Looking back with some surprise, it hardly seems possible that we wrote our last update at the end of July. With the recent announcements of further restrictions, new initiatives and extended support, the relative calm and the hot weather of August and September are sadly both now a distant memory.
As we reflect on our own experiences and those of our clients over the past six months, we have a number of lasting impressions, some of which are bound to inform how we behave both at home and at work over the coming winter months. More on this below.
For businesses, we believe there are lessons to be learned and opportunities to be seized. Whilst acknowledging that many businesses, particularly those in the leisure and hospitality sectors, will find it difficult to see any comfort in these thoughts, it is important for us all to look ahead to what many are predicting to be a difficult 2021. It seems that things will be like this for some time yet, so ultimately, survival may well depend on dealing with that well known phrase: “the new normal”.
This briefing note provides updates and commentary on the following issues:
- Job retention scheme and the job support scheme
- Loan funding
- On-line and buying local
- Self employed income support scheme: round 2
- Late payment action
- Companies House deadlines
- Self assessment tax payments
- VAT
- Tax planning
- Brexit
- Home working
- Big brother
- Insurance cover
- Kick Start
- Local lockdowns
- Commercial tenancy
- VAT and construction
- IR35
- And finally
Job retention scheme
You may know that the existing furlough scheme ends on 31 October, with the Government contribution having been reduced through September and October. However, as heavily covered in the media, The Chancellor announced a replacement scheme on 24 September, the Job Support Scheme (or JSS).
The new scheme starts on 1 November and will support any employees working fewer hours than normal, but not employees who are not working at all. Full time furlough is therefore no longer available. For a company to receive compensation under the JSS, an employee must work at least one third of their normal hours and this must be agreed in writing between company and employee.
Companies will be expected to pay for actual hours worked, plus one third of the non-worked hours calculated by reference to normal pay. For JSS purposes, it is understood that “normal pay” will be calculated in a similar way as under JRS, although the precise details are not yet confirmed. The Government will pay for one third of the non-worked hours as a top-up. Employers’ NI contributions will not be subsidised.
Employees can be paid under the JSS even if they were not furloughed under the previous scheme. Only employees on the company payroll at 23 September 2020 will be eligible under the JSS. It is important to note that if HMRC take the same approach as under the previous scheme, this will mean that HMRC must have been notified of new employees by this date, not by the normal pay date. We have seen problems with this rule under the old scheme (JRS) and note that HMRC apply this rule strictly.
We note that the JSS subsidies will be less than under the JRS. With many companies regrettably having to review staff numbers and consider the possibility of redundancy, it remains to be seen how helpful JSS will be to those companies experiencing difficulty.
Do remember that the job retention bonus is still in place, although how this will interact with the JSS is not yet clear. As a reminder, the bonus means that companies that bring a previously furloughed employee back to work and keep that employee in continuous employment until 31 January 2021 will receive a one-off payment of £1,000 per employee. We do not see that this will have a significant impact on redundancy decisions, but time will tell.
Loan funding
The application deadlines for both CBILS and Bounce Back Loans have been extended to 30 November 2020. The Chancellor has also announced that the repayment terms of both loans are to be extended, in some cases from 6 to 10 years. We also understand that the Government is planning a new loan scheme possibly to be launched in January. More details to follow if this happens.
At the risk of becoming repetitive, it is quite possible that many businesses are not currently seeing cash flow issues but may find their most urgent need in the summer of next year. This is a long way off and we appreciate that many businesses will be focussing on winter trading. However, we continue to urge you all to look at forecasting your cash flow requirements from now through the whole of 2021. If you have any concern that you might need extra funding over the next 6 to 12 months, we strongly recommend you look at taking action sooner rather than later.
If you decide to apply for CBILS funding, one of the elements of the application will be a cash flow forecast. Any time spent on this area will therefore not be wasted.
Additionally, as part of the process of thinking about cash flow into 2021, we strongly recommend you formulate a business plan. This does not need to be complicated: invariably when the two words “business” and “plan” are combined, it leaves the listener thinking that this is some complex strategy document worthy of The Apprentice. It is not. In fact, it is little more than you writing down your plans for the next 3 to 5 years, the major challenges the business might face in that period and how you might deal with them. Most business owners have this information in their heads – it just needs putting on paper.
