This is a practical guide to the government’s coronavirus response for small business owners. We publish updates regularly – do not hesitate to get in touch if you need help.
Help For Limited Company Owner/Directors
As a limited company owner, chances are that you draw a small salary of about £8,000 per year. Your remaining income comes from dividends or withdrawals of money you lent to your business to get started.
Support for you is limited. Your options are:
- If you cannot work at all, you can furlough yourself under Coronavirus Job Retention Scheme
- You can claim Universal Credit
- You can try to get a loan under the Coronavirus Business Interruption Loan Scheme to tide you over for a few months
My other suggestions:
- You must do everything you can to protect cash flow
- You should defer VAT and keep the cash in a separate bank account if possible
- You should consider furloughing all staff that are currently loss making (potentially everyone)
- You may need to ask staff to take a 20% pay cut in line with government support - if the business can afford 100% then great, but you are not a charity, and an insolvent business is no use to your employees later in the year
- You should claim all of the support and help that is available to you, given the uncertainty that lies ahead
Coronavirus Job Retention Scheme
You have the option to furlough all or part of your workforce that cannot work due to the Coronavirus outbreak. These employees are essentially placed on a leave of absence during the period, which can be backdated to 01 March 2020 and currently ends on 30 June 2020. It may be extended.
It launched on 20 April. Our first claims for clients took 4-6 working days to be paid.
Update 14 June 2020 - Flexible Furlough
From 01 July, the furlough scheme is changing.
Here's how it works:
- From 01 July, employers can bring furloughed employees back part-time. You will need to pay them as normal for working hours, and you can claim 80% of their remaining unworked hours (i.e. furloughed hours) from the government.
- From 01 August, employers will no longer be able to claim for employers NIC and pension costs.
- From 01 September, employers will need to contribute 10% of the 80% wage that an employee receives for furloughed hours.
- From 01 October, employers will need to contribute 20% of the 80% wage that an employee receives for furloughed hours.
Useful additional info:
- An employee is eligible if they have been furloughed for any consecutive 3 week period between 01 March and 30 June.
- The original scheme will close to new applicants on 30 June. From 01 July, you can only furlough employees that were furloughed for any 3 week period up to 30 June. You will have until 31 July to submit furlough claims under the original scheme.
What you need to do in advance:
- Since the scheme closes to new applicants from 01 July, you must furlough anyone who has not yet been furloughed from 10 June to 30 June to meet the minimum 3 week furlough period.
- Employees can return part-time from 01 July. Figure out how many hours you can support from this date and allocate them to your furloughed employees.
- Determine your employment strategy to manage the end of the furlough scheme.
Employment strategies for the flexible furlough scheme:
- Focus on re-employing your most valuable members of staff. If you don't think you'll be able to bring back your entire workforce, consider informally letting other employees know that their employment is insecure. If you do need to let employees go, you'll need to decide whether to do this before you have to start contributing to their furlough pay from 01 September.
- Spread working hours amongst your entire team, giving them all the chance to work part-time. This is useful if your team cannot socially distance at work and you want to deploy a split workforce to minimise disruption caused by an employee catching the virus. For example, if one employee were to test positive for the coronavirus, anyone they work with would also need to self-isolate. By splitting your workforce, you can reduce the chances of your entire team needing to self-isolate.
- Bring back members of staff that you plan to let go. This might sound counterintuitive, but the idea is that you can give your most valuable members of staff some downtime before they come back to work later. You also give employees - who you will soon be let go - the opportunity to earn more money than they have been earning during furlough. You should be up front with employees if you choose this approach.
There's nothing wrong with any approach, ultimately you need to make sure the business is able to continue operating as the furlough scheme winds down.
Update 19 April 2020
Who is included?
Employees that were on PAYE payroll between 28 February 2020 and 19 March 2020 on any type of contract. You can also rehire employees that have been made redundant since 01 March, and backdate their period of furlough.
Employees that continue to work for you are not eligible for the scheme.
You must confirm in writing to your employees that they have been furloughed, and keep a record of this communication for five years. Acas have created a template you can send to furloughed employees.
Employees with more than one job are eligible for the scheme with each employer.
How much can you claim?
HMRC will reimburse the lower of:
- 80% of an employee’s regular wage
- £2,500 per month
- plus NIC and minimum automatic enrolment employer pension contributions
You may pay employees more if you wish, but fees, commission and bonuses cannot be included in the above calculation.
