Support for SMEs struggling to deal with the coronavirus pandemic
Produced by Tony Groom
Updated 23 March 2020
My comments and advice below are intended to help SMEs but should not be regarded as definitive advice since we are dealing with a highly fluid situation.
I shall updated the information and advice as more information emerges from the government and those responsible for delivering the initiatives. Like turnaround situations we are dealing with a crisis for which there has been no planning where rapid decisions must be made despite the prospect of some being wrong. This doesn’t matter providing they are corrected by other decisions along the way. The key is to prioritise what is important and try avoid making wrong decisions that cannot be subsequently rectified. As an example, those firms that terminated employment contracts a week before the government announced the Coronavirus Job Retention Scheme may regret their decision.
I summarise below a summary of the UK government’s survival initiatives with details on how to access them and my advice on what you else should consider. This will change over time so do check for the latest version.
VAT liabilities for quarter ending or months ending between 20 March 2020 and 30 June 2020 do not need to be paid by the normal due dates but may be deferred. The deferred amount must be paid by 5 April 2021 being the end of the tax year 2020-2021. All other VAT should be paid on time. VAT refunds will be paid as normal.
Advice: File VAT returns as normal but if you need to defer payments then cancel the direct debit and defer payment but make sure it is paid by 5 April 2021. This is an automatic offer with no applications required. Do not cancel the direct debit if you wish to pay or are expecting a refund. Otherwise file and pay all other VAT returns on time.
There have been a number of statements about deferring PAYE but for the moment I assume they all refer to Time to Pay arrangements which are agreed with HMRC on an individual basis. HMRC will agree a payment plan based on weekly or monthly payments over a period that is normally less than 12 months but can be as long as 30 months. Please note that HMRC adopt a draconian attitude to Time to Pay arrangements such that all future returns and payments must be made on time where any late returns or payments are likely to trigger a default rendering all outstanding PAYE becoming immediately due.
Advice: File PAYE returns as normal and contact the dedicated HMRC Time to Pay helpline on 0800 0159 559 to discuss repayment terms.
CJRS (Coronavirus Job Retention Scheme)
Launched to reimburse employers by paying 80% of wages up to £2,500 per month with scope for employers topping this up. This is eligible for all businesses and aimed at designated employees who will be known as ‘furloughed workers’ which strictly means a temporary leave of absence from work. ‘Furloughed workers’ are those who cannot work because of the coronavirus where the intention is that they be retained rather than them being made redundant. You will need to notify your employees of this designation and will need to change their status with HMRC by notifying HMRC of who is a ‘furloughed worker’ via “a new online portal” which I assume will be via the company’s existing PAYE gateway. Your ‘furloughed worker’ employees remain subject to existing employment contracts although these may be renegotiated and you should assume that all other contractual benefits (e.g. holidays) continue to accrue.
The CJRS initiative will be back dated to 1 March 2020 although the cash reimbursement is unlikely to be available from HMRC until the end of April and for the moment the scheme is intended to run for three months but may well be extended.
The contribution should be treated as gross pay and applied to the payroll with PAYE, NI and student loan deductions declared and deducted on pay slips and payments made as normal. There is no obligation to top up the 20% shortfall or for topping up larger salaries but you may do so at your discretion. In due course we will learn whether this will be challenged through the tribunals but I do not believe it will be accepted as grounds for constructive dismissal claims.
For the moment I assume that the scheme does not allow for employees to work part-time such as on administration or sharing work for those firms with reduced turnover such as restaurants that offer delivery. Therefore you should assume employees are either working and paid normally, or not working and therefore treated as ‘furloughed workers’. This raises the question of how you should deal with your employees where most contracts of employment and legislation require consultation for changing the status of employment. Where you need to keep some staff at work you may find that some employees may wish to stay at home on 80% pay. Essentially you as the employer should consult with your employees and should decide upon criteria that take into account the work, ability to do the work, personal circumstances like child care or supporting others. Clear communication of the criteria is key in order ensure staff remain loyal and avoid resentment since they will eventually be back working together again.
Another aspect that may become an issue is the request by employers for a Time to Pay arrangements with HMRC. I assume these will only be accepted for pre March liabilities.
Advice: Consider the need to retain some staff at work and decide the criteria for ‘furloughed employees’ and then consult with all employees. You may need a short term loan to cover March and April salaries but should expect to recover this from HMRC. HMRC are due to send out details shortly.