Incidentally, any CBILS application includes a “fact find” document – the business plan will cover a large part of this requirement.
On-line and buying local
Two of the clearest trends we have seen in the past six months are an increase in on-line shopping and consumers’ desire to buy local. At first glance, these appear to be contradictory but they are probably both manifestations of a trend of wishing to avoid large crowds, enclosed spaces and face to face contact.
Undoubtedly, businesses that had an on-line resource at lockdown, or who have launched one since then, will have been well placed to take as much advantage of these trends as possible. We know many local businesses that have managed to do exactly this. Whilst on-line activity may not have fully replaced lost turnover, it has certainly helped. It is inevitable that on-line sales will be a key part of the future for many businesses.
As an aside, we should take a moment to acknowledge the sheer ingenuity and inventiveness of small businesses. We have seen many examples of business owners using the time during lockdown to reshape their businesses and we wish everyone success in those endeavours.
Self employed income support scheme: round 2
If you are a sole trade or a partnership, and received a payment under the SEISS in June, you should already have been contacted by HMRC with a further offer of support. You will need to confirm that you have suffered a further adverse impact from Covid-19 on or after 14 July 2020. The scheme works pretty much in the same way as before. Remember, you must apply for the grant by 19 October so time is short.
We have often been asked what is meant by “adversely affected”. This issue crops up in a number of areas. What HMRC means by it is not defined, but we believe that the issue is pretty wide. Clearly a loss of turnover is the most obvious sign of this, but other issues may also be relevant. In the hospitality trade, for example, pubs are now required to operate table only service, which means additional staff, capital expenditure on tables and other equipment. All of these increase costs and reduce profit, and are a direct consequence of Covid.
Late payment action
Did you know that there is a Small Business Commissioner? Nor did we until recently…
There is apparently some concern that small businesses are suffering from delayed and overdue payment of invoices, currently estimated at around £23bn, and the Government is considering giving the Commissioner the power to order companies to pay their suppliers. Although we applaud the Government’s good intentions, we all know that a complaint to the Commissioner by a small business would, just like taking legal action through the small claims court, is likely to permanently damage a business relationship. Although not always the case, the reality is that outstanding invoices should be chased for payment using the PPP system (“prompt, polite and persistent”); more often than not, by the time it reaches legal action, it is too late.
In these challenging times, it is even more important than normal to keep your accounts receivable under constant review and act wherever necessary.
On a related subject, the temporary restrictions in relation to statutory demands, winding up petitions and insolvency were due to expire on 30 September but have now been extended to 31 December. This will give companies in a critical state further breathing space for rescue or restructure, although in the present climate, one might take the view that this is simply putting off the inevitable. In contrast however, the temporary relaxation of rules regarding directors’ personal responsibility for wrongful trading has ended and has not been extended. Directors therefore need to be mindful not just of their company’s cash flow position but also solvency. If you are unsure about this issue, please let us know and we can help.
Companies House deadlines
You may not know that companies with financial years ending up to 31 May 2020 currently have a 3 month extension for filing accounts at Companies House as a response to Covid-19. It is important to note that this does not affect the corporation tax payment date, which remains 9 months and 1 day after the financial year. Unlike self assessment payments on account and VAT, there is no default deferral of corporation tax payments. However, as always, if you face difficulty in settling any tax liability, contact HMRC to discuss additional time to pay.
In March 2020, a general moratorium on company dissolutions was introduced by Companies House, which ended on 10 September and no companies were struck off during this period. If you applied for voluntary dissolution during this period, it will now recommence.
Self assessment tax payments
As noted in the preceding section, self assessment tax payments due 31 July 2020 were deferred by default to 31 January 2021. At the time, our advice was to take a cautious approach to cash flow and accept the deferral. The Chancellor has now stated that any self assessment tax due on 31 January 2021 can be spread for another 12 months in 12 instalments, but do be aware that interest will be charged at 2.6% on these payments. The guidance refers to payments due in January which we presume means the deferred July 2020 payment on account and the tax which would normally be due on 31 January 2021.