For employees on a consistent salary, the calculation is relatively straightforward. For employees with variable pay, you can claim the higher of:
- average monthly earnings for the 2019/20 tax year
- earnings from the same month in the previous tax year (ie April 2019 for April 2020 payroll)
For employees who joined after April 2019, you can claim the average of their monthly earnings since they started.
For employees who started in February 2020, you can pro-rata their earnings for a full month and claim on that value.
There is no change to your weekly/fortnightly/monthly/annual payroll administration duties. Employers will continue to deduct and pay PAYE and national insurance on salaries.
The scheme is designed to avoid job losses. It is a little like mothballing some or all of your team – with the aim of bringing them back into the workforce when we get through the virus.
Can furloughed employees still work?
Furloughed workers cannot:
- generate revenue for your business
- provide services to your business
While on furlough they can:
- take part in volunteer work
- complete training – such as online courses
Furloughed employees maintain the same rights as previously. At the end of the scheme, you will have to decide whether to bring employees back into the workforce or to make them redundant.
How do you claim?
HMRC will pay a grant to the employer by BACS. Employers must submit information to HMRC online.
You have two options:
- If you have an authorised agent (accountant or payroll administrator) they can claim on your behalf - check with them
- If you do not, then you will need an online PAYE account
If you are claiming without the help of an authorised agent, then you'll need to gather this information before making a claim:
- Your self assessment Unique Tax Reference (UTR), Company UTR or Company Registration Number
- Names, employee numbers and National Insurance numbers for each of your furloughed employees
- You must calculate the amount being claimed for all employees and the total furlough period
Self employed Income Support Scheme
The government has also announced support for self employed individuals (aka sole traders). This also covers general partnerships, but it does not support owner-directors of limited companies.
To be eligible you must:
- have annual taxable earnings less than £50,000
- earn the majority of your taxable income from self employment
The government will pay 80% of your monthly profits, calculated by averaging the last three years (2016/17, 2017/18 and 2018/19). If you have not been trading for that long, then you simply take the last year or average of the last two years.
You can continue to work in the business, unlike furloughed staff.
Late PAYE Payments
There is no change to PAYE.
If this is your first late payment, you will be charged interest per day – currently at 3.25% per annum but soon to fall further. At the moment, £1,000 of late PAYE incurs 9p interest per day.
For additional late payments you will receive a 1% to 4% penalty depending on the number of late payments. The penalty is also relatively small.
No announcement seem to be fair at this stage of the crisis. PAYE appears to be covered by the government from 01 March 2020. Before this most businesses were still largely 100% operational.
Furthermore, the Coronavirus Business Interruption Loan Scheme and VAT deferral are designed to support shortfalls like this.
VAT payments due between 20 March and 30 June have been deferred until 05 April 2021 to support cash flow. All businesses are eligible – you don’t need to contact HMRC.
But you still need to submit your VAT return on time as normal.
Payments for these quarterly VAT Returns have been deferred:
- December 2019 to February 2020 – normally due 07 April 2020
- January 2020 to March 2020 – normally due 07 May 2020
- February 2020 to April 2020 – normally due 07 June 2020
My advice to clients is the same as normal – keep VAT in a separate bank account if you can. Pay VAT on the due date next year. This gives the business a cash buffer should the worst happen, but also ringfences the cash so you don’t spend it on non-emergencies.
If you regularly claim refunds you can still do so.
Deferring Income Tax
Self assessment tax return payments due on 31 July 2020 will be deferred until 31 January 2021.
This helps anyone that pays tax through the self assessment system, including:
- Self employed individuals / sole traders
- Directors that receive dividends
Business Rates Relief
Retail, hospitality, leisure and nursery businesses will receive 100% relief on business rates. The budget initially set a limit of £51,000 but this has been removed so all businesses in these sectors will receive the relief.
Your rates bill for 2020/21 will have been issued before these changes were announced. Local authorities should identify and inform eligible businesses over the coming weeks. Please check their websites for updates.
Most businesses pay rates by direct debit over 10 months from April to February. If you certain that you are eligible for full relief, then you may choose to cancel the direct debit to avoid the first monthly payment being deducted in error.
Cash Grants For Some Small Businesses
Small businesses in the retail, hospitality and leisure sectors that receive business rate relief will also receive cash grants. Businesses with a Rateable Value (RV) between £15,000 and £51,000 will receive a cash grant of £25,000. Business with an RV below £15,000 will receive a cash grant of £10,000.
This is designed to help you pay rent and should provide around 3-6 months of cover.
