VAT and COVID – what you need to know if you still have delayed payments outstanding

All deferred VAT payments should have been dealt with by now, but HMRC has flagged in its latest bulletin for August that if your business is one of those that still has not managed to complete the payments that have been delayed, then you could be facing a penalty.

During COVID, HMRC allowed businesses to defer VAT payments to help with cashflow problems that companies faced as a result of the lockdowns. These payments could have been deferred to either March 31, 2021, when a lump sum would have been due, deferred via a payment scheme which you needed to sign up to by June 21, 2021 to allow you to pay in interest-free instalments, or by contacting HMRC to arrange how to make the payment by June 30, 2021. All of these payments should have been completed by March this year, but if they have not been paid in full, then you should act as soon as you can.

Any outstanding payments could face a penalty

If you have not yet dealt with your deferred payments, then you could now face a 5% penalty from HMRC and potentially also face interest charges on any amounts outstanding. But if your company is still struggling with these payments, then you should contact HMRC sooner rather than later.

If you have not paid your deferred VAT in full, whether you met the previous deadline of setting up arrangements to pay before June 30, 2021, or not, then the 5% penalty could be applied based on the amount of VAT that is outstanding at the time.

Appealing a penalty

If you feel a penalty has been unfairly applied, then you can appeal against it. You would need to have a reasonable excuse, which would include: a close relative dying close to when the penalty payment is due, an unexpected hospital stay or that you are suffering from a serious or life-threatening condition, or that your software failed when you were about to make the payment. Other relevant reasonable excuses can be found on Gov.uk.

If none of these apply, then you would need to make the payment within 30 days.

We can help you meet your obligations

If you think you have outstanding deferred VAT and do not know how to deal with this properly, then please get in touch and we can help to suggest solutions for you.

Bounce-back loans – where are we now?

The bounce back loans, CBILS and CLBILS for larger companies were some of the most generous schemes available to businesses suffering from the impact of lockdowns due to the Covid-19 pandemic, paying out a total of £80 billion to help keep businesses afloat.

The Bounce Back Loan Scheme was the largest of these, paying out £47.36 billion in total to around 1.6m recipients, with amounts up to £50,000 available to companies that would have faced real financial difficulty without them.

Fraudulent loan claims

Due to the speed that these loan schemes were implemented, and the fact that the Government backed them 100% – meaning taxpayers would pick up the tab for any loans that were not repaid – there was predicted to be a considerable amount of fraud. PwC initial suggested there would be around £4.9 billion of fraud associated with the Bounce Back Loan Scheme, which it subsequently reduced to £3.5 billion.

Lord Agnew, the former minister for counter-fraud described the oversight of the loan payments by the British Business Bank as “nothing short of woeful” when he spoke about his resignation from that role in the House of Lords. He highlighted what he described as “schoolboy errors” such as more than 1,000 companies receiving these loans despite not even trading when the pandemic hit.

What to watch out for if you need additional business loans

However, for the millions of companies these loans helped, there has been considerable benefit. They were applied for through business banks and you could get up to 25% of the self-certified annual turnover, or £50,000 – whichever was less. The biggest appeal for many though was the 2.5% interest rate – lower than many other business loans available – and the option to repay the loan over six years, although you can request that this is extended to 10 years, with the Government covering interest payments for the first 12 months.

One important thing for companies to remember is that the interest on these loans can be offset against tax, which is one benefit. But there are a few banana skins to avoid if you need additional lending within the period that you have the loan, according to the Association of Taxation Technicians (ATT).

It said: “Be particularly careful if your business needs any other source of funding during the life of the BBL taking any form of security, mortgage, charge pledge, lien or encumbrance over its assets whatsoever. You must check this is allowed under the loan terms, and often it is not.”

Be careful if your business becomes insolvent

It was possible to use the BBLS to pay dividends if the business has retained profits but was struggling with cash flow, but if your company was to become insolvent then you may be asked to repay these dividends as it is not possible to pay a dividend from an insolvent company. Any personal use of these loans could also result in the requirement to repay the money used, which potentially puts your personal assets at risk.

We can help you

If you are concerned that your BBLS may not have been used for the correct purpose, or that business risks could leave your company insolvent and you personally exposed due to the way the loan was used, then please contact us and we will explain the best course of action.

Businesses helped by COVID-19 support could face unexpected tax bills

Businesses and self-assessment taxpayers are being reminded they need to include all grants paid as part of the COVID-19 support payments in their tax returns, as some may think these were non-taxable.

Have you set money aside to deal with tax on support grants?

HMRC has highlighted that all money paid for test and trace or self-isolation payments in England, Scotland or Wales are taxable, as are Coronavirus Statutory Sick Pay Rebates. The Coronavirus Business Support Grants – also known as local authority grants or business rate grants – must also be included on tax returns as these are considered income for tax purposes.

Companies that received the Coronavirus Job Retention Scheme (CJRS) grant or a payment under the Eat Out to Help Out payment scheme will need to include both as income in their CT600 tax return and reported in the relevant boxes on their Company Tax Return.

Myrtle Lloyd, HMRC’s Director General for Customer Service, said: “We want to make sure companies are getting their tax returns right first time, including any COVID-19 support payment declarations. Support and guidance is available on GOV.UK, just search ‘file my company tax return’.”

Many companies will have been communicating with their accountants throughout the year and realise these grants are taxable. But there are concerns that those who deal with their accountant less often may not realise they should have been putting some of this money aside for tax purposes. This would leave them exposed to a bill that has not been planned for.

An outline of the costs employers could face for CJRS

While the CJRS scheme helped to reduce the number of redundancies companies may otherwise have been forced to make during COVID-19 lockdowns, there were a number of hidden costs involved with these grants. These include employer’s National Insurance contributions and employer’s pension contributions.

For example, if an employee had a normal monthly salary of £2,000 and was on full furlough, then based on 80% of their salary this would have fallen to £1,600 gross. At the rates applied in the 2020/21 tax year, the costs to the employer for this CJRS grant would be:

• £119.78 of Employer’s Class 1A National Insurance;
• £32.40 of Employer’s Pension Contributions (based on the 3% minimum under auto-enrolment);
• There is also the potential cost of accrued holiday, which is £153.80 – calculated based on 4/52 weeks (this is the maximum amount of holiday that can be carried forward into the following year) x monthly salary.

Where holiday has been carried forward to the following year, businesses that are struggling to recover from the pandemic also have to contend with up to four weeks of holiday that can be passed into the following tax year. If an employee leaves the business, this could result in the employer having to find sums potentially into the thousands of pounds to account for this in the employee’s final payslip.

HMRC said to be sympathetic to companies struggling to pay tax bills

Reports suggest that HMRC is being sympathetic in relation to any tax bills that are difficult for companies to meet, with even debt collectors looking to offer solutions to deal with the debt rather than collecting it on the spot.

The deadline for customers or agents filing company tax returns (CT600) is 12 months after the end of the accounting period it covers. The deadline to pay Corporation Tax will depend on any taxable profits and when the end of the accounting period occurs. Information on which support payments need to be reported to HMRC and any that do not is available on GOV.UK.

Contact us

If you think you will struggle to meet any of your tax liabilities this year, then please contact us as soon as possible to get advice on the best course of action.

SSP changes

To help employers affected by the spread of the Omicron variant of COVID-19, the Statutory Sick Pay (SSP) rebate scheme for small employers is being reintroduced. In addition, the period for which an employee can self-certify a sickness absence is increased temporarily from seven days to 28 days.

SSP rebate scheme

The SSP rebate scheme for small employers allowed employers who had fewer than 250 employees on their payroll on 28 February 2020 to reclaim up to two weeks’ SSP per employee in respect of Coronavirus absences. Normally, employers must meet the cost of any SSP paid to an employee in full. The original scheme applied in respect of Coronavirus absences prior to 30 September 2021, with a deadline for making rebate claims of 31 December 2021.

To help employers affected by staff absences as a result of the surge in COVID-19 cases following the emergence of the Omicron variant, the SSP rebate scheme for small employers is being resurrected. You will be able to use the scheme if you are based in the UK and you had a PAYE scheme with fewer than 250 employees as of 30 November 2021. As previously, you will be able to claim back the cost of up to two weeks’ SSP paid to an employee for Coronavirus-related absences. The claim period is being reset; consequently, a claim can be made in respect of SSP paid to an employee, regardless of whether a claim was made under the original scheme. Claims under the resurrected scheme can be made retrospectively from mid-January 2022.

Self-certification

The period for which an employee is able to self-certify an absence for SSP purposes has been increased temporarily from seven days to 28 days. This means that rather than needing a Fit Note from a GP for absences of more than seven days, employees will only need a Fit Note once they have been absent for 28 days. This will reduce the pressure on GPs.

Regulations have been introduced to give statutory effect to the relaxation, which applies for periods of sickness which begin on or after 17 December 2021 and end on or before 26 January 2022. Thereafter, the self-certification period will revert to seven days.  

Speak to us

To find out more about how to make a claim under the SSP rebate scheme, or to learn more about the temporary self-certification rules, please speak to us.

Kickstart Scheme

You may be able to benefit from funding under the Kickstart Scheme if you are looking to create new jobs for young people. Information on the scheme can be found in the Kickstart Scheme Employer Prospectus.

Nature of the scheme

The scheme aims to create jobs for young people who are unemployed. The job must be a new job and must be for at least 25 hours a week for six months. The job cannot replace existing or planned vacancies, or cause existing employees, apprentices or contractors to lose their jobs or to have their hours reduced. In addition, you must help the young person to become more employable, for example, by helping them to develop their skills in the workplace or providing support with job applications and interview preparation.

Funding

Employers using the scheme can apply for funding, which will cover:

• 25 hours at the National Living Wage or National Minimum Wage appropriate for the person’s age;
• any associated employer’s National Insurance;
• minimum automatic enrolment pension contributions; plus
• a grant of £1,500 to cover set-up costs and employability support.

Apply online

Applications can be made online or via a Kickstart Gateway.         

Find out more

If you would like to know more about the scheme and whether it is for you, we can help.

Reclaiming SSP for periods of self-isolation

The recent ‘pingdemic’ has resulted in large numbers of employees self-isolating. Where an employee meets the qualifying conditions, you must pay them SSP while they are self-isolating. As qualifying periods of self-isolation count as a Coronavirus-absence, if you are a small employer, you may be able to reclaim the SSP paid to self-isolating employees from HMRC under the Coronavirus Statutory Sick Pay Rebate Scheme.

Relaxation of the SSP rules for Coronavirus-absences

The SSP rules have been relaxed in respect of Coronavirus absences. The relaxations mean that if an employee is absent from work for a Coronavirus absence and qualifies for SSP, you must pay SSP from the first working day of the absence – the three waiting days which normally have to be served before SSP is payable are waived in relation to Coronavirus absences. However, there must be a period of incapacity for work (PIW) for SSP to be payable. This means that the employee must have COVID-19 or be self-isolating for at least 4 days, including non-working days, to create a PIW.