We have already been working on many 2020 personal tax returns. For anyone required to make payments on account for 2020/21, it is important that we review your estimated tax position for the 2020/21 tax year, especially if there is any possibility that your income will be less. If so, we are able to reduce your payments on account for that year, which will reduce the overall payments you need to make in 2021, whether paid by instalments or as a single payment. Let us know if you think we need to discuss this with you. Please do remember, when considering this issue, that all grants and subsidies are taxable (but not bounce back loans) and must therefore be included in any business profit estimate.
VAT
Those of you in the hospitality sector will already know that VAT for your businesses has been reduced temporarily to 5%. This is now extended to 31 March 2021. For some, the practical aspects of applying the reduced rate has caused some difficulty and the reduction has therefore not been as straightforward as the Government might have hoped.
As you will know, VAT payments due in the period April to June 2020 were deferred to 31 March 2021. The Chancellor has now announced that further deferral is possible, with deferred VAT payable over 11 instalments, although this arrangement is only available on application. If you want to explore this, you will need to contact HMRC early next year.
Tax planning
This is not a subject which can be covered adequately in a brief update. However, one aspect for company shareholder/directors is worth noting.
Although it is probably good news that the Autumn budget has been postponed, it is important to bear in mind that this merely pushes the issue back to March next year and the Spring budget. Whilst many commentators were making dire predictions of tax rises in the Autumn, with suggestions of increases in corporation tax, national insurance and CGT, it seemed to us to be quite a risky option for the Government given the already precarious outlook for 2021. The budget delay means that next year’s budget will take on far more significance than Spring budgets have generally done for many years. By then, the economic outlook and the consequences of the Brexit negotiations will presumably be a little clearer, meaning the Government should be in a position to make some tax policy decisions.
Quite what these decisions will be is open to debate (and hotly debated they will be!). We see that a group of economists and business people have recently suggested the Government must focus on economic growth by keeping taxes low. Although common sense suggests that taxes will have to rise at some point, we have already seen the Chancellor take some pretty radical decisions in the last 6 months so it is not beyond the realms of possibility that he might do so again. That said, we note he told the Conservative Party conference yesterday that the Government has a responsibility to balance the books for future generations. No doubt we will find out what this means for the current working generation in the next budget.
For now, there is not a great deal we can advise by way of practical planning options. One possible tax change is an increase in dividend tax rates (from 7.5% for basic rate dividends and 32.5% for higher rate dividends). In light of this, if profits and cash flow allow, we believe company director/shareholders should ensure that their total income (salary + benefits + dividends) utilises the whole of the personal basic rate tax band of £50,000. If current salary and dividends levels are likely to result in any part of the basic rate band being wasted, dividends should be increased before March 2021 to cover this. Bear in mind that this will increase personal tax liabilities for the 2020/21 tax year, but in the event that dividend tax increases, there will be an overall saving.
We will, of course, advise further as the Spring budget approaches and once it has been announced. If you would like to discuss this issue in more detail now, please let us know.
Brexit
This area is still a huge unknown for us all, although a recent survey suggests that two thirds of businesses are more concerned about Covid than Brexit.
The Government has recently been issuing warnings to businesses to prepare for a “no deal” Brexit, whilst also saying that these warnings are no more than preparation for a worst case scenario. This is not helpful.
For now, the key concern is for any business importing or exporting goods to keep up to date with any changes in guidance issued by HMRC for post 1 January cross-border trading. We will watch for changes and let you know as and when they arise.
Home working
We have previously discussed the merits and challenges of working from home. Our own experience is that, as a team, we all prefer working together in the office whenever we can. Clearly, at the present time we, just like any other business, need to carefully consider the risks and establish a policy that deals with these as effectively as possible.
We are being shown statistics that suggest 60% or more employees are returning to the work place, although our cynical nature makes us wonder whether this is generally on a part-time or ad hoc basis. For businesses where home working is still a significant factor, it may be useful to note that employees can claim tax relief for the additional costs of working from home, such as equipment purchased personally for work, and additional heating, lighting and telephone calls. As an alternative, HMRC will accept a flat rate expense claim of £6 per week. We fully understand that many employees may have experienced some financial benefit as a result of working from home, mostly in reduced commuting costs, but this relief can be claimed irrespective of those savings.
Whatever your business situation, please do make sure you have policies in place covering all aspects of home working, including security and data protection.