The budget originally announced cash grants of £3,000 for businesses with an RV below £15,000, but this has been increased and extended since then.
Local authorities have already started paying cash grants. Check their websites for updates and information on how to apply.
Coronavirus Bounce Bank Loan Scheme
On 04 May 2020 the government launched the Bounce Bank Loan Scheme (CCBLS) after huge delays for banks in processing CBILS.
Most small and medium-sized UK businesses can borrow:
- £2,000 to £50,000 - capped at 25% of annual revenue
- Over a six year loan term
- Interest rates of 2.5% (TBC - as per the Chancellor's letter to banks)
- No set up fees and first 12 months of interest paid by the government
- No repayments in the first 12 months
- No early repayment fees
Coronavirus Business Interruption Loan Scheme
The government is guaranteeing 80% of the value of loans and overdrafts to small and medium sized-businesses. The first 12 months of interest will be paid by the government. Funding was made available on 23 March 2020.
As of 25 March – there is some confusion over requirements amongst lenders and applicants. A typical small business loan requires a personal guarantee from shareholders. We believe that the government has instructed lenders to remove personal guarantees.
Loans appear to be capped at the higher of:
- 25% of 2019 revenue
- double the annual wage costs of the business
- Loan length – 1 and 6 years at typical commercial interest rates
- Government is paying the first 12 months of interest
- Businesses will still need to prove viability, so a coherent business plan is important
- No personal guarantee
What to consider:
- How has the virus has affected sales?
- How this has impacted cash flow?
- How will a loan or overdraft allow the company to return to profitability and when?
- What steps have you taken to reduce costs?
Specific features and requirements will vary between lenders. It might be an opportunity to refinance your existing business loans.
Check out the British Business Bank website for a list of lenders.
Time To Pay (TTP) Arrangements
HMRC already offer Time To Pay arrangements for businesses struggling to pay their taxes. The government has instructed HMRC to be especially practical and supportive at this difficult time.
HMRC have setup a dedicated line on 0800 0159 559 for businesses affected by COVID-19.
TTP arrangements typically involve:
- suspending debt collection
- paying overdue taxes in installments
- cancelling interest and penalties – especially where you have had trouble getting in touch with HMRC
Interest on late tax payments will fall to 2.6% after the Bank of England reduced the base rate to 0.1%. The rate will apply from 07 April 2020.
Mortgage And Rent Holidays
Evictions and home repossessions have been suspended for at least the next three months. Landlords will be prevented from applying to court to evict tenants.
Mortgage borrowers – both residential and buy-to-let – can ask lenders for a three-month payment holiday. Interest will still be charged so your future mortgage repayments may increase a little.
Residential tenants can apply for a three month payment holiday from landlords, though of course it’s up to the landlord to accept. If the landlord has a mortgage in place then you might be able to nudge them towards applying for a payment holiday.
Commercial tenants are also protected from evictions for three months after government clarification on 23 March. Landlords are unable to evict businesses, but will still be liable for unpaid rent after the three month period ends on 30 June. The government has the option to extend this date if needed.
Insurance Cover Clarity
If your insurance plan includes pandemic or government-ordered closure then you may be entitled to make a claim for business losses.
Most business are unlikely to have this cover, but it doesn’t hurt to talk to your insurance provider for more information.
Statutory Sick Pay (SSP) Enhancements
The SSP rate is £94.25 per week up to 28 weeks, and is not normally reclaimable by employers. However, up to 14 days SSP for COVID-19 will be refunded to employers, and is available from the first day of absence.
The first 14 days of absence does not require a GP fit note (aka sick note). If evidence is required, employees can get a note from NHS online if they have symptoms or if they live with someone who has symptoms.
The rules only apply to employees who are unable to work. Employees that are able to work from home are not eligible.
Limited company owner/directors are normally eligible for SSP as long as they earn a salary greater than £512 per month.
Unfortunately, there is no repayment mechanism in place for SSP, so any actual refunds are likely to take some time. SSP can be offset against existing PAYE and NIC liabilities.
Universal Credit Increased And Extended
Universal Credit has increased and requirements have been adjusted to help more people. Self employed workers may be eligible for either Universal Credit or the Employment and Support Allowance.
You can find more information here.
Changes to Statutory Residence Test (SRT)
If you are unable to leave the UK as a result of the coronavirus – perhaps due to border closures or self-isolation – then you might inadvertently be deemed a UK resident for tax.
HMRC have confirmed that the current situation is extraordinary and can be ignored for SRT calculations.