Period of self-isolation

The following periods of self-isolation count as Coronavirus absences:

• periods of self-isolation where the employee is self-isolating because they live with someone who has Coronavirus symptoms or who has tested positive for COVID-19;
• periods of self-isolation where the employee has been notified by the NHS or public health bodies that they have come into contact with someone with Coronavirus. This includes employees who are pinged and those contacted by NHS track and trace; and
• employees who have been notified by the NHS to self-isolate before surgery.

However, a period of self-isolation following the return to the UK from a country on either the amber list or the red list does not count as a Coronavirus absence, and employees who are self-isolating for this reason are not eligible for SSP unless they qualify on other grounds.

Reclaiming SSP

If you are a small employer, you may be able to reclaim SSP paid to employees who are self-isolating for the reasons outlined above. You will be a ‘small employer’ for these purposes if you had a PAYE payroll scheme on 28 February 2020 and, at that date, you had no more than 250 employees on your payroll. If you have more than one PAYE scheme, the 250-employee limit applies across all of your PAYE schemes.

Under the scheme, you can claim a maximum of two weeks’ SSP per employee for Coronavirus absences. This means that if an employee has more than one period of self-isolation, you will need to meet the cost of some of the SSP that you pay to them while absent.

For 2021/22, the weekly rate of SSP is £96.35.

Claims for SSP rebates can be made online.

Talk to us

If you have been affected by the ‘pingdemic’, talk to us to find out whether you are eligible for an SSP rebate.

Back to the office

Now that the ‘work from home if you can’ guidance has been lifted, employees are returning to the office. If, following their return, you allow employees to keep their homeworking equipment for personal use, there may be tax consequences to consider.

Employer-provided equipment

If you provided homeworking equipment to your employees to enable them to work from home, no tax charge arose on the provision of the equipment, as long as you retained ownership of it. However, there may be tax to pay if you allow the employee to keep the equipment for their personal use when they no longer need it to work from home. The nature of the tax charge depends on whether ownership of the equipment is transferred to the employee.   

Ownership transferred

A tax charge will arise if you transfer ownership of the equipment to the employee, unless the employee pays at least the market value for the equipment. The amount charged to tax is the market value at the date of the transfer, less any amount paid by the employee.

No transfer of ownership

If, instead, you retain ownership of the equipment but allow the employee to use it for their personal use, the tax charge is based on the ‘annual value’ of the equipment. This is 20% of the market value of the equipment at the date on which it is first made available for the employee’s personal use.

You may have chosen to adopt a flexible working policy under which employees continue to work from home some of the time. Where this is the case, as long as the homeworking equipment remains available predominantly to allow the employee to work from home, no tax charge will arise on insignificant private use.

Employer-reimbursed equipment

At the start of the pandemic, many employees were required to work from home at very short notice. In many cases, it was easier for the employee to buy the equipment that they needed to work from home, and claim the cost back from the employer.

If you took this route and reimbursed employees for the cost of homeworking equipment, as long as the ownership of the equipment was not transferred to you, there is no tax to pay if the employee retains the equipment for personal use when they return to the workplace.

Contact us

If you are unsure whether a tax charge arises in respect of retained homeworking equipment when your employees return to the office, please get in touch to discuss this with us.

Collection of tax debts after COVID-19

During the COVID-19 pandemic, HMRC paused much of their debt collection work, both to divert resources to administering the various COVID-19 support schemes and to help taxpayers whose finances were adversely affected by the pandemic. However, as the country emerges from the Coronavirus crisis, HMRC have restarted their tax debt collection work and will be contacting taxpayers who have fallen behind with their payments.

Talk to HMRC

If you have unpaid tax debts and HMRC contact you to discuss those debts, the best course of action is to speak to them to agree a repayment plan. Ignoring the problem will not make it go away, and HMRC may start enforcement proceedings against taxpayers who ignore their attempts to contact them.

Pay if you can

If you have outstanding tax debts and are able to pay them, HMRC’s expectation is that you will. In assessing your ability to pay, HMRC will expect you to make use of the various COVID-19 finance schemes, such as the Recovery Loan Scheme, to raise the necessary funds. If you need time to arrange the finance, HMRC may offer a short-term deferral of your tax debt. If this is agreed, HMRC will not take any action until that period had elapsed, and you will not need to make any payments during the deferral period.

Time-to-pay arrangements

If you are unable to clear your outstanding tax debts in full, you may be able to agree a time-to-pay arrangement with HMRC.

There is no standard agreement; time-to-pay arrangements are based on an individual’s circumstances. HMRC will establish your ability to pay by looking at your income and expenditure. They will also want to know why you are struggling to pay, and what action you have taken to try and pay some or all of the bill.

Enforcement action

If you do not pay your outstanding tax debts or come to an agreement with HMRC to pay what you owe in instalments, from September 2021, HMRC may use their enforcement powers to collect tax that is owed to them. Avenues available to them include taking control of goods, summary warrants and court action, including insolvency proceedings.

While HMRC will, where possible, aim to support viable businesses, if a business has little chance of recovery, HMRC will take action to recover any tax that they are owed.

Talk to us

If you have tax debts that you are struggling to pay, speak to us. We can help you agree a repayment plan with HMRC.

Reporting SEISS payments on your tax return

If you have received one or more grants under the Self-Employment Income Support Scheme (SEISS), it is important that you report the payments correctly on your tax return.

2020/21 self-assessment tax return

SEISS grants that were received in the 2020/21 tax year (i.e., between 6 April 2020 and 5 April 2021) should be reported on your 2020/21 self-assessment tax return, regardless of the date to which you prepare your accounts. The return must be filed online by midnight on 31 January 2022 (or by 31 October 2021 if you file a paper return). The first three grants under the scheme were paid in the 2020/21 tax year.

If you have already filed your 2020/21 tax return, HMRC may adjust your return if the information that they hold on the SEISS payments that have been made to you does not match what is shown on your return.

How to report SEISS payments

Grant payments received under the SEISS should not be included in turnover. Instead, they should be reported separately on the 2020/21 tax return in the box for Self-Employment Income Support Scheme grants. The location of the box depends on which self-assessment tax return is completed. It can be found:

• on page 2 of the ‘other tax adjustments’ section on the self-employment pages (SA103F) of the full return;
• in the ‘other tax adjustments’ section of the self-employment (short) page (SA103S);
• on page 2 of the ‘trading or professional profits’ section of the partnership return; and
• in section 3.10A of the SA200 short tax return.

HMRC corrections

HMRC will check the SEISS grants payments reported in the return against their records of the grants that have been paid to you.

If you have already submitted your 2020/21 tax return, and the amount of the SEISS payments that you reported on your return did not tally with HMRC’s records, HMRC will adjust your return to match their records and they will send you a revised tax calculation.

It is advisable that you check the figures on HMRC’s revised calculation against your records of the grants received. You can check the amounts that you have received either by logging into the SEISS claims service or against your bank statements for the account into which the payments were made.

If you do not agree with HMRC’s revised figures, you should contact their Coronavirus (COVID-19) helpline for businesses and self-employed people.

Failure to report SEISS payments

If you received one or more grants under the SEISS in 2020/21 and do not include them on your self-assessment tax return for that year, HMRC will adjust your return to reflect the payments and send you a revised tax calculation. As a result, you may find that you owe more tax than you expected, have an unexpected tax bill, or that the tax repayment you were expecting is reduced.

SEISS payments reported in the wrong box

If you included SEISS payments in your 2020/21 tax return, but did not enter the amount that you received in the designated box, for example, because you included it in turnover or entered it in one of the ‘other income’ boxes, you will need to amend your self-assessment tax return so that the grants are entered in the correct box and removed from the wrong box. If you do not do this, the grant income will be assessed twice, as HMRC will adjust the return to enter details of grants received in the correct box (but will not remove the income from elsewhere in the return). 

Failure to complete a self-employment or partnership page

To qualify for the SEISS grants for 2020/21, you had to be trading in that tax year. If you have not completed a self-assessment or partnership page, HMRC will assume that you were not trading, and therefore ineligible for the grants. Consequently, they will seek to recover any grants that were paid to you.  

If you were trading, but omitted to complete the relevant pages, you should amend your tax return to reflect this.  

Appeal if you disagree with HMRC’s adjustments

If you do not agree with the changes that HMRC have made to your tax return in respect of your SEISS grant payments, you can appeal. However, you must do this within 30 days of the date on the SA302 letter advising you of the changes that they have made to your return.

HMRC have not yet taken account of changes that were made to 2020/21 tax returns before 19 June 2021. If you corrected your return before that date, you do not need to contact HMRC as they will process the amendments separately.

Speak to us

Contact us if HMRC have adjusted the SEISS payments reported in your 2020/21 tax return. We can help you check whether the figures are correct, and take action if they are not.

Paying CJRS grants back

As the Coronavirus Job Retention Scheme (CJRS) enters its final months, now is the time to review grants that you have claimed under the scheme, and pay back any amounts claimed in error. You may also choose to repay voluntarily funding that you have received under the scheme if your business does not need it. Some notable large companies in the retail and hospitality sectors have opted to do this.

Recap: CJRS

The CJRS allows employers to claim grants to pay employees who are furloughed or flexibly furloughed. Under the scheme, the employee must be paid 80% of their usual pay for their unworked hours, subject to a cap of £2,500 a month or equivalent. The employer can claim some or all of this back from the Government under the CJRS. If the amount that you have claimed is less than the amount you need to pay the employee (as will be the case for July, August and September 2021), you must make up the shortfall.

Repayment options

If you have claimed too much or you want to make a voluntary repayment, you can either:

• correct the overpayment in your next claim; or
• get a payment reference from HMRC and repay the money within 30 days.

HMRC have published guidance which explains how to make a repayment.

Making a correction in your next claim

If you still have employees who are furloughed or flexibly furloughed and you will be making another claim under the CJRS, you can correct the overclaim when you do your next claim. If you have another claim to make, you should adjust that claim rather than making a repayment direct to HMRC.

To correct an overclaim, you should initially work out your next claim as usual. If you are sending a file containing your claim details, you should prepare this as normal without taking account of the amount overclaimed.

You will then need to work out the amount you have overclaimed, and deduct this from the amount that you are claiming this time. The result is the amount that you will need to enter in the ‘claim amount’ box on the claim form. You will also need to enter the amount that you have overclaimed in the ‘overclaim’ box. For example, if you are making a claim for July 2021 for £20,000 and you have realised that you overclaimed £2,000 for June 2021, you will need to enter ‘£18,000’ in the claim box. This is the net amount that you are claiming for July 2021 after adjusting for the overclaim. You will also need to enter ‘£2,000’ in the overclaim box.

Paying HMRC back

You should only make a payment direct to HMRC if you do not have further claims to make and are not able to repay the amount that you owe by adjusting a subsequent claim. Before making a payment, you will need to get a payment reference from the online service. It is important that you use the correct reference.

Payments can be made to the following HMRC account using faster payments, CHAPS or Bacs:

• sort code: 08 32 10;
• account number: 12001039;
• account name: HMRC Cumbernauld.

Payments can also be made by debit card or using a corporate credit card (but not a personal credit card).

