Support for Self Employed business owners – Coronavirus Self Employed Income Support Scheme (SEISS)

The Chancellor Rishi Sunak has finally announced the measures the UK Government is to take to help self-employed business people cope with the financial impact of the Coronavirus. This comes a week after the financial assistance package for employed workers was announced, but clearly any scheme to help the self-employed was bound to be more complicated due to the variations in business profits from year to year.

Are you eligible ?

The scheme the Chancellor has announced is expected to cover about 95% of current self-employed business people, but there are a number of self-employed who will not be covered. These are:-

  1. Directors or owners of Limited companies. This scheme is only for sole traders, partnerships and LLP’s.
  2. Those who are newly self-employed and haven’t yet submitted a Tax Return *(1)
  3. Those who have not yet submitted their 2018/19 Tax Returns (but there is still time to do this within the next 30 days and this will give eligibility to the scheme – by 23 April 2020.)
  4. Those with a taxable trading profit of over £50,000 in 2018/19, or more than £50,000 on average for the past three years *(2)
  5. Those whose self-employment income forms less than 50% of their overall income

*(1) HMRC clarify this position and suggest if you are self employed or a member of a partnership you can apply if:

  1.  have continued traded in the tax year 2019/20,
  2. are trading when you apply, or would expect to be if not for Coronavirus,
  3. intend to continue to trade in the tax year 2020/21,
  4. have lost trading profits due to Coronavirus.

*(2) Illustration. Bill is a self employed domestic plumber who has been trading for over 10 years. Bill has self employment income  and his trading profits over the last three years have been as follows; £30,000 in 2016/17, £51,000 in 2017/18 and £42,000 in 2018/19. His average trading  profits for the three years are £41,000. Bill has a small amount of interest and some dividend income of £100 and therefore as his income from trading is more than 50% of his average taxable income.

What you will receive ?

For those that are eligible, the Government will pay a grant, in June but back-dated to March, of 80% of their average monthly profits for the past three years, or their profits in 2018/19. There will be a cap of £2,500 per month.

*(2) Illustration. Bill has average trading profits of £41,000 which is a monthly average of £3,416. He is eligible for a grant equal to the lower of £2,500 or 80% x £3,416. In this case £2,500 the cap is lower than £2,733 (80% x £3,416).

For Partners the income test will be based on their share of the Partnership profits.

This income will be taxable and therefore will need to be shown on individuals 5 April 2021 income tax returns. It will also form part of your income for tax credit purposes.

The scheme will be open for an initial three months and will then be reviewed.

When will you receive the money ?

The government have suggested that the open payments will be made in June 2020 in a single lump sum payment. There is no indication as to how long payments will take to process.

How to apply 

No doubt if you fall into the eligible category, you will want to know how to make a claim under this scheme, formally known as the Coronavirus Self-Employment Support Scheme. HMRC will invite applications using information they already hold on the Tax Return system to identify those eligible. Therefore if you are eligible, you do not need to contact HMRC, as they will be in touch with you. Once the application has been made, HMRC will pay the due amount into your bank account; you will need to give HMRC your bank details when you complete the application form.

HMRC point out that you will access the scheme through the .GOV website and that people should avoid calls, texts, emails as scams. 

“You will access this scheme only through GOV.UK. If someone texts, calls or emails claiming to be from HMRC, saying that you can claim financial help or are owed a tax refund, and asks you to click on a link or to give information such as your name, credit card or bank details, it is a scam”

For all our clients, we will have all your Tax Return data on our files, so if you are anxious to know if you would be eligible for a payment through this scheme, we can calculate the relevant income figures for you – please get in touch by calling us on 01522 81 5100.

If you are not eligible for a payment under this scheme, then you will need to consider the other “safety-nets” in place such as Universal Credit, interest-free bank loans, etc and if you are a Director of a company taking income as a mix of dividends and salary you will need to consider the Coronavirus Job Retention Scheme.


Commercial Rent Deferrals

To support UK businesses, the Government has confirmed that commercial tenants that are unable to pay their rent due to disruption caused by the Coronavirus pandemic will not face eviction.