CBILS (Coronavirus Business Interruption Loan Scheme)
Announced on 13th March for business loans up to £5 million has since been amended to be interest free for 12 months, longer than the original 6 months. The loans are aimed at SMEs with a turnover below £41 million; they will attract a 2% guarantee premium and can be repaid on terms of up to ten years. They are due to be available from 40+ approved lenders from Monday, 23rd March but accessing one may be more difficult than implied since they are intended as loans to viable businesses that meet the lender’s normal lending criteria for such a loan. Viability and the ‘normal’ loan criteria will be subjective given the uncertainty of future income projections although we can expect a degree of latitude from lenders who are under pressure from the Government to provide such loans. The Bank of England has also made lending easier by waiving the 2020 stress test of the major banks which over the past few years has made it difficult for them to lend to most SMEs. The factor that I have not yet managed to find out is whether or not Personal Guarantees will be required but I shall let you know as soon as I can clarify this. Despite this there have also been announcement by the banks that initial loans of up to £250,000 may be made available at short notice for clients with special cases, and some suggest there will not be a need to give a PG although I suspect some lenders may rely on existing security and PGs.
Advice: Access CBILS by contacting an approved lender from the list which can be found on the British Business Bank website at: https://www.british-business-bank.co.uk/ourpartners/coronavirus-business-interruption-loan-scheme-cbils/.
SSP – Statutory Sick Pay Relief
A Statutory Sick Pay relief package for SMEs will be made available for sickness absence due to COVID-19. this refund will cover up to 2 weeks’ SSP per eligible employee who has been off work because of COVID-19. It applies to employers with fewer than 250 employees. No evidence is required for the claim but employer are advised to ask employees with symptoms of coronavirus to get an isolation note from NHS 111 online or from the NHS website. Legislation is required for this but in due course the Government will advise employers of the repayment mechanism.
Advice: maintain records of staff absences and payments of SSP, but employees will not need to provide a GP fit note.
Self-employed – Income Tax
Payments due on 31 July 2020 will be deferred to January 2021. This is only for those who are self-employed and is an automatic offer with no applications required. No penalties or interest for late payment will be charged in the deferral period. Despite this measure no deferment can be assumed for the 31 January 2021 liability so anyone withholding tax must ensure they can pay this amount plus their January Income Tax by 31 January 2021. For many who are not affected they may like the discipline of paying this tax knowing they will not have to pay it in January.
Advice: The self-employed do not need to pay their Income Tax due on 31 July 2020 but must ensure that they can pay this amount plus their January Income Tax by 31 January 2021.
Self-employed – Universal Credit claims
The minimum income level for claiming Universal Credit has been suspended to allow the self-employed to claim the recently increased level of Universal Credit up to the level of Statutory Sick Pay that applies to employees. There are other provisions such as mortgage suspension and housing benefit to cover rent but these are not covered as my advice is aimed at SMEs.
Small Business Grant Funding scheme
This is a one-off grant of £10,000 to eligible businesses to help meet their ongoing business costs and applies to those businesses that occupy property that is eligible for small business rate relief or rural rate relief. It will be provided in due course by the local authority.
Advice: Do nothing but look out for payment online. Despite not having to pay business rates due to a nil bill you are advised to register your business as paying by direct debit so that your bank details are registered with the local authority for receipt of the grant. Look out for the payment and if others receive theirs and you don’t then contact your local authority.
Retail and Hospitality business rates relief
A 12-month business rates holiday for all retail, hospitality and leisure businesses in England has been announced. It covers shops, restaurants, cafes, drinking establishments, cinemas and live music venues and premises used for assembly and leisure. It also covers hotels, guest & boarding houses and self-catering accommodation. It will be applied to your next council tax bill that is imminently due for the year from April 2020 although local authorities may have to reissue bills since many have already been prepared.
Advice: Do nothing but check your rates bill and if necessary contact your local authority but give them time to send out a revised bill before contacting them.
Retail and Hospitality Grant Scheme
This will provide cash grants to retail, hospitality and leisure businesses. And is based on the rateable value of the business property. Those with a rateable value of under £15,000 will receive a grant of £10,000. Those with a rateable value of between £15,001 and £51,000 will receive a grant of £25,000. This will be paid via your local authority.
Advice: Do nothing but look out for the payment and if others receive theirs and you don’t then contact your local authority.
I invite you to provide any feedback on the above and cite examples of initiatives you come across about survival initiatives.
Please consider the second and third order consequences of any decisions before acting on them but despite this caution don’t delay action, most of it is common sense.
Check out https://www.onlineturnaroundguru.com/ for more tips on survival
Otherwise please stay safe, you do not need to deal with this alone.