Deadlines

If you have overclaimed, you must tell HMRC by the later of:

• 90 days after the date on which you received the money to which you were not entitled; and
• 90 days from the date on which you ceased to be eligible to keep the grant because your circumstances changed.

To avoid being charged a penalty, you will need to notify HMRC and repay the overclaimed grant within this time frame.

We can help

Get in touch to find out how we can help you sort out any mistakes you have made when claiming grants under the CJRS.

SEISS grant 5

Claims for the fifth grant under the Self-Employment Income Support Scheme (SEISS) will open from late July. If, based on your tax returns, HMRC think that you are eligible for the grant, they will contact you in mid-July and give you a date from which you can submit your claim. The fifth grant will cover the period from May 2021 to September 2021. However, unlike previous grants, the amount of this grant will depend on the extent to which you suffered a reduction in your turnover in the year from April 2020 to April 2021 as a result of the impact of the COVID-19 pandemic.

Eligibility

If you are a self-employed individual or an individual member of a partnership and you meet the eligibility criteria, you will be able to claim the fifth and final SEISS grant. To qualify, you must have traded in 2019/20, and also in 2020/21. You must either be trading currently, or have been trading but are unable to do so temporarily as a result of COVID-19 restrictions. In addition, you must have filed your 2019/20 tax return by midnight on 2 March 2021.

As previously, you will only qualify for the grant if your trading profits are not more than £50,000 and they account for at least 50% of your total income. In deciding whether this test is met, HMRC will look first at your return for 2019/20. If you are not eligible based on your 2019/20 income, HMRC will then look at your returns from 2016/17 to 2019/20 inclusive and work out whether you are eligible based on your average income for those years.

When making your claim, you must declare that:

• you intend to trade; and
• you reasonably believe that there will be a significant reduction in your trading profits due to reduced business activity, capacity, demand or the inability to trade as a result of COVID-19 during the period from May 2021 to September 2021.

Amount of the grant

If you meet the eligibility conditions, the amount of your grant will depend on the extent to which your turnover fell as a result of the COVID-19 pandemic during the year to April 2021.

Turnover fallen by at least 30%

If your turnover fell during this period by at least 30% as a result of the impact of the pandemic, your fifth grant will be worth 80% of three months’ average trading profits, subject to a maximum grant of £7,500.

Turnover fallen by less than 30%

If your turnover fell in the year to April 2021 as a result of the impact of COVID-19, but by less than 30%, you will be able to claim a grant worth 30% of three months’ trading profits, subject to a maximum grant of £2,850.

Need to keep records

You should keep evidence in support of your claim, showing how your business has been affected by the COVID-19 pandemic, and the extent to which your turnover and profits have fallen as a result.

Get in touch

Although HMRC’s rules do not allow us to claim the grant on your behalf, we can check whether you are eligible, and, if you are, help you work out the extent to which your turnover has fallen as a result of the pandemic, and the amount that you are able to claim.

Recovery loan scheme

If you need to access finance to help your business recover from the effects of the COVID-19 pandemic, the Recovery Loan Scheme may be for you.

Nature of the scheme

The Recovery Loan Scheme is designed to provide access to finance in order to support businesses as they recover from the disruption caused by the COVID-19 pandemic. Although, as the borrower, you will remain liable for 100% of the debt, to encourage lenders to participate in the scheme, the Government provides a guarantee to the lender for 80% of the finance.

Eligibility

You may be eligible for a Recovery Loan if your business is trading in the UK. To qualify, you must be able to demonstrate that your business would be viable were it not for the pandemic and that your business has been adversely affected by the pandemic. Furthermore, you must not be in collective insolvency proceedings.

You can still apply for a Recovery Loan if you have already taken out a Bounce Back Loan or a Coronavirus Business Interruption loan.

Available finance

Finance is available under the Recovery Loan Scheme for:

• term loans and overdrafts of between £25,001 and £10 million per business; or
• invoice or asset finance of between £1,000 and £10 million per business.

You will not need to provide a personal guarantee on facilities of up to £250,000, and where a personal guarantee is required, your main residence will not be taken as security.

The loan period depends on the type of finance provided. The maximum period is set at three years for overdrafts and invoice finance facilities and at six years for loans and asset finance facilities.

How to apply

Applications are made direct to the lender. You can find an accredited lender offering Recovery Loans on the Business Bank website.

We can help

Contact us to find out how we can help you address your financing needs.

Further grants available under the SEISS

The Self-Employment Income Support Scheme (SEISS) provides grant support to eligible self-employed taxpayers who have been adversely affected by the COVID-19 pandemic. A further two grants are to be paid under the scheme. In addition, the scheme has been expanded to include those who commenced self-employment in 2019/20. Guidance on the grants can be found on the Gov.uk website.

Fourth grant

The fourth grant covers February, March and April 2021 and is worth 80% of average profits for three months, capped at £7,500. The grant can be claimed from late April 2021, and will be paid in a single instalment. The claim window will run until 31 May 2021.

A trader will be eligible to claim if they have been adversely affected by the COVID-19 pandemic. This test will be met if the trader is currently trading but has suffered reduced demand as a result of the pandemic, or if they have been trading but are unable to do so temporarily due to Coronavirus. Suffering additional costs where demand has not fallen does not qualify the trader for the grant.

As previously, a trader can only benefit from the scheme if their trading profits are no more than £50,000 and comprise at least 50% of the trader’s total income. HMRC will look first at the trader’s profits as returned on their tax return for 2019/20. Where these are more than £50,000, HMRC will look at average profits over 2016/17 to 2019/20. The rules are modified if the trader did not trade in all of those years.

Fifth grant

The fifth and final grant covers the period from May to September 2021. Unlike the previous grants, the amount of the fifth grant depends on the extent to which turnover has fallen as a result of the COVID-19 pandemic. Traders will be able to claim the fifth grant from late July.

Turnover has fallen by at least 30%

Where the trader’s turnover has fallen as a result of the COVID-19 pandemic by at least 30%, the fifth grant will be worth 80% of three months’ average profits capped at £7,500.

Turnover has fallen by less than 30%

Traders who have been less severely affected by the pandemic will receive a lower grant. Where turnover has fallen by less than 30%, the fifth grant will be worth 30% of three months’ average trading profits, capped at £2,850.

The Government will publish further details on the fifth grant in due course.

Newly self-employed

When initially launched, the scheme was only available to traders who had filed their 2018/19 self-assessment tax return by 23 April 2020. However, as the deadline for filing the 2019/20 tax return has now passed, taxpayers who commenced self-employment in 2019/20 are able to claim the fourth and fifth grants, as long as they meet the usual eligibility criteria and they traded in both 2019/20 and 2020/21 and submitted their 2019/20 tax return by midnight on 2 March 2021.

Contact us

Contact us to find out whether you are eligible for the fourth and fifth grants under the SEISS, and what the grant is worth to you.

CJRS extended until 30 September 2021

The Coronavirus Job Retention Scheme (CJRS) has provided a lifeline for many employers and employees during the COVID-19 pandemic. The scheme was due to come to an end on 30 April 2021. However, at the time of the 2021 Budget, the Chancellor, Rishi Sunak, announced that the scheme would, once again, be extended. It will now run until 30 September 2021.

Nature of the scheme

The CJRS allows employers to furlough or flexibly furlough employees, and to claim a grant for the usual hours that they do not work. The employee receives 80% of their normal pay for their unworked hours, subject to a cap equivalent to £2,500 a month. The employer can claim some or all of this amount, depending on the month to which the claim relates. Where an employee is flexibly furloughed, the employer must pay the employee for the hours that they work at their usual rate.

Final phase of the scheme

The final phase of the scheme runs from 1 May 2021 to 30 September 2021. The amount that the employer can claim under the scheme remains unchanged for May and June, but reduces from July onwards once lockdown restrictions are lifted. Guidance on changes to the scheme from July can be found on the Gov.uk website.

Grant claims – May and June 2021

For May and June 2021, employers can continue to claim 80% of the employee’s pay for their unworked hours, up to the monthly cap of £2,500 (reduced proportionately where the employee is not fully furloughed for the full month). The employee must continue to be paid in full for any hours that they work, and also 80% of their pay up to the level of the cap for any usual hours that are unworked in the month.

Grant claim – July 2021

From July onwards, the employer is required to contribute to the payments made to furloughed and flexibly furloughed employees for their unworked hours.

For July 2021, the amount that the employer can claim under the CJRS for the employee’s unworked hours is reduced to 70% of their usual pay for those hours, subject to a cap of £2,187.50 per month (reduced proportionately where the employee is not fully furloughed for the full month). However, the employee will continue to receive 80% of their usual pay for their unworked hours, subject to the monthly cap of £2,500. This means that the employer must make up the difference of 10% (capped at £312.50 per month) between the amount claimed under the CJRS and the amount paid to the employee.

Grant claims – August and September 2021

The amount that the employer can claim is further reduced in the final two months of the scheme. For August and September 2021, the employer can claim a grant of 60% of the employee’s usual pay for their unworked hours, subject to a cap of £1,875 per month (proportionately reduced where the employee is not fully furloughed for the full month).

The employer must continue to pay the employee 80% of their usual pay for their unworked hours. Consequently, the employer must top up the grant claimed from the Government, contributing 20% of the employee’s usual pay for their unworked hours (up to £625 per month).

We can help

We can help you work out what support you can claim for your employees as lockdown restrictions are eased and the CJRS is wound down.

Self-assessment late payment penalty

HMRC announced in January that they would not charge a late filing penalty if your 2019/20 tax return was not filed by midnight on 31 January 2021, as long as the return was filed by 28 February 2021. Any tax due by 31 January 2021 should still have been paid by that date, unless a time-to-pay arrangement had been agreed.

Where tax is paid late, interest is charged from the due date (31 January) until the date of payment. Penalties may also be charged. However, this year, a late payment penalty will not be charged as long as the tax is paid by 1 April 2021, or a time to pay agreement set up by that date.

Interest on late paid tax

Interest is charged from 1 February 2021 on any amounts unpaid at that date. This is the case regardless of whether or not a time-to-pay arrangement is in place.

Late payment penalty waived

The first late payment penalty – set at 5% of the unpaid tax – is normally charged where the tax remains unpaid after 30 days. However, HMRC have announced that the late payment penalty will be waived as long as the tax is paid, or a time-to-pay arrangement is agreed, by 1 April 2021.

You can set up a time-to-pay arrangement online.

Speak to us

Speak to us if you have unpaid tax and you need help in setting up a time-to-pay arrangement.

Business interruption insurance pay-outs

Business interruption insurance policies provide cover for losses that arise if a business is severely disrupted or is forced to close. The policy will cover losses that arise as a result, and also fixed costs that the business has to continue to pay while shut.

Many businesses that expected their policies to pay out when they were forced to close as a result of the COVID-19 pandemic found that their insurers did not agree. A sticking point for many was the policy wording, which often excluded diseases unless the disease was named.

FCA test case

To provide some clarity as to whether closures due to COVID-19 were covered, the Financial Conduct Authority (FCA) took forward a test case. A ruling in the Supreme Court found predominantly in favour of the policyholders, paving the way for compensation payments to be made.