The Government had already banned evictions on private residential tenants but has now confirmed that the three-month moratorium on evictions and debt enforcement will be extended to cover commercial leases as well.

Although many commercial landlords and tenants are already coming to voluntary arrangements about rental payments, the Government is taking steps to support businesses struggling with their cash flow due to Coronavirus who are concerned about the prospect of debts and possible eviction.

The new measures confirmed in the emergency Coronavirus Bill ensures that no business will be forced out of their premises if they miss a payment in the next three months.

However, tenants will still be liable for the rent due in arrears after this period and the Government has said it is actively monitoring the impact on commercial landlords’ cash flow to ensure their operations are not put at risk.

It is not yet clear how tenants will be expected to repay deferred rent payments and this might differ from one lease to another, but a variety of options may be available, including:

  • Extending the length of the lease to cover the time lost
  • Distributing the lost rental income across the entirety of the remaining lease period
  • Increasing rents in future to make up for any loss.

Tenants and landlords must discuss these options and agree on the future arrangements of the lease.

If you are affected by this change then you should seek advice at the earliest opportunity. Richard Grayson is our lead on property and can be contacted on 01522 81 5100. 


UPDATE : Coronavirus Job Retention Scheme

Following a meeting with HM Revenue & Customs (HMRC) yesterday the Institute of Chartered Accountants in England and Wales (ICAEW) have issued some notes on how they believe the Coronavirus Job Retention Scheme will work.

The notes below provide an update to our original piece published earlier in the week which is copied below for reference.

Updates 

  1. HMRC will be the body that administers the grant scheme.
  2. Now confirmed that Charitable and not for profit organisations will be eligible.
  3. Whilst the scheme is backdated to the 1 March grants will only be available when employers have agreed furlough terms with their employees and they have stopped work, subject to employment law in the usual way.
  4. Available to all employees on the payroll at 29 February.
  5. The employer will pay the employee through payroll and as such RTI submissions will still be maintained. This actually makes a lot of sense as it is a system that already works well.
  6. Relevant employees must be designated as furloughed employees.
  7. The scheme will not cover dividends where directors/ shareholders of owner managed companies pay small salaries and the balance as dividends.
  8. The grant will cover all employment costs including; salary, employer pension contributions and employer NIC.

Illustration

Illustration (taken from the ICAEW article) shows how the grant would be calculated. Note assumes no pension payments. If a pension was paid (i.e. Mr A was opted in) the grant would cover this too being 80% x (£2,000) + Ers NIC + Ers Pension subject to the £2,500 cap. Note that the Ers NIC and Pension will be calculated using the new 80% salary as reference.

The original ICAEW article can be found here

Funding problems

One of the problems with the scheme is the delay in being able to make claims and receive funds. If an employee was furloughed on 20 March there could be 11 days available for the March claim.

The employer would need to pay the employees net pay on 31 March and 30 April well before potentially being able to make a claim in early May for receipt sometime in mid to late May.

Whilst we can’t be sure this will apply for all businesses, Banks may be willing to extend or arrange overdrafts for a limited time for the amounts expected to be claimed.

For advice on how you can implement this scheme including HR, Payroll, support making claims and working through cash flow please contact our team dedicated to dealing with the Job Retention Scheme; Lucy Pitfield, Simon Hall and Steph Smith on 01522 81 5100. 

Original Article (published 21 March)

The Government has announced a new scheme to protect people’s jobs during the crisis. The scheme is open to all UK businesses and will see the Government pay part of the wages of employees that would otherwise have been laid off. The scheme will be open for an initial three months from 1 March however Rishi Sunak said “… and I will extend the scheme for longer if necessary”.

This is a grant from the Government, not a loan, so it will not need to be repaid.

To access the scheme employees, or certain employees, need to be designated as “furloughed workers”. You will need to notify these workers of the change, in writing (email will be fine) making sure you follow a fair selection process.

It’s worth noting that the Government is not changing employment law to allow this to change in status. Therefore, making this change to an employee’s status remains subject to employment law.

You have the option of topping up the remaining 20%, but it is not mandatory.

