The coronavirus (COVID-19) pandemic is the biggest public health emergency experienced during peacetime. As well as being concerned about your health, and the health of your loved ones, you may also be worried about the financial impact COVID-19 will have on your business.

The government has outlined several financial packages of support that will soon be available to businesses, their employees and the self-employed. This article explains the essential details you’ll need to know.

Government support for employers and employees

The government has launched the Coronavirus Job Retention Scheme, which helps both employees and employers. Furloughed workers (employees who have been asked to stop working, but are still on a company’s payroll) will get 80% of their wages reimbursed by the HMRC, up to £2,500 each month. The scheme helps employers to avoid laying off staff during the Coronavirus pandemic.

The scheme will ensure that the 80% reimbursement of wages is backdated to 1 March. It will run for three months but may be extended.

Any UK organisation with employees can apply. Furloughed employees must have been on your payroll since 28 February 2020, and any contract-type is covered. Furloughed workers must not undertake any work for his/her organisation during the time they are on furlough. Employees on unpaid leave aren’t eligible unless they were put on unpaid leave after 28 February.

Employers can claim for their employee’s wages through a government online portal, which should be available by the end of April 2020. Check this webpage for the latest updates and more eligibility criteria.

Support for the self-employed

Last week, the Chancellor introduced a package of support for the self-employed. The Self-employment Income Support Scheme will allow self-employed individuals to claim a taxable grant of 80% of their trading profits, up to a maximum of £2,500 per month for three months. (The duration may be extended).

There are quite a few stipulations as to