Tax implications

The tax treatment of any receipts received under a business interruption insurance policy will depend on the nature of those receipts, and also whether the associated insurance premiums were deductible.

Deductibility of premiums

As a general rule, insurance premiums will be deductible in calculating the profits of the business if the premiums are incurred wholly and exclusively for the purposes of the business. If you have taken out business interruption insurance, it is likely that this test is met and you can deduct the cost of the premiums when working out your taxable profits.

Taxability of receipts

HMRC have confirmed that in most situations, where the premium is deductible, any receipts paid out under the policy will be taxable. If you have received a pay-out to compensate you for profits lost as a result of having to close your business during the COVID-19 pandemic, you should include the receipt as a trading receipt when working out your taxable profits.

If you prepare accounts using the cash basis, the receipt should be taken into account in the period in which you received it. However, if you use the accruals basis, the usual rule is that the receipt should be taken into account in the period to which it relates. This would normally be when the business was closed, but where it was not certain that the payment would be made, it should be reflected in the accounts from the date that this became clear, if later.

Can we help?

If you have received a pay-out under a business interruption insurance policy and are unsure how it should be treated for tax purposes, please get in touch.

File your tax return by 28 February

The normal deadline for filing the 2019/20 tax return is 31 January 2021. However, HMRC announced in a press release issued on 25 January 2021 that they would not issue a late filing penalty as long as the 2019/20 tax return is filed online by 28 February 2021. However, any tax due by 31 January 2021 must still be paid on time.

Extended deadline

Jim Harra, Chief Executive of HMRC, confirmed that taxpayers will not receive a penalty for the late filing of their 2019/20 tax return, as long as the return is received online by 28 February 2021. HMRC have previously resisted attempts to extend the deadline due to the pressures imposed by the COVID-19 pandemic. The change of heart came late in the day as HMRC accepted that it had become increasingly clear that people were struggling to meet the 31 January deadline. The extension will provide taxpayers with breathing space to complete their returns.

Normally, a penalty of £100 is issued automatically if the return is filed after midnight on 31 January.

No change to tax payment deadline

Despite the relaxation to the filing deadline, any tax due by 31 January 2021 must still be paid by this date. This will include any remaining tax due for 2019/20, including the July 2020 payment on account where this was delayed, and also the first payment on account for 2020/21. Interest will run from 1 February 2021 on any tax paid late

Taxpayers struggling to pay their tax in full and on time can set up a Time to Pay arrangement and pay what they owe in instalments. You can do this online if the tax that you owe is £30,000 or less. However, you will need to file your return before you can set up an instalment plan.

Speak to us

Speak to us if you need help filing your 2019/20 tax return or setting up a Time to Pay arrangement.

Furloughing staff unable to work due to school closures

The Coronavirus Job Retention Scheme (CJRS) provides grant support to enable employers to continue to pay staff who are fully or flexibly furloughed. The scheme can be used for staff who have been furloughed because they have caring responsibilities.

School closures

On 4 January 2021, the Prime Minister, Boris Johnson, announced that England would enter its third national lockdown the following day. Unlike the last lockdown, schools are also closed, other than for the children of key workers and for vulnerable children. This places a caring responsibility on parents, who need to look after their children and undertake home schooling.

If you have employees who need to care for and home school their children and who are unable to work as a result, you are able to furlough them and claim a grant under the CJRS. Likewise, where an employee needs to work fewer hours in order to fulfil their parental responsibilities while schools are closed, you can flexibly furlough the employee and use the CJRS to claim a grant for the employee’s usual hours that they do not work.

Eligible caring responsibilities

In their guidance on the CJRS, the Government have confirmed that an employee can be furloughed if their caring responsibilities mean that the employee is unable to work (including being unable to work from home) or can only work reduced hours. The guidance cites caring for children who are at home as a result of school or childcare facilities closing as an example of caring responsibilities that might arise as a result of COVID-19.

Claiming the grant

You can claim a grant of 80% of the employee’s usual wages for their unworked hours, to a maximum of £2,500 a month. Claims must be made for each calendar month by the 14^th of the following month (or the next working day if this falls on the weekend).

Talk to us

If your employees are struggling to juggle childcare and their job, talk to us about the option of furloughing or flexibly furloughing them and claiming a grant through the CJRS.

New COVID-19 grants for closed businesses

England went into the third national lockdown on 5 January 2021. To help business affected, the Chancellor unveiled a £4.6 billion package to help businesses forced to close. The grants are in addition to the monthly support payments previously announced.

Cash grant for closed businesses

If your business is in a sector such as non-essential retail, leisure or hospitality, and you have been forced to close as a result of the latest lockdown, you may be eligible for a one-off cash grant. The grant is available to businesses with business premises that are required to close and which cannot operate remotely. The amount of the grant depends on the rateable value of the property. Businesses with more than one property will receive a grant for each closed property.

If the rateable value of your business premises is £15,000 or less, you will receive a cash grant of £4,000. This increases to £6,000 if your business premises have a rateable value of between £15,000 and £51,000. If your business premises have a rateable value of more than £51,000, you will receive the maximum grant of £9,000.

On-going support payments

In addition to the one-off cash grant, you may also be entitled to on-going support from your local council. You will qualify if your business is based in England and you occupy premises on which you pay business rates, your business has been forced to close as a result of national restrictions and you are unable to provide your usual in-person customer service from your premises. This may include you if your business is in the retail, leisure, tourism or hospitality sectors, or if you provide sports facilities or personal care. You may also qualify if, for example, you run a restaurant and move to providing takeaways instead.

You will not be eligible for the on-going support payments if you can continue to operate remotely, or if you chose to close voluntarily.

Separate support measures are available for businesses in Scotland, Wales and Northern Ireland.

The amount of support that you will receive depends on the rateable value of your business premises.

If your business property has a rateable value of £15,000 or less, you may be entitled to a cash grant of £2,001 for each 42-day period for which qualifying restrictions apply. The grant is increased to £3,000 for each 42-day restriction period if your property has a rateable value of more than £15,000 but less than £51.000, and to £4,500 for the same 42-day period if your rateable value is more than £51,000.

Applications for the grant should be made to your local authority.

Contact us

Contact us for help in understanding what support you are entitled to receive and how to obtain it.

Furnished holiday lettings and lockdowns

The second National Lockdown and local restrictions may mean that you are unable to meet the tests for your holiday let to qualify as a furnished holiday letting (FHL) for 2020/21. However, where this is the case, all is not lost as there are alternative routes by which your let might meet the FHL requirements.

FHL tests

To qualify for the more advantageous FHL tax regime, your property must be let commercially, let furnished, and it must be in the UK or the EEA. It must also meet all of the following occupancy conditions.

1. The pattern of occupancy condition – the total of all lettings that exceed 31 continuous days in the tax year cannot be more than 155 days.
2. The availability condition – your property must be available for letting as furnished accommodation for at least 210 days in the tax year. Days that you stay in the property do not count.
3. The letting condition – your property must be let commercially as furnished holiday accommodation for at least 105 days in the tax year (excluding lets of more than 31 days and days occupied cheaply or free by family and friends).

If you have failed to meet the letting condition in 2020/21 due to the impact of the COVID-19 pandemic, you may be able to make an averaging and/or a period of grace election to help you reach the magic number. HMRC Helpsheet HS253 contains further details.

Averaging election

If you have more than one property that you let out as furnished holiday accommodation, you may be able to use an averaging election to help all your properties to qualify. This will be the case if some but not all of the lets meet the letting condition. An averaging election allows the condition to be met by reference to the average occupancy across all your holiday lets. For example, if you have three holiday lets and the total number of days in the tax year on which the properties are let as furnished holiday accommodation is at least 315 days, all 3 properties will meet the requirement. The average let will be at least 105 days.

An averaging election for 2020/21 must be made by 31 January 2023.

Period of grace election

A period of grace election can be made as well as, or instead of, an averaging election. It will help if you genuinely intended to meet the letting conditions, but were unable to do so, for example, because of the impact of the COVID-19 pandemic.

To qualify, the property must have met the letting requirement for the year before the year for which you first wish to make a period of grace election; so, if the first year for which an election is required is 2020/21, the letting condition must have been met (individually or as a result of an averaging election) in 2019/20. A second election can be made for 2021/22 if the condition is not met again in that year. However, your property must meet the requirement in 2022/23 if it is to continue to qualify as a FHL.

As with an averaging election, a period of grace election for 2020/21 must be made by 31 January 2023.

Talk to us

Contact us to discuss how you can ensure that your holiday let qualifies for the favourable FHL tax regime.

Virtual Christmas parties and tax-free gifts

The COVID-19 pandemic has meant that the traditional Christmas party could not happen in 2020. If, instead, you held a virtual event, you will be pleased to know that this too can benefit from the tax exemption for annual parties and functions. There is also good news if you opted to give your staff a seasonal gift, as this may fall within the scope of the trivial benefits exemption.

Virtual Christmas parties

The tax exemption for annual parties and functions means that your staff can enjoy a Christmas party without having to worry about an associated benefit-in-kind tax charge as long as the cost per head (including VAT) is £150 or less and the event is open to all staff (or all staff at a particular location).

The COVID-19 pandemic has meant that large in-person events are off the menu this year. If, like many other organisations, you chose not to forgo the Christmas party entirely and held an online event instead, your virtual event will fall within the scope of the exemption for annual parties and functions, as long as the associated conditions have been met. HMRC have confirmed that where the event is provided using IT, the exemption will cover the costs of the event, including the provision of equipment, entertainment and refreshments, as long as they are provided principally for the enjoyment or consumption by employees during the event.

If a virtual event is not for you, the exemption will also apply if you delay the Christmas party and hold a later event instead, as long as it is held before the end of the current tax year.

Where the conditions for exemption have been met, you do not need to report the virtual event to HMRC on your employees’ P11Ds, or include it within a PAYE Settlement Agreement.

Seasonal gifts

If, as a gesture of goodwill, you gave your employees a Christmas gift, as long as the cost of providing that gift is not more than £50, it will fall within the scope of the trivial benefits exemption. This is good news; there is no tax to pay and you do not need to report the gift to HMRC.

The choice of gift is up to you, and traditional seasonal gifts, such as a turkey or a hamper, can be given within the scope of the exemption, as long as they do not cost you more than £50 to provide. If you provide gifts to a number of employees and it is impracticable to work out the individual cost, the average cost can be used instead.

There are, however, some points to watch. The exemption does not apply to gifts of cash or cash vouchers, or to those given as a reward for the provision of services or where the employee is contractually entitled to the gift. Care must also be taken when giving gift cards if these can be topped up; in this case, HMRC regard the cost to be the total cost in the tax year, rather than the cost of each individual top-up. Similar considerations apply to the use of apps to buy goods and services and to season tickets.

Get in touch

Talk to us to find out whether your Christmas events and gifts for employees are exempt from tax.