You must not make the employees redundant and guidance will most likely be issued, in due course, about the time frame the Government expects you to keep them employed after society and business can return to normal. If you have already laid staff off, you can reverse this decision if you wish, as this scheme is backdated to 1st March.

HMRC are developing a system that will allow employers to provide this information through an online portal and once processed they will issue reimbursement. At the time of writing this (21 March 2020) there was no method of reimbursing these costs and the system isn’t expected to be available until April.  Therefore, managing cash during this intervening period is still crucial (see our advice about cash flows).

There is a cap on the reimbursement of £2,500 of the employee’s wage costs per month, based on their regular salary. It should also be noted that the employee should be shown on the February pay run and that a claim will be possible for periods from 1 March 2020.

It is not clear yet how much those on zero hours’ contracts or fluctuating wages will be treated, but it is expected that it will be either the amount which was paid through last month’s payroll or an average of the past few months.

Careful planning and consideration of employee’s contracts of employment is required when considering this scheme but it is certainly a significant boost to companies in what are unprecedented times.


Time to talk about loans – Coronavirus Business Interruption Loan Scheme

When Rishi Sunak stood up and announced the new Coronavirus Business Interruption Loan Scheme (CBILS) and the £330 billion he was putting behind initiatives it sounded as though this was going to be the magic bullet that businesses needed to be confident there was a longer term solution to help them through the economic crisis caused by the Coronavirus.

Not the magic bullet we expected

It was very clear that banks were not prepared for this and have been working extremely hard behind the scenes to catch up. This week we have started to hear more from the clearing banks about their policies and at Nicholsons we have spent time talking to our banking contacts to understand local policies.

The CFN, of which we are a member firm, has assisted to lobby banks to remove the requirement for a Personal Guarantee for loans under £250k and this was confirmed by the main lenders on 26th March. However, for loans higher than this, PGs from any director owning more than 10% of the business, and a debenture from the Company, will be required in most cases. We have also been informed that CBILS is now open to sole traders and partnerships, not just limited companies

We have always worried that the scheme will not be suitable for all SME’s and when it is will take a long time to access. Notwithstanding the pressure local Relationship Managers are under it’s unlikely that valuers are going to visit sites during lockdown and the number of applications will undoubtedly be overwhelming.

Add to this that it is likely that the mainstream banks will only welcome applications from existing customers and the fact that many of the other funders in the list of 40 lenders are not close to having products ready we are encouraging clients to focus on other funding and measures first.

Things to consider

There will come a time when thinking about a bank loan application is right and we thought we’d share a few tips on what to consider before talking to your bank about funding.

Don’t lose focus  

In our cash flow post we outlined other practical steps that you could take aimed at helping you manage cash. This should be a priority as self-help will have immediate results.

  1. Agree rent free periods with your landlords. The Government has included a three month commercial rent moratorium in their measures, which prevents eviction.
  2. Agreeing payment holidays on business loans and other credit payments, such as hire purchase and asset finance.
  3. Explore whether “spot invoice” financing could help top up cash whilst debtors are being a little slower at paying.
  4. Looking at assets that the bank won’t be too interested in losing from their debenture and see if you could raise finance on them, for example stock.

Be prepared

It might be obvious, but we think that well thought through and structured applications will be seen in a more positive light by the bank than general conversations around support.

Banks will assess applications in the same way they always have (because they will use the same process, systems and people) and therefore management accounts, a business plan and forecasts will be essential parts of the application. You might also keep an analysis of creditors, debtors and time to pay arrangements with HM Revenue & Customs (HMRC).

Structure your argument

In your business plan, you should focus on the strength of the business before the crisis, its trading performance and ability to generate cash.

You should also outline the path back to this position making clear the steps you are taking and the time frames you are working to.

In their appraisal of the business plan, banks will want to understand management capability and whether there are any long-term implications of the economic fallout on the business or industry it operates in.

Look towards other funders

There is no doubt that other funders, alternative and second tier, will be looking to fill the gaps left by the banks. We understand that peer-to-peer lenders are trying to be included in the plans announced by the government. Alternative lenders may offer to fund but their fees, terms and interest rates need to be checked carefully.

