It feels like an eternity, but only 2 weeks ago the new Chancellor, Rishi Sunak, conducted his first Budget which included £7 billion of expenditure targeting the impact of Covid-19 on employees, the self-employed and businesses.
On the 17th March a further range of measures was announced, amounting to an additional £20 billion of support expenditure plus £330 billion of loan guarantees. By 20th March another round of support was announced of such size that no price tag was attached.
The 17th March statement was accompanied by a repeated promise that the Government would do “whatever it takes” to counter the impact of the Covid-19 virus. Three days later, the Chancellor’s second statement gave an indication of how large ‘whatever it takes’ is becoming, with potentially more to come.
Keith Relf, Managing Partner at Independent Financial Advisers, Pembroke Financial Services based in Shoreham and serving clients in Sussex and the surrounding Counties comments “We have compiled a digest of the key announcements so far for both businesses and individuals including useful links to government sites.”
Measures for business
- The Coronavirus (Covid-19) Job Retention Scheme (CJRS)
Some form of job support scheme had been expected after the 17 March announcement and the CJRS is similar to schemes that have already been set up elsewhere in Europe. Under the CJRS, “HMRC will reimburse 80% of furloughed workers wage costs, up to a cap of £2,500 per month’. In this context ‘furloughed workers’ are non-working employees who are kept on the payroll, rather than being laid off. The employer has to designate these employees and submit relevant information to HMRC via a “new online portal”.
- Statutory sick pay (SSP)
Businesses with fewer than 250 employees will be refunded the full cost of providing SSP to any employee off work for up to 14 days because of Covid-19.
- Loan guarantees
A government-backed loan guarantee scheme announced in the Budget has since been twice enhanced. The Government will now provide loan guarantees up to “an initial” £330 billion for all sizes of businesses:
- For large firms, the Bank of England is launching a Covid-19 Corporate Financing Facility (CCFF), which “will provide funding to businesses by purchasing commercial paper of up to one-year maturity, issued by firms making a material contribution to the UK economy”.
- For small and medium sized businesses, the loan limit on the Coronavirus Business Interruption Loan Scheme (originally announced in the Budget at £1.2 million) is now £5 million. No interest will be due for the first twelve months and lender-levied fees will be covered. The scheme will be delivered through commercial lenders, backed by the British Business Bank. Eligible SMEs must be UK-based with turnover of not more than £45 million and meet “the other British Business Bank eligibility criteria”.
- Deferral of VAT and Income Tax Payments. For the period between 20 March 2020 and 30 June 2020, businesses will not be required to make a VAT payment. Instead they will be able to defer this payment until the end of the 2020/21. VAT refunds and reclaims will be paid by the government as normal. No applications will be required as the process will be automatic.
- For the self-employed, self-assessment income tax payments due on the 31 July 2020 (the second payment on account for 2019/20) will be deferred until the 31 January 2021. This also will not require an application. Penalties and interest for late payment will not be charged in the deferral period.
- Business Rates Retail Discount
All shops, cinemas, restaurants, music venues and business operating in the leisure and hospitality sectors will have no business rates to pay in 2020/21. On 17 March the Chancellor also promised an additional cash grant of “up to £25,000 per business” to businesses with a rateable value of less than £51,000 – i.e. those that would have benefited from the old version of Business Rates Retail Discount Scheme.
- Businesses already eligible for small business rates relief
There will be a flat £10,000 cash grant for each business that already benefits from zero or reduced business rates because of small business rate relief.
- Insurance cover
Although the government has not required the leisure and hospitality businesses to close, on 17 March the Chancellor said that “for those businesses which do have a policy that covers pandemics, the government’s action is sufficient and will allow businesses to make an insurance claim against their policy”. However, pandemic cover is not a feature of most business disruption cover, a point underlined by the Association of British Insurers in a statement it issued on 17 March.
- Off-payroll working in the private sector (IR35)
Also on 17 March, the Chief Secretary to the Treasury, Steve Barker, said in a statement to the House of Commons that the start date for the new IR35 tax rules would be deferred to 6 April 2021.
- Time to Pay (TTP)
In the Budget, the Chancellor announced that HMRC would scale up its Time To Pay service, giving businesses and the self-employed the chance to defer tax payments.
Measures for the self-employed
On Thursday 26th, the Chancellor made his long-awaited statement about the Covid-19 government support scheme for the self-employed, called the Self-employment Income Support Scheme (SEISS).
Reports suggest that the announcement had been slow to arrive because of the greater difficulty in structuring and running a scheme that relied on annual information (via tax returns) and could not operate via the PAYE system.
The main points from the Chancellor’s statement and accompanying press release are:
- The SEISS will pay a directly payable taxable grant to the self-employed (including members of partnerships) based on 80% of profits averaged over the last three tax years (or shorter periods if self-employment started after 2016/17), subject to a maximum of £2,500 a month. In a recent briefing note from the Institute for Fiscal Studies, it was suggested that the £2,500 figure (which also applies to the employees’ Job Retention Scheme) is the maximum payment that will be made, not the maximum earnings that are protected, i.e. 80% of up to £37,500 of profits ([£37,500 x 80%] /12 = £2,500) will be covered.