SEISS grant increased

The Self-Employment Income Support Scheme (SEIS) will now run until 30 April 2021, providing two further grants – one for the three months from 1 November 2020 to 31 January 2021 and one for the three months from 1 February 2021 to 30 April 2021. Since the extension to the scheme was originally announced, the amount of the first of these grants has been increased several times. The amount of the final grant has yet to be set.

Amount of the third grant

The third grant payable under the SEISS will now be set at 80% of three months’ average trading profits, capped at £7,500.

As for the first two grants, the amount of the third grant is calculated by reference to average profits over the 2016/17, 2017/18 and 2018/19 tax years, with the calculation modified if you did not trade in all three of these years.

Claiming the grant

The qualifying conditions for the scheme remain the same. You can claim the third grant if you are currently actively trading but demand has fallen as a result of Coronavirus, or if you were trading previously, but are unable to do so as a result of Coronavirus. You do not need to have made a previous claim.

You can claim the third grant from 30 November 2020.

How we can help

Although we cannot make the claim on your behalf, we can help you work out whether you are eligible for the third grant and the amount to which you are entitled. Get in touch to find out more.

CJRS extended until March 2021

The Coronavirus Job Retention Scheme (CJRS) was due to come to an end on 31 October 2020, being replaced from 1 November 2020 with a new scheme – the Job Support Scheme. However, the second national lockdown in England changed all that. The CJRS has been reprieved and will now continue to run until 31 March 2021, while the Job Support Scheme has been put on hold.

Eligibility under the extended scheme

You will be able to claim a grant for eligible employees who are fully or flexibly furloughed under the extended scheme if you had a UK PAYE scheme on 30 October 2020 and have a UK bank account. You do not need to have made a claim previously to be eligible to claim for periods starting on or after 1 November 2020

You can make a claim in respect of an employee, if the employee was on your payroll at 11.59pm on 30 October 2020 and you had made an RTI submission in respect of that employee between 20 March 2020 and 30 October 2020. Employees who are made redundant or who left on or after 23 September 2020 can also benefit from a grant under the scheme if you re-employ them, as long as you had made an RTI submission in respect of them between 20 March 2020 and 23 September 2020.

You do not need to have previously furloughed an employee and made a claim under the scheme on their behalf to claim a grant for them under the extended scheme.

Amount of the claim

The good news is that for the first phase of the extended scheme, which runs from 1 November 2020 to 31 January 2021, you can once again claim the full 80% of the employee’s usual wages for their furloughed hours (subject to the cap, set at £2,500 a month) – there is now no obligation for you to top up the amount claimed, as was the case for October and September.

As previously, the employee will receive 80% of their usual pay for their furlough hours (up to the cap). You must pass on the full amount of grant to the employee. Where the employee is flexibly furloughed, you must continue to pay them at their usual rate for the hours that they work, in addition to payment of the CJRS grant.

The amount of support that will be provided under the scheme for February and March 2021 has yet to be set; the Government are to review this in January 2021.

Calculating the claim

The amount that you can claim in respect of an employee’s furloughed hours depends on the usual hours that they work and their usual rate of pay. This can be complex. Guidance on working out what you can claim is available on the Gov.uk website.

Tax and National Insurance

You must deduct PAYE tax and employee’s National Insurance from grant payments that you make to your employees. You must also calculate and pay employer’s National Insurance on grant payments. Unfortunately, you cannot claim this back from the Government and must meet this cost yourself.

Making the claim

As previously, you will need to make your claim online via the claim portal. Claims must be for a minimum period of seven consecutive days and must start and finish in the same calendar month. If you use an authorised agent to file your RTI submissions, they can make the claim on your behalf.

You should be aware that tighter deadlines apply for making claims under the extended scheme – for pay periods starting on or after 1 November 2020, claims must be made by the 14^th of the following month. Where this date falls on a weekend, the deadline is the following Monday. The following table shows the claim deadlines for making claims under the extended scheme.

The money should reach your account within six working days of the day on which you made your claim, so remember to allow sufficient time so that you have the money available to pay your employees on time.

Claims for July to October 2020 had to be made by 30 November 2020.

Job Retention Bonus

The extension of the CJRS means that you will now not be able to claim a Job Retention Bonus in February 2021.

Can we help?

Speak to us if you are unsure whether you are able to make a claim under the extended scheme or if you need help in working out what you can claim.

More time to pay your tax bills

In his Winter Economy Plan, the Chancellor, Rishi Sunak, unveiled measures which will allow self-assessment taxpayers and VAT-registered businesses more time to pay back deferred tax.

New Payment Plan for VAT

At the start of the pandemic, VAT-registered business could delay paying VAT where it fell due between 20 March 2020 and 30 June 2020. VAT falling due after that date – i.e. that for VAT quarters ending on or after 31 May 2020 – must be paid in full and on time.

Under the original proposals, if you took advantage of the opportunity to defer paying your VAT due to Coronavirus, you had until 31 March 2021 to pay it. However, if this is likely to be difficult, you can take advantage of the New Payment Plan for VAT and instead pay your deferred VAT in 11 interest-free instalments over the 2021/22 tax year. This will mean that you will have an additional year – until 31 March 2022 rather than 31 March 2021 – to pay the full amount. To take advantage of the instalment option, you will need to opt in. HMRC will publish details of how to do this over the coming months.

Enhanced Time-to-Pay for self-assessment

If you owe tax under self-assessment, you will be able to use enhanced Time-to-Pay arrangements to set up a monthly repayment plan online, without the need to call HMRC. Taxpayers can now use this service as long as they do not owe more than £30,000 in tax. Previously, the service was only available to taxpayers owing £10,000 or less.

Self-assessment taxpayers were able to opt to delay the second payment on account for 2019/20, which was due by 31 July 2020. Under the original proposals, the deferred tax had to be paid by 31 January 2021, together with any balancing payment for 2019/20 and the first payment on account for 2020/21.

If you need more time to pay your tax, you can use HMRC’s self-service facility to set up a Time-to-Pay plan. This will give you an additional 12 months (until 31 January 2022) in which to pay the second payment on account for 2019/20, any balancing payment for 2019/20 and the first payment on account for 2020/21.

Get in touch

Contact us to find out how we can help you set up payment plans and budget for your tax bills.

Further extension to the SEISS

To help self-employed individuals who continue to be affected by the COVID-19 pandemic, the Self-Employment Income Support Scheme (SEISS) has been extended for a further six months, from November 2020 to April 2021.

Grants payable under the extended scheme

The extended scheme will provide two taxable grants for the self-employed. Availability of the grants is limited to those who meet the eligibility conditions for the scheme and who are actively continuing to trade, but are facing reduced demand as a result of COVID-19.

The first grant covers the three-month period from 1 November 2020 to 31 January 2021. It will be based on 40% (rather than 20%, as originally announced) of average monthly profits for a period of three months, capped at £3,750 in total.

The second grant will cover the three-month period from 1 February 2020 to 30 April 2021. The level of the second grant has yet to be set.

As with the earlier grants, any grant that you receive under the extended scheme is taxable and subject to National Insurance.

HMRC are to provide details in due course on claiming the grants.

Talk to us

Contact us to find out whether you are eligible for a grant under the extended SEISS scheme.

Job Support Scheme

The Job Support Scheme replaces the Coronavirus Job Retention Scheme from 1 November 2020. The scheme, which has already evolved since it was originally announced to provide a greater level of support, will run for six months until 30 April 2021. The Government will review the level of support provided under the scheme in January 2021.

Nature of the scheme

The Job Support Scheme provides grants to eligible employers to enable them to pay employees who are working reduced hours as a result of the impact of the COVID-19 pandemic, or who are unable to work because the business has been required to shut as a result of lockdown restrictions. There are two strands to the scheme – one for open businesses and one for closed business.

Support for open businesses

The Job Support Scheme for open businesses allows you to claim a government grant to top-up the wages of your employees who are working at least 20% of their usual hours. You must pay the employee for the hours worked at their contracted rate. To be eligible to claim a grant, you must also pay the employee for 5% of their usual hours that are unworked, again at the contracted rate. Your contribution for unworked hours is capped at £125 per month. You can claim a grant for 61.67% of the employee’s unworked hours from the Government. The Government will pay those hours at the employee’s usual rate, subject to a cap of £1,541.75 per month. The cap will apply where the employee earns more than £3,125 per month.

Your employee will receive pay for the hours worked and for two-third of their usual hours that they are not able to work. The percentage of their normal pay that an employee receives depends on the proportion of their usual hours that they work. An employee who works 20% of his or her usual hours will receive 73% of their pay, whereas an employee who works one-third of their usual hours will receive just under 78% of their pay.

The level of support now available under the scheme is higher than was originally announced. Under the original proposals, employees had to work at least one-third of their usual hours to be eligible for a grant, with the employer paying one-third of the unworked hours and the Government paying a further third (capped at £697.62 per month). The reduction in the hours worked requirement, and the substantial reduction in the employer contribution, are to be welcomed. In its original format, the costs imposed on the employer would have meant that for many businesses struggling to survive, the scheme was not viable.

Amounts paid to employees benefitting from the Job Support Scheme are liable to tax and National Insurance, as for usual payments of wages and salary. You must account for these as normal through your payroll and pay the deductions over to HMRC, with your employer’s National Insurance. You will be required to meet the full cost of the employer’s National Insurance on the total payment made to the employee, including the grant element – you cannot claim this back from the Government. Pension contributions under auto-enrolment must be paid as normal, as must the apprenticeship levy.

More details of the scheme, together with examples of how it will work in practice, can be found in the factsheet published by the Government.

Support for closed businesses

The Job Support Scheme for closed businesses provides a higher level of support to business which are required to close as a result of local lockdown restrictions, such as pubs not serving substantial meals in Tier 3 lockdown areas. If your business is restricted to delivery or collection services only as a result of lockdown restrictions, you will also qualify for the scheme for closed businesses.

If you are forced to close due to lockdown restrictions imposed by one of the four governments in the UK, you will be able to claim a grant with which to pay your employees, as long as your employees are instructed to cease work for at least seven consecutive days, and actually do so. You cannot claim a grant for employees who are working from home.

Unlike the open scheme, you do not need to pay the employee for any unworked hours. Instead, you can claim a grant of two-thirds of the employee’s usual pay, subject to a cap of £2,100 per month. The grant will cover wages paid to employees who are unable to work. The scheme will mean that workers who are not subject to the cap will receive two-third of their usual pay. You can top up your employees’ pay if you want to, but there is no obligation to do so.

You will, however, have to pay employer’s National Insurance on grant payments, and also any employer pension contributions and the apprenticeship levy as normal. You must deduct PAYE tax and employee’s National Insurance contributions from payments made to employees, and report pay and deductions to HMRC under RTI.

The Government factsheet on the scheme for closed businesses provides more details.

Eligible employers

You will be eligible to claim a grant under the relevant Job Support Scheme if you have a UK bank account and a UK PAYE scheme which was registered, and in respect of which an RTI submission had been made, on or before 23 September 2020. You do not need to have used the Coronavirus Job Retention Scheme to be eligible to use the Job Support Scheme.