And finally

Don’t be afraid to ask for advice and support. There is a lot of information out there, some of it confusing and some contradictory, so if you are unsure about anything or just want to sense check your plans please don’t hesitate to call either Richard Hallsworth, Emma Murray, Jo Brown or Richard Grayson on 01522 81 5100.


Companies to receive a three month extension period to file accounts

Companies House have announced (25 March 2020) that companies will be able to apply for a three month extension to file their accounts. The statement issued by Companies House said that whilst “companies will still have to apply for the three month extension to be granted, those citing issues around COVID-19 will automatically and immediately be granted an extension.”

Unlike the normal process which has a review when an application is made and can take a few days there will be an online system, which will apparently take around 15 minutes to complete. The online system seems to be accessible already from the Companies House website and it looks like you will be asked for:

  1. The company number,
  2. An email address,
  3. Information about your extension reasons.

You can provide documents to support however this is optional.

It’s important to remember that the application must be made before the filing deadline. If successful you will not receive a late filing penalty.

This is an important announcement, as whilst it doesn’t help financially, it allows Directors time to focus on their business and deal with their response to the current crisis.


Coronavirus Action Plan

We’ve been talking to a lot of clients worried about the impact the Coronavirus is going to have on their business. Like the virus’s effect on individuals, the economic impact does not discriminate. It is affecting all businesses both small and large.

After talking to our clients, it’s clear that all businesses will be affected, some more than others depending on the strength of reserves or the sectors they are in. Therefore, the actions each business needs to take will be different.

Our advice to all clients has been to act now to limit the cash going out of the business and build up cash. The faster this can be done the more resilient the business will be and the more likely it will be to survive.

We thought it may be worth outlining some actions you can take now.

  1. Improve cash flow. We are recommending that a 13-week cash flow is put together to forecast what the cash position might be. The following article provides more advice on this. Coronavirus Action Point One – Build a Cash Flow
  2. Speak to HM Revenue & Customs to agree a Time to Pay deferral for PAYE and Corporation Tax liabilities that fall before the middle of May. At this point you are not discussing a proposal to pay but asking for time to come back to them with a proposal. To give you time to create a plan and see how the crisis unfolds we suggest that you give yourself to the end of June to go back and make firm proposals. The telephone number is 0800 024 1222 although we suggest you get a cuppa before calling as waiting times are around 45 minutes to an hour. Coronavirus Action Point Two – Speak to HMRC
  3. Understand the implications of the VAT deferment scheme and build into your cash flow the impact of deferring your next quarters VAT payment. NB Note that HMRC are still processing refunds as usual and if you pay your VAT by direct debit we would recommend you cancel it just to be on the safe sideCoronavirus Action Point Three – Understand the impact of the VAT deferment scheme
  4. Understanding the resources you need to carry on trading or if you have closed, dealing with employees is one of the most difficult and emotional tasks you need to do. Whilst the fine details of the Job Retention Scheme have not yet been announced, thinking about and taking action around furloughing employees is an important step as it could generate big cash savings. Coronavirus Action Point Four – Consider whether you need to furlough any of your team. Also read our HR teams early thoughts and FAQ’s. 
  5. Speak to us! We have created two separate teams to help business owners through the crisis. One team that is dealing exclusively with Payroll and Employee issues and another dealing with Cash Flow and Funding. If you want advice or simply want to talk to somebody about where you are at, please call our team on 01522 81 5100 and ask to Speak to either Richard Hallsworth, Emma Murray, Jo Brown, Richard Grayson, Lucy Pitfield (HR advice) or Steph Smith (cash flow and funding).

Business as usual at Nicholsons – we’re here to help.

Due to the COVID-19 our offices are closed

However, our team at Nicholsons are working remotely.  This enables us to continue to provide you with our normal services.

You can either contact a member of our team via email or you can email info@nicholsonsca.co.uk where your message will be passed on to the relevant team member.  If you would like to speak to a member of our team please call 01522 815100 between 10am and 4pm.

Our letterbox will be checked daily should you wish to drop of any post.

We are here to support you and will monitor the situation on a daily bases.

Stay safe and well.