- The initial payment term of the SEISS grant will be “at least three months”.
- The payment of the grant will not prevent the claimant from continuing to work.
- The SEISS will be restricted in three ways:
- Self-employment must provide the majority of the claimant’s income. It is unclear how this is calculated.
- Trading profits either:
- are less than £50,000 in 2018/19; or
- trading profit was less than £50,000 averaged over the three tax years from 2016/17.
According to the Chancellor, these thresholds mean the scheme covers 95% of the self-employed. The corollary is that it creates a cliff edge at £50,000, a figure that appears elsewhere in the tax system (e.g. the higher rate tax threshold).
- The claimant must have submitted a 2019 tax return (covering the 2018/19 tax year). As a concession, any later filer will have four weeks to submit their overdue return if they wish to be included in the scheme.
HMRC will use their existing information to assess eligibility and contact individuals directly, requesting completion of “a simple online form”. A gov.uk webpage gives more details, but is somewhat confusingly headed “Claim a grant through the coronavirus (COVID-19) Self-employment Income Support Scheme”. The “don’t call us, we’ll call you” approach is aimed at preventing HMRC being overwhelmed with telephone queries, as has happened with the DWP’s Universal Credit system.
- Payments from HMRC should start at the beginning of June. The initial sum will represent three months’ cumulative payments. Until then the self-employed can claim Universal Credit. In his statement the Chancellor said Universal Credit could give a self-employed person with a non-working partner and two children, living in the social rented sector, support of up to £1,800 a month.
- Anyone whose self-employment started after 5 April 2019 and thus has no self-employed earnings recorded with HMRC cannot benefit from the scheme and must rely on Universal Credit.
- Those who operate through one person companies are not covered by the scheme as, despite the media label often given to them, they are not self-employed. The Treasury press release states that such people “will be covered for their salary by the Covid-19 Coronavirus Job Retention Scheme if they are operating PAYE schemes”. The use of the word ‘salary’ is key here, as many one person companies route the bulk of their employee’s remuneration via dividends to reduce National Insurance liabilities.
In his closing remarks the Chancellor noted that “…in devising this scheme … it is now much harder to justify the inconsistent contributions between people of different employment statuses”. This was a subtle way of suggesting that National Insurance contributions will have to rise for the self-employed once the crisis is over.
Measures for individuals
- Mortgage holidays
For people who find themselves in financial difficulties because of Covid-19, mortgage lenders will offer at least a three-month mortgage holiday.
- Statutory sick pay (SSP)
SSP is currently paid at the rate of £94.25 a week, rising to £95.85 from April. It is now available to employees from day one, instead of day four, for those who are suffering from the virus or who have been advised to self-isolate. So far there has been no change in the minimum earnings threshold for SSP (£118 a week currently, rising to £120 a week in 2020/21).
- Individuals ineligible for SSP
Self-employed and gig economy workers generally do not qualify for SSP. Instead they may be entitled to Contributory Employment and Support Allowance. Covid-19 sufferers and self-isolators will be able to claim the benefit from day one instead of day eight. The minimum income floor in Universal Credit (UC) has been temporarily removed to ensure that time off work because of sickness is reflected in benefits. For 12 months from 6 April 2020, the standard allowance in Universal Credit (UC) and the basic element in Working Tax Credit (WTC) for will be increased by the equivalent of about £20 a week over and above planned annual uprating (which were to £323.22 per month for UC for age 25 and over and £1,995 a year for WTC). This effectively brings UC into line with the rate of SSP. The change will apply to all new and existing UC claimants and to existing WTC claimants.
- Housing benefit
Housing benefit and the housing element of UC will be increased so that the Local Housing Allowance will cover at least 30% of market rents.
- Hardship Fund
The Chancellor announced in the Budget a £500 million Hardship Fund, which would be distributed to Local Authorities so that they could support the vulnerable.
The day before the Chancellor’s latest statement, the Coronavirus Act 2020 received Royal Assent. This 348-page Act deals with a broad range of Covid-19 related measures (many of which exclude Scotland because of its devolved powers), including:
- Food supply.
- Statutory Sick Pay (SSP) modifications, e.g. funding of the employer’s liabilities.
- Suspension of the complex abatement rules that either reduce or suspend NHS pensions on an individual’s return to work.
- Uprating of working tax credit.
- Protection from eviction for residential tenancies to 30 September 2020.
- Protection from forfeiture for commercial tenancies to 30 June 2020.
This is a rapidly evolving situation and, accordingly, Governments, Central Banks and Financial Advisers will have to adapt guidance, systems and processes – sometimes ‘on the hoof’.
Assuring you of our best endeavours at all times. Call us today on 01273 774855 or email us by clicking here – our Independent Financial Planners can help.
The value of tax reliefs depends on your individual circumstances. Tax laws can change. The Financial Conduct Authority does not regulate tax advice.