Under the scheme for open businesses, a financial impact test applies to large businesses with 250 or more employees. If you fall into this category, you will have to demonstrate that your turnover is not above the level that it was before you experienced difficulties as a result of the COVID-19 pandemic.

If you claim under the Job Support Scheme, you will still be eligible to claim the Job Retention Bonus, as long as the qualifying conditions are met.

Claiming the grant

Grants are payable in arrears. Unfortunately, this means that you must pay the money to your employees before you receive it back from the Government, and report the payments and deductions to HMRC via RTI. While this will limit fraudulent claims, it may cause cash flow problems for businesses who have either been forced to close or are operating at reduced capacity. You may need extra funding to cover the first month. Grants payable to businesses in Tier 2 and 3 lockdown areas may help bridge the gap.

Claims must be made online via the dedicated portal, which is due to open on 8 December 2020. Claims will be paid on a monthly basis.

Speak to us

Speak to us to find out what help may be available to you under the Job Support Scheme.

Back to the office – what about homeworking equipment?

When your employees return to the office, they may no longer need the homeworking equipment that enabled them to continue to work during lockdown and beyond. Are there any tax implications if they return the equipment or if they keep it?

Employer provided the homeworking equipment

If you provided equipment to enable your employees to work from home, as long as you retained ownership of that equipment, there are no tax implications if the employee returns the equipment to you when they come back to the office.

For many, the experience of working from home has highlighted the benefits of flexible working. You may want your employees to be able to continue to work from home on a more flexible basis once the office is open, and for them to keep their homeworking equipment to enable them to do so. As long as you have not transferred ownership of the equipment to the employee, and the equipment continues to be provided predominantly to enable them to work from home, the provision remains tax-free – there is no taxable benefit and nothing to report to HMRC.

Should your employees no longer need to work from home and you let them keep the homeworking equipment for personal use, a tax charge will arise. The employee is taxed on the market value of the equipment, less anything that they pay for it. The benefit must be notified to HMRC on the employee’s P11D. However, if the employee buys the equipment from you for at least its current market value, there is no taxable benefit and nothing to report to HMRC.

Employer reimbursed homeworking equipment

The requirement to work from home where possible was implemented at very short notice. Consequently, it may not have been feasible for you to provide your employees with the equipment that they needed to work from home.

If, instead, your employees purchased homeworking equipment and you reimbursed them, there is no tax for them to pay on the reimbursed amount, as long as the equipment was purchased to enable them to work from home. Unless you required the employee to transfer ownership of the equipment to you, the equipment remains the employee’s equipment. Consequently, there is no tax charge if they keep it for personal use once they return to the office.

Employee buys the homeworking equipment

It may have been the case that your employees bought whatever they needed to be able to work from home and you did not meet the costs. In this situation, the equipment belongs to the employee and this remains the case if they keep it for personal use when they return to the office. There are no tax implications of employees keeping their own equipment.

Guidance on the tax treatment of homeworking equipment can be found on the Gov.uk website.

Speak to us

We can help you to determine the tax implications surrounding the future of homeworking equipment once your employees return to the office.

Statutory redundancy pay and furloughed employees

The Coronavirus Job Retention Scheme (CJRS) comes to an end on 31 October 2020. As the scheme winds down and employers start meeting some of the associated costs, they will face difficult decisions as to whether they can bring employees back to work or whether they need to make some employees redundant. New legislation has been introduced to ensure that furloughed employees do not lose out on certain statutory entitlements, including the right to statutory redundancy pay.

Nature of statutory redundancy pay

Employees who have at least two years’ continuous employment with their employer at the date on which they are made redundant are entitled to statutory redundancy pay. Where an employer operates a contractual redundancy pay scheme, they must pay employees redundancy pay which is at least equal to the statutory amount.

Where an employee has been placed on furlough prior to being made redundant, the time that the employee was furloughed counts as continuous employment in determining their entitlement to statutory redundancy pay.

The cost of statutory redundancy pay is met by the employer. From the employee’s perspective, it is tax-free as long as the £30,000 tax-free threshold for termination payments remains available.

How much is statutory redundancy pay?

An employee’s entitlement to statutory redundancy pay depends on the length of their service, their age and how much they are paid when they are made redundant. They are entitled to:

• one-and-a half weeks’ pay for each full year of service for which they were 41 or older;
• one weeks’ pay for each full year of service for which they were 22 or older but under 41; and
• half a week’s pay for each full year of service that they were under 22.

Service is capped at 20 years for the purpose of the calculation and counted backwards from the date of redundancy. Pay, too, is capped for the purposes of the calculation. For 2020/21, the cap is set at £538 per week, meaning that the maximum amount of statutory redundancy pay that must be paid in 2020/21 is £16,140 (20 x £538 x 1.5).

Where an employee’s pay varies, statutory redundancy pay is calculated by reference to average weekly pay for the 12 weeks prior to the date on which the employee was made redundant.

Pay and furloughed employees

During the COVID-19 pandemic, the CJRS allowed employers to place employees on furlough and to claim a grant with which to pay them from the Government. The grant was set at 80% of the employee’s pay to a maximum of £2,500 per month.

When calculating statutory redundancy pay for an employee who has been made redundant after a period of furlough, the employee’s ‘usual’ pay should be used, rather than the reduced pay that they may have received while on furlough. This will normally be the pay used to calculate the grant payable under the CJRS, typically their pay for February 2020 or, where their pay varies, their average pay for the 2019/20 tax year. Thus, if an employee whose normal pay is £300 per week is furloughed prior to being made redundant and receives £240 per week (80% of £300) while on furlough, the employee’s usual pay of £300 per week is used to calculate their statutory redundancy pay.

Contact us

We can help you work out whether your employees are entitled to statutory redundancy pay, and the level of pay which should be used to calculate their entitlement.

Correcting claims under the CJRS

HMRC have moved into the next phase of their compliance activity in relation to the Coronavirus Job Retention Scheme (CJRS) and have written to 3,000 employers who they believe may have either claimed more under the scheme than they were entitled to or who did not meet the conditions for making a claim.

Legislation introduced in the Finance Act 2020 provides HMRC with the authority to recover amounts overpaid under the CJRS.

Correcting incorrect claims

If you have made an incorrect claim under the CJRS, the onus is on you to correct the claim. HMRC have published guidance setting out what you should do if you have claimed too much or not claimed enough under the scheme.

What to do if you have claimed too much

The action that you need to take if you have claimed too much under the CJRS depends on when you made the claim and whether you will be making further claims under the scheme.

There is a limited window of 72 hours in which a claim can be deleted from the online claim service. Once this period has elapsed, if you have claimed too much under the scheme, you need to tell HMRC. If you will be making another claim under the scheme, this can be done in your next claim by adjusting that claim for the amount that you have over-claimed. Where this route is taken, you will need to keep records of the adjustment that you have made for six years. If you do not have another claim to submit, you should contact HMRC on 0300 322 9420 to arrange how to pay the money back.

Deadline for telling HMRC about an overpaid grant

To avoid being charged a penalty, you must tell HMRC about any overpaid grants under the scheme by latest of:

• 90 days from the date on which you received the grant to which you were not entitled;
• 90 days from the date on which you were no longer entitled to keep a grant that you had claimed because your circumstances had changed; and
• 20 October 2020.

Repaying any overpaid grant within this time frame will prevent a potential tax liability in respect of the over-claimed amount from arising.

What to do if you have not claimed enough

If you have made a mistake in working out your claim under the CJRS, you may have claimed too little. Where this is the case, you should contact HMRC by telephone on 0800 024 1222 to amend your claim. You should note that even if you have not claimed the full amount to which you are entitled back from HMRC, you must pay your employees the correct amount. Where a claim is increased, HMRC may carry out additional checks on the validity of the claim.

Recovery of overpaid amount

HMRC may recover the full amount of any overpaid grant which has not been repaid by making an assessment to income tax. The amount assessed must be paid no later than 30 days from the date of the assessment. Interest is charged if the amount is paid late. Late payment penalties may also be charged if the amount remains outstanding 31 days after the due date.

If an assessment is not made, the overpaid amount should be included on your corporation tax return or your 2020/21 self-assessment return, as appropriate.

Penalty for failing to tell HMRC about an overpaid grant

If you do not tell HMRC about an overpaid CJRS grant by the notification deadline, you might be charged a failure to notify penalty. The amount of the penalty will depend on whether you knew you had been overpaid and whether you attempted to hide it.

HMRC have stated that they will not charge a penalty if you did not know that you had been overpaid at the time, or if your circumstances changed so you stopped being entitled to the grant, as long as it is repaid by 31 January 2022 (sole traders) or within 12 months from the end of your accounting period (companies).

HMRC have published a factsheet which explains how they recover overpaid grants under the CJRS.

We can help

Speak to us about how we can help you check claims that you have made under the CJRS and correct any mistakes that you might have made.

Final SEISS grant

The Self Employment Income Support Scheme (SEISS) provides grants to self-employed taxpayers whose business has been adversely affected by the Coronavirus pandemic. Eligible taxpayers can now claim the second and final grant under the scheme. Grants paid out under the scheme are taxable.

Eligibility

To qualify for the second grant, you must be a sole trader or a partner in a partnership and your business must have been ‘adversely affected’ by the Coronavirus pandemic on or after 14 July 2020. As for the first grant, you must have:

• traded in the 2018/19 tax year and submitted your self-assessment tax return for that year no later than 23 April 2020;
• traded in the 2019/20 tax year; and
• traded in the 2020/21 tax year or intend to do so.

The scheme is only open to self-employed taxpayers whose income from self-employment comprises at least 50% of their total income and is not more than £50,000. The £50,000 limit is initially applied for 2018/19 and the test is met if profits for that year are £50,000 or below. However, where profits for 2018/19 are more than £50,000, average profits for 2016/17, 2017/18 and 2018/19 are considered. You will qualify if the average profits for these years do not exceed the £50,000 threshold.

If you meet the eligibility conditions for the second grant, you can make a claim, even if you did not claim for the first grant.

Meaning of ‘adversely affected’

The second grant is only available to businesses that have been ‘adversely affected’ by the Coronavirus pandemic on or after 14 July 2020. HMRC have published guidance, together with examples, setting out the circumstances in which they consider a business to have been ‘adversely affected’ by the pandemic.

As a general guide, a business will be ‘adversely affected’ if it has experienced lower turnover or higher costs as a result of Coronavirus. This may be because you were unable to work because you were sick, self-isolating, shielding or caring for someone because of the virus. The business may also suffer a reduction in trade or an increase in costs because of interruptions to the supply change, a reduction in customers or the need to incur additional costs to make the business COVID-secure or to meet social distancing requirements.

Need to keep records

To support a claim for the second grant under the SEISS, you should keep evidence to show how and when the business was ‘adversely affected’ by Coronavirus. This may include:

• business accounts showing a reduction in turnover or an increase in expenditure;
• confirmation of any Coronavirus-related loans that the business has received;
• any dates that the business had to close as a result of lockdown restrictions; and
• any dates that the staff were unable to work because they had Coronavirus symptoms, were self-isolating, shielding, or had caring responsibilities as a result of the virus.

How much is the second grant?

