We had been waiting all day for the much heralded announcement by the Chancellor, and at 5pm yesterday we got it. It is therefore the main item in our summary below.
The Self-Employed Business Support Scheme
The package that is being made available has been published on the Coronavirus Business Support web-page this evening, see here;
A summary is as follows:
- As expected, grants will be made of up to 80% of profits, but with a cap of £2,500 per month. They will be taxable and taken into account for benefit purposes.
- You must have profits of less than £50,000, and more than half of your taxable income must come from self-employment. This will be decided based on either the figures of income reported for the year ended 5 April 2019 (the last tax return submitted) or the average figures for the that year and the previous two.
- Both self-employed and members of partnerships will qualify, but not director/shareholders. Mr Sunak made a heavy reference to making the future tax system fairer for everyone during his announcement, which appeared to be an expression of the Government’s long held distaste for director/shareholders of limited companies who use dividends to minimise their tax/NIC bills.
- You must have filed a tax return for 2018/19 or you will not qualify, so those who have become self-employed since 5 April 2019 will not qualify. Also, those who became self-employed in 2018/19 and had less than half of their income from that source (e.g. their previous employment income in that year was more than 50%), will not qualify. For those who for some reason have not yet submitted their 2018/19 tax returns (they were supposed to be filed by 31 January 2020), they have been given 4 weeks from today to do so, if they wish to qualify for the scheme.
- Fairly obviously, you must be operating a self-employed business when you apply, or (presumably) would be doing so if you still had a viable business, and you must be intending to carry on with it in this tax year. I am not sure where this leaves people who have managed to find a job at Tesco.
- You do not need to do anything if you have already submitted your tax returns for the periods concerned. HMRC will be looking at the records for potentially eligible traders as soon as possible, but there will be no payments before the beginning of June. This is probably because HMRC are working at their limits at the moment to get the Job Retention Scheme (furlough scheme) for employees up and running by the end of April.
- There have been some FAQs released subsequently (https://www.businesssupport.gov.uk/self-employment-income-support-scheme-faqs/) and one of the questions is “Why does this scheme not cover small businesses who are incorporated”. There appears to be little hope of any assistance for the people under this scheme.
The Coronavirus helplines that were set up after the Budget in what seems like a lifetime away with the deployment of around 2,000 HMRC staff, are understandably struggling to cope with the volume of calls from people wanting to defer tax bills. This is clearly a problem for the Government as specialist call handlers have to be used and they need to be trained up. In addition, many staff have been deployed to get the Job Retention Scheme system set up (this is a particular problem as HMRC has no existing system do deal with mass repayments). However HMRC have said that they are working to deploy more staff to the call centres so it is going to have to be a case of staying patient and calling early as there are apocryphal stories of people having to hang on for five hours or more. It is the DWP lines that have been receiving most attention today in view of the enormous volume of calls, presumably mostly from the self-employed, trying to obtain some means of support. Given the time span for the self-employment income support scheme indicated by Mr Sunak (see above), this is likely to continue.
In these difficult times, many business people are desperate to find ways of saving money, or obtaining sources of funding. We are having many conversations with clients over the extent to which claims can be made under the Job Retention Scheme, given the fairly loose rules which have been laid down to date. These conversations tend to revolve round the nature of evidence required to support claims for the 80% grants. It is important to realise that the concept of furlough falls within the employment legislation and formal documentation should be in place for each furloughed employee. It is also not acceptable to claim the grant for people who are carrying on working, whether at home or in the workplace. The Government have said that once the scheme has finished at the end of the crisis, they will be checking claims made by employers and will clawback amounts which have been claimed incorrectly, and levy penalties and interest. We appreciate that it is difficult not to try and maximise the amount of the claims where a business is fighting for survival, but we will always advise our clients to go through the proper procedures. There are still unanswered questions on the rules, which makes it more difficult to be certain of the boundaries, but hopefully these will all have been clarified by the time that the online claiming system is up and running in a 2-3 weeks’ time. In the meantime you should ensure that you find out the correct employment procedures and implement them before you place any staff on furlough.
As far as director/shareholders are concerned, in theory their basic salary paid through the payroll (approximately £8,600 per year) is eligible for the 80% grant. The barrier to overcome is that it may be difficult under employment law to justify putting yourself on furlough, but if the business has ceased to operate then this could be justified. It is hard to see how the owner of a continuing business could say that they had stopped working when they remain in charge of its management under company law. For a director/shareholder who is taking a more commercial salary and minimal, if any dividends, the value of the grant will of course be greater and, particularly if there is more than one director, it might be possible to justify all but one of them being furloughed.
Small Business Grant Fund (SBGF) and Retail, Hospitality and Leisure Grant Fund (RHLG)
As mentioned here on Tuesday, local authorities have been busy arranging to communicate with businesses which are eligible for the grants. Brighton and Hove City council have, as promised, published FAQs on their website, which go into a bit more detail than our guidance yesterday. You can find these at https://new.brighton-hove.gov.uk/business-and-trade/update/covid-19-support-businesses-faqs .
If you are one of the affected businesses, you will no doubt be aware of the requirement for closedown (even if you run a large sports equipment chain). There is a list of those businesses that can or cannot remain open at https://www.gov.uk/government/publications/further-businesses-and-premises-to-close/further-businesses-and-premises-to-close-guidance . And in a piece of good news on Tuesday, off licences were added to the list of businesses that can remain open, presumably to take pressure off the supermarkets after an apparent surge in panic buying of partying supplies over the weekend – I suppose their food cupboards and freezers must have been filled up………….
It will be very tempting for employees to think about stopping their auto-enrolment pension contributions at the moment, and it is not our position to advise on the rights and wrongs of such action. NEST have produced some guidance for employers on this matter and you can find it here https://www.nestpensions.org.uk/schemeweb/memberhelpcentre/retirement-pot/coronavirus.html
(26 March 2020)
Author: Peter Hedgethorne, Director