, offer them a 3 month rent holiday. Financial assistance will be available to the landlords from lenders offering mortgage holidays if their tenants need help, but this is clearly of no use to those who are mortgage free even though they are still being encouraged to take a drop in their income.
Business Interruption Loan Scheme
This has been available from today and any business with a reasonable, documented case for a temporary cash injection caused by the crisis should approach their bank. It must be stressed that the banks will still be applying normal commercial criteria in making their lending decisions, but these will be more relaxed as a result of the 80% Government guarantee. Also, business owners must appreciate that there is no question of the government giving money to the borrower if they can’t afford the repayments – the government will only pay the bank if the borrower’s business fails.
Time to Pay
Don’t forget that businesses can apply to HMRC for “time to pay” for any tax bill if they can demonstrate that there is a genuine cash flow problem, either now or forecasted. Businesses should forecast their cashflow position as accurately as possible covering the next 3 or 4 months before paying a current tax bill from funds which are available now.
HMRC Coronavirus Helpline
Telephone: 0800 015 9559
Monday to Friday, 8am to 8pm
Saturday, 8am to 4pm
We will report any developments as soon as they are available.
Author: Peter Hedgethorne, Director, Plus Accounting
(23 March 2020)