As with the first grant, the second grant is based on average profits over the three tax years 2016/17, 2017/18 and 2018/19. If you did not trade in 2016/17 or file a return for that year, the grant is based on average profits for 2017/18 and 2018/19; if you did not trade in 2017/18 or file a tax return for 2017/18, the grant is only based on profits for 2018/19, regardless of whether you traded in 2016/17.

The second grant is worth 70% of three months’ average profits, to a maximum of £6,570.

Claim online

HMRC have written to all traders who they believe to be eligible to make a second claim under the scheme, telling them the date from which they can make their claim. Claims can be made online via the claim portal, which opened on 17 August 2020. The last date on which a claim can be made under the scheme is 19 October 2020.

As with the first claim, you must make the claim yourself; claims by agents are not permitted. However, we can advise you on how to make the claim, whether you qualify and what records you need to keep.

Bonus for employers who retain furloughed staff

The Chancellor, Rishi Sunak, presented A Plan for Jobs at the time of the Summer Economic Update on 8 July 2020. This included incentives for employers who retain furloughed staff and who offer training and apprenticeships.

Job Retention Bonus

The Coronavirus Job Retention Scheme (CJRS) is now in its final phase. Government support under the scheme is withdrawn gradually from August and the scheme comes to an end on 31 October 2020. Where staff are still furloughed in October, employers will need to decide whether they can bring their furloughed employees back to work.

To encourage employers to retain furloughed staff, a bonus – the Job Retention Bonus – of £1,000 will be paid to the employer for each furloughed employee who is employed continuously from the end of the CJRS until 31 January 2021. However, to qualify for the bonus, the employer must pay the employee, on average, earnings that are at least equal to the lower earnings limit for Class 1 National Insurance purposes, set at £120 per week (£520 per month) for 2020/21.

The Government will pay the bonuses from February 2021.

The scheme is not without its critics, with Jim Harra, Chief Executive of HMRC, questioning whether it offers value for money. Some employers, including Primark and Rightmove, have stated that they will not claim the bonus.

Kickstart Scheme

The Chancellor also unveiled plans to fund a new Kickstart Scheme providing £2 billion of funding to create high-quality work placements aimed at young people between the ages of 16 and 24 who are on Universal Credit and who are deemed to be at risk of long-term unemployment. Funding for each job will cover 100% of the relevant National Minimum Wage for 25 hours a week, plus the associated employer’s National Insurance contributions and employer pension contributions under auto-enrolment (where relevant).

Traineeships

Funding of £111 million is to be made available to fund work placements and training for 16 to 24 year olds. The Government will pay employers who provide trainees with work experience £1,000 per trainee. The funding will expand the provision of and eligibility for traineeships for those with Level 3 qualifications and below.

Apprenticeships

Employers who hire new apprentices will also receive funding from the Government. Where employers take on a new apprentice between 1 August 2020 and 31 January 2021, they will receive a payment of £2,000 for each new apprentice under the age of 25 that they hire and £1,500 for each new apprentice aged 25 and over. These payments are in addition to the existing £1,000 provided by the Government for apprentices aged 16 to 18 and to those aged under 25 with an Education, Health and Care Plan.

Contact us

Contact us to find out how you can benefit from the incentives on offer.

New rules for claims under the CJRS

The second and final phase of the Coronavirus Job Retention Scheme (CJRS) runs from 1 July 2020 to 31 October 2020. During this phase, furloughed workers may return to work part-time under the flexible furloughing provisions. New rules also apply from 1 July 2020 to determine the length of the claim period.

Claims must start and finish in same calendar month

For claim periods ending on or before 30 June 2020, there was no maximum length for the period for which a claim could be made. However, for claim periods starting on or after 1 July 2020, claims must start and end in the same calendar month. This is because the amount payable under the scheme differs in each month as support under the scheme is phased out.

Where the furlough period for which a grant is being claimed spans more than one calendar month, the period must be split and two claims made. For example, if employees are furloughed for three weeks from 20 July 2020 to 9 August 2020, one claim should be made for the period from 20 July 2020 to 31 July 2020 (12 days) and a further claim should be made for the period from 1 August 2020 to 9 August 2020 (9 days).

Claim period must be at least seven days

Claims for periods starting on or after 1 July 2020 must cover at least seven days, unless the period spans more than one calendar month and the claim relates to the last few days in one month or the first few days in the next month. Where this is the case, a claim can only be made for fewer than seven days if the claim includes the first or the last day of the month, and a claim has been made for the period ending immediately before it.

Only one claim per period

Only one claim can be made for each period. This means that all furloughed or flexibly furloughed employees must be included in the same claim. Where a subsequent claim is made, the subsequent claim cannot overlap with other claims that have been made.

If an employee has been furloughed or flexibly furloughed continuously, the claim periods must follow on from each other with no breaks. For example, an employer could make a claim each week. The claim must include all employees furloughed or flexibly furloughed that week. The first day of the next claim period must be the day after the last day of the previous claim period.

Cap on number of employees

The number of employees who can be included in a claim for a period starting on or after 1 July 2020 cannot be more than the maximum number of employees under any claim ending on or before 30 June 2020. This is subject to an exception where an employee returns from statutory leave and is furloughed on their return.

We can help

We can help you work out your claim periods for claims under the CJRS and assist you in making the claim.

Reduced rate of VAT for hospitality sector

To support businesses and jobs in the hospitality sector, the reduced (5%) rate of VAT applies to supplies of food and non-alcoholic drinks from restaurants, pubs, bars, cafés and similar establishment across the UK for a temporary period from 15 July 2020 to 12 January 2021.

The reduced rate of VAT (5%) also applies to supplies of accommodation and admissions to attractions during this period.

Guidance on the application of the reduced rate can be found on the Gov.uk website.

Speak to us

If you operate in these sectors, talk to us about what the reduced rate of VAT will mean for you.

Option to defer July self-assessment payment on account

Taxpayers facing financial difficulties as a result of the COVID-19 pandemic can opt to delay making their second self-assessment payment on account for 2019/20, due by 31 July 2020. As long as the amount is paid in full, together with any outstanding balance for 2019/20, by 31 January 2021, HMRC will not charge any interest or penalties.

Requirement to make payments on account

Under the self-assessment system, taxpayers are required to make payments on account of their tax and Class 4 National Insurance liability if their self-assessment bill for the previous tax year was £1,000 or more, unless at least 80% of the tax owed for that year was deducted at source, for example, under PAYE.

Each payment on account is 50% of the previous year’s tax and Class 4 National Insurance liability. Although Class 2 National Insurance contributions are collected via the self-assessment system, they are not taken into account when working out payments on account. Payments on account are made on 31 January in the tax year and on 31 July after the end of the tax year, with any balance being paid by the tax return filing date of 31 January after the end of the tax year. If the payments on account are more than the eventual liability, the excess is refunded or set against the next year’s liability.

The first payment on account for 2019/20 was due by 31 January 2020. The second payment would normally need to be paid by 31 July 2020.

Option to defer

This year, taxpayers have the option to defer the second payment on account if they are finding it difficult to make the payment by 31 July 2020 due to Coronavirus. There is no obligation to defer – taxpayers can still make the payment by 31 July 2020 if they so wish.

Where a taxpayer takes the deferral option, the outstanding payment can be made whenever the taxpayer is able to meet the payment, as long as this is no later than 31 January 2021. Any balance owing for 2019/20 must be paid by the same time, together with the Class 2 National Insurance liability for the self-employed and the first payment on account for 2020/21.

Taxpayers choosing the deferral option do not need to tell HMRC – they simply pay the tax by 31 January 2021; nor do they have to provide evidence that they were adversely affected by the COVID-19 pandemic.

Guidance on the deferral option is available on the Gov.uk website.

Pros and cons

Delaying the payment will no doubt help those struggling as a result of the COVID-19 pandemic. Indeed, it may provide a lifeline for particular groups of taxpayers, for example, those who are self-employed and who do not qualify for a grant under the Self-employment Income Support Scheme and who have been unable to work due to the restrictions.

However, the deferred tax has to be paid eventually, and the payback for having nothing to pay in July is a big bill in January 2020. Not only will the deferred tax be payable then, but also any balance due for 2019/20 and the first payment on account for 2020/21.

Get in touch

It would be a pleasure to help you decide whether the deferral option would be beneficial to you and what it will mean for your cashflow come January 2021.

Changes to trading activities as a result of COVID-19

The COVID-19 pandemic and restrictions on trade have led many businesses to change what they do in a bid to survive. An example of this is the village pub opening instead as a local shop selling food and other essentials. Alternatively, a business may have ceased trading temporarily as a result of the lockdown.

HMRC have recently published guidance on the tax implications of crisis-driven changes to trading activities.

Nature of trade

When a business changes what they do, the tax implications will depend on whether the new activity is broadly similar to their previous activities or completely unrelated.

New trade

If a business has started something new which is completely different to their usual business, for example, a hairdresser starting to manufacture face masks, the business making face masks will be treated as a new separate business. The profits and losses should be calculated separately from those of the existing hairdressing business.

Existing trade

However, if a business starts to carry on a new activity that is broadly similar to its existing trade, the new activity should not be treated as a new business. Instead, profits and losses should be included when working out the profits and losses of the existing trade. An example of this would be a restaurant that instead offers a takeaway and delivery service.

Temporary break in trading

In the initial strict phase of the lockdown, many businesses were not allowed to trade. The list included those in the leisure and hospitality sector, non-essential shops, hairdressers, beauticians and barbers. As a result, the business will have a temporary break in its trade.

HMRC have confirmed that where a business closed its doors to customers or otherwise ceased trading as a result of the pandemic, the break will not be treated as a cessation of trade where the intention is to continue trading once the lockdown restrictions are lifted. However, this is conditional on the activities after the break being the same as, or similar to, those prior to the break. Any income and expenses relating to the gap in trading should be taken into account in calculating the profits or losses for the period.

Help and advice

Discuss the tax implications of any changes to or breaks in your trade with us.

Flexible furloughing

The Coronavirus Job Retention Scheme (CJRS) has provided a lifeline for many employees and employers during the COVID-19 pandemic. As at 21 June 2020, 9.2 million employees had been furloughed by 1.1 million employers who had, collectively, claimed grants totalling £22.9 billion.

Prior to 30 June 2020, employees who had been furloughed could not work for their employer while on furlough. This changes from 1 July 2020 with the introduction of flexible furloughing.

The CJRS runs until 31 October 2020. As the scheme draws to a close, the grant support provided to employers is gradually reduced from 1 August 2020.

Reduction in support

The CJRS enters its second and final phase from 1 July 2020. While employees will continue to receive 80% of their wages for furloughed hours up to the maximum amount for the duration of the scheme, the amount that employers can claim changes each month.

For July 2020, employers can still claim 80% of the furloughed employee’s wages up to £2,500 per month, plus the associated employer’s National Insurance due on the grant amount and the minimum employer pension contributions due under auto-enrolment. For pay periods commencing on or after 1 August 2020, the employer is no longer able to claim back employer’s National Insurance or pension contributions. For August, the grant claim remains at 80% of the employee’s pay up to £2,500 per month; however, this reduces to 70% for September up to £2,187.50 per month and to 60% for October up to £1,875 per month. For the last two months of the scheme, the employer must make up the difference so that the employee continues to receive 80% of their pay for furloughed hours up to the maximum amount.