If you are returning to work or unsure about the official guidance for your business, further details can be found here:
https://www.gov.uk/guidance/working-safely-during-coronavirus-covid-19?utm_source=5cd958dd-b2f6-4af3-bc1e-b198043611eb&utm_medium=email&utm_campaign=govuk-notifications&utm_content=daily
Big brother
Fraud is a small word but with one with big implications. It takes many forms: for example, there was an 84% increase in impersonation scams in the first half of 2020 compared to the same period in 2019. We also know of many instances of phishing emails and even scam telephone calls, both of which appear to be on the increase.
More importantly, we know that HMRC are scaling up efforts to detect fraud in relation to the Job Retention Scheme and SEISS. Given that around £40bn has been paid out by HMRC in relation to furlough claims, there is bound to be pressure to recover any funds claimed fraudulently. HMRC recently stated that they were planning to look at 27,000 suspected fraud cases and we already know of two arrests in relation to a £70,000 furlough scheme fraud. Interestingly, HMRC say that over £215m has been voluntarily repaid by companies who have acknowledged incorrect or overstated claims.
Where you have received a grant or subsidy, please do make sure that your calculations were correct and you followed the rules, particularly in relation to the furlough scheme.
Insurance cover
In the early days of lockdown, we know that many businesses looked at the possibility of making insurance claims for business interruption, but such moves were robustly rejected by insurance companies. We are not qualified to provide technical commentary, but read reports that the High Court recently found against insurance companies on this issue and understand that the FCA are being urged to take action as a consequence.
Quite what this means for small businesses is not clear. We remain sceptical, but it can do no harm to look into this if you think it might affect you.
Kickstart
The Government recently launched a scheme to encourage employers to take on 18 to 24 year olds. If you are thinking about employing young people, this might be worth considering. Further details can be accessed here: https://www.gov.uk/guidance/apply-for-a-grant-through-the-kickstart-scheme?utm_source=314dc6b8-bce9-4ae6-9637-47915bcd5b1b&utm_medium=email&utm_campaign=govuk-notifications&utm_content=daily
Local lockdowns
Although we hope this will not affect anyone reading this update, we note that there are now further grants in place for businesses that are compelled to close due to local lockdown restrictions. The grant payments range from £1,000 to £1,500 every three weeks depending on business size. The lockdown decision must have been made at a national level.
Further information can be found here: https://www.gov.uk/government/news/ministers-announce-new-grants-for-businesses-affected-by-local-lockdowns
Commercial tenancy
In the current crises, one of the areas that has generated a good deal of discussion is the question of whether businesses should be able to suspend rent payments. We list both rent paying businesses and commercial landlords amongst our clients, so we can see the issue from both sides. In these strange times, no one is a winner.
If your business is experiencing a cash flow crisis, the first step is to start a conversation with your landlord. Although you may not initially get the response you would ideally like, you have to start somewhere. We understand that there is currently a moratorium on legal action by landlords but, unlike some other commentators, we do not advocate simply withholding rent. It is always sensible to keep one eye on what might happen when we return to a more normal climate.
VAT and construction
For those of you in the construction industry, if you don’t know already, the reverse charge was intended to take effect on 1 October but has now been deferred until 31 March 2021.
As a reminder, where you work for another company and that company is a contractor for CIS purposes, you will not charge them VAT. The same applies for any CIS registered contractor working for you. Thankfully the delay means that any potential cash flow impact following implementation is now pushed back to April next year. When the time comes, if you need guidance on this or how to administer the new arrangements, please let us know.
IR35
The story rumbles on. The changes originally scheduled for April this year have now been delayed to April 2021.
If you are a freelance contractor working for a medium sized or large company, you will probably have already experienced a check into your status, given that the change in the rules mean that, in future, the engaging company has the responsibility to determine your status. For many contractors, the economic climate is causing some difficulty, so thinking about IR35 may not be your highest priority right now. However, as you look for a replacement contract for next year (or renegotiate an existing contract), do bear the changes in mind.
The changes do not affect small companies engaging freelancers, but it would do no harm to review any ongoing arrangements.
And finally
As always, we gratefully digest all feedback and contributions and use these as part of our regular updates. Please do feel free to forward this to anyone who you think might benefit and do check out other information on https://acklandwebb.co.uk/blog/
We remain here to provide help and support as far as we can. If you need assistance or further guidance, please contact any one of the team.
Keep well and stay safe!