Nature of flexible furloughing

Flexible furloughing enables employers to bring back furloughed workers for any amount of time and under any work pattern while continuing to claim a grant for the employee’s normal hours that they are not working. The employee’s normal hours are effectively split between hours that they work for which they are paid by the employer as normal and hours that they do not work – treated as furloughed hours – in respect of which the employer is able to claim a grant under the scheme.

From 1 July 2020, employers can only claim a grant for an employee if the employee had previously been furloughed for at least three consecutive weeks between 1 March 2020 and 30 June 2020. To meet this test, the latest date an employee could have been placed on furlough for the first time is 10 June 2020. However, this does not apply to employees returning from statutory leave (such as maternity, paternity or adoption leave) after this date who can be furloughed when their leave comes to an end.

Calculating the amount of the claim

The calculation of the claim amount under flexible furloughing can be complicated. However, detailed guidance is available, with examples, on the Gov.uk website.

The starting point is to determine the employee’s usual hours, the hours that the employee works and the furlough hours (which are simply the usual hours less the hours worked). The Government guidance explains how to work out an employee’s usual hours.

Having determined the furlough hours and the usual hours, the next step is to work out the minimum furlough pay. This is found as follows:

1. Find the lesser of 80% of the employee’s usual wages and the maximum amount (equivalent to £2,500 per month).
2. Divide this by the employee’s usual hours.
3. Multiply this by the number of hours that the employee is furloughed in the pay period.

Example

In July 2020, an employee returns to work on flexible furlough. The employee’s usual hours are 155 hours and the employee works 56 hours in July, for which they are paid by their employer as normal. The remaining 99 hours are furlough hours for which the employee can claim a grant.

The employee’s usual pay is £3,000 per month; 80% of which is £2,400. As this is less than £2,500, this figure is used to calculate minimum furlough pay.

The minimum furlough pay is £2,400 x 99/155 = £1,532.90.

The employer can claim £1,532.90 for July plus the associated employer’s National Insurance and pension contributions.

Claims for August, September and October

The amount that the employer can claim for August is the minimum furlough pay, for September 70/80^ths of the minimum furlough pay, and for October 60/80^ths of the minimum furlough pay.

For pay periods on or after 1 July 2020, claims must start and end in the same calendar month. If the pay period spans two months, two separate claims must be made.

Help with claims

We can provide guidance on flexible furloughing and submit claims on your behalf.

SEISS extended

The Self-Employment Income Support Scheme (SEISS) has been extended. Eligible self-employed taxpayers will be able to claim a second, and final, grant under the scheme in August.

Eligibility

The eligibility criteria for the second grant are the same as the first. To qualify, the individual must:

• have submitted their self-assessment tax return for 2018/19 by 23 April 2020;
• traded in 2019/20;
• be continuing to trade when they claim the grant, or would be except for the Coronavirus pandemic;
• intend to continue to trade in 2020/21; and
• they have lost profits due to the Coronavirus.

The grant is limited to traders whose trading profits are £50,000 or less, either for 2018/19 or on average for the three years 2016/17 to 2018/19 inclusive. Profits from self-employment must also comprise at least 50% of the individual’s income to qualify for the grant.

‘Adversely affected’

The taxpayer will need to confirm that they were ‘adversely affected’ by COVID-19 on or after 14 July 2020 when making their claim for the second grant. HMRC have published examples on the Gov.uk website of circumstances in which a business will be deemed to be adversely affected by the pandemic. They include:

• an inability to work because the taxpayer is shielding, self-isolating, sick with Coronavirus or has caring responsibilities as a result of the virus;
• a scaling down of the business due to interruption of the supply chain;
• a loss of trade because staff are unable to work; or
• a loss of trade because of a reduction in customers or clients.

Amount of the second grant

The second grant is based on 70% of average monthly profits for three months, based on the profits for 2016/17, 2017/18 and 2018/19. The calculation is adjusted where the taxpayer was not trading for all of these years. The second grant is capped at £6,570.

Making the claim

The claim cannot be made until August. As with the first claim, it must be made online. While agents cannot make claims on behalf of clients, we can help you determine whether you are eligible and what you are entitled to receive.

NIC implications of COVID-19 support payments

Various support payments have been made to help those affected by the COVID-19 pandemic. How are those payments treated for National Insurance purposes?

Grant payments under the CJRS

Where an employer claims a grant payment under the Coronavirus Job Retention Scheme (CJRS), the full amount of the grant (topped up to 80% of wages in the last two months of the scheme) must be paid over to the employee. As far as the employee is concerned, this is treated in the same way as a normal salary payment. The employer deducts Class 1 National Insurance and pays it over to HMRC.

The payment is also liable to employer’s Class 1 National Insurance to the extent that it is not covered by the employment allowance. For pay periods prior to 1 August 2020, the employer can reclaim the associated employer’s National Insurance on grant payments from the Government under the CJRS. The employer’s National Insurance must be paid over to HMRC in the usual way.

Grants under the SEISS

Grants under the Self-Employment Income Support Scheme (SEISS) should be taken into account in computing profits for 2020/21. Where those profits exceed £9,500, Class 4 National Insurance contributions will be payable. If the profits for 2020/21 are more than £6,475, you must pay Class 2 contributions.

As a result of the pandemic, profits may be lower in 2020/21 than previously. If profits are below the small profits threshold, set at £6,475 for 2020/21, there is no obligation to pay Class 2 contributions. However, it may be worthwhile to do so voluntarily to ensure that 2020/21 remains a qualifying year for state pension and contributory benefit purposes. This is much cheaper than paying Class 3 contributions to make up a shortfall.

Other grants

Businesses may also receive other grants, such as those payable to businesses qualifying for small business rate relief or payable to specific sectors, such as the hospitality and leisure sector. For self-employed taxpayers, these are taken into account in calculating profits, which in turn will determine whether a liability to Class 2 and Class 4 National Insurance contributions arise.

Talk to us

Speak to us to ascertain the effect of grant payments on your National Insurance bill.

Claim SSP for Coronavirus-related absences

Smaller employers who have paid statutory sick pay (SSP) to employees who were absent from work due to a Coronavirus-related absence can now claim a rebate from the Government. The claim portal went live on 26 May 2020.

Who can claim?

Employers are eligible to make a claim if they have a payroll scheme that was created on or before 28 February 2020 and had fewer than 250 employees on the payroll at that date. They can claim back up to two weeks’ SSP paid to an employee who was absent from work due to Coronavirus.

What can you claim?

An absence counts as a Coronavirus-related absence if the employee is unable to work for one of the following reasons:

• they had Coronavirus (COVID-19) symptoms;
• they were self-isolating because someone in their household had Coronavirus symptoms; or
• they were shielding and have a letter from either the NHS or their GP telling them to stay at home for at least 12 weeks.

Claims are capped at two weeks’ SSP per employee, even if the employee is absent for work and receiving SSP for longer than this, for example, because they are shielding. Claims can be made for periods of sickness starting on or after 13 March 2020 where the employee either had Coronavirus symptoms themselves or were self-isolating because someone in their household had symptoms, and in relation to periods of absence starting on or after 16 April 2020 where the employee is shielding. If you have paid more than the weekly SSP rate (for example if you pay employees their full pay while sick), the claim is limited to the SSP rate, set at £95.85 per week from 6 April 2020 and at £94.25 before that date. For Coronavirus-related absences, SSP can be paid from the first qualifying day once a period of incapacity for work has been established – the usual three waiting days do not need to be served.

Where SSP is paid for an absence which is not a Coronavirus-related absence, the employer cannot claim it back under the rebate scheme. Normal rules apply in relation to absences that are not related to Coronavirus and the employer must meet the cost of any SSP paid to employees who are absent other than for one of the reasons listed above. Claims can be made for employees in respect of whom a grant has been claimed under the Coronavirus Job Retention Scheme; although a claim for a grant and an SSP rebate cannot be made for the same period.

How do we claim?

Claims can be made via the online portal. To claim, you will need:

• your Government Gateway User ID;
• employer PAYE scheme reference number;
• UK bank or building society details for the account into which the rebate is to be paid;
• the total amount of SSP paid to employees for Coronavirus-related absences;
• the number of employees in respect of whom a claim is being made; and
• the start and end date of the claim period.

When claiming, you will also need to provide a contact name and telephone number. Claims can be made at the same time for multiple pay periods and multiple employees.

HMRC will check claims and if satisfied pay the money into the designated account within six working days of the date on which the claim was made.

Do we need records to support the claim?

You do not need to provide evidence when making the claim. However, you do need to keep records of:

• the dates on which the employees were absent from work;
• which of those dates were qualifying dates;
• the reason for their absence, i.e. whether they had symptoms or were shielding; and
• the National Insurance numbers of the employees in respect of whom a claim is being made.

You do not need to obtain a Fit Note for Coronavirus-related absences.

Records should be kept for three years from the date on which you received the rebate.

Further help

The good news is that HMRC has confirmed that if you have authorised us to do PAYE online for you, we can complete the claim on your behalf. Alternatively, if you prefer, we advise if you are able to make a claim and how to go about it.

Coronavirus Job Retention Scheme extended

The Chancellor, Rishi Sunak, announced on 12 May that the Coronavirus Job Retention Scheme would be extended until 31 October 2020. The scheme enables employers adversely affected by the COVID-19 pandemic to furlough staff rather than making them redundant, and to claim a grant from the Government for 80% of their wages up to £2,500 a month. It was due to finish at the end of June. It will now continue in its current form until 31 July 2020, with changes being made from August as part of the gradual withdrawal of the scheme.

As at 17 May 2020, 8 million jobs had been furloughed by 986,000 employers who had, in total, claimed grants totally £11.1 billion.

Current support

In its current form, employers can furlough staff and claim a grant from the Government for 80% of the furloughed employee’s wages, capped at £2,500 a month. The grants, which must be paid over in full to the employee, are liable to tax and National Insurance as usual, and must be reported to HMRC as normal under Real Time Information. However, the employer can claim the associated employer’s National Insurance, together with minimum employer contributions where these are due under auto-enrolment, from the Government as part of the grant.

Employers can only claim a grant if the employee is furloughed for a minimum of three weeks. Employees are not currently allowed to undertake work for their employer while on furlough (although they can work for someone else if their contract allows).

Changes from August

Support provided under the scheme is to be withdrawn gradually. While the scheme will continue to be available for a further three months from 1 August, employers will have the flexibility to bring furloughed employees back part time from that date. Employees will continue to receive 80% of their salary (capped at £2,500 a month), but employers will be required to meet some of the cost. The Government are to publish more details of how the scheme will operate from 1 August 2020 to 31 October 2020.

Guidance

Guidance on the operation of the scheme can be found on the Gov.uk website. Speak to us to find out how you can use the scheme to help you maintain your workforce during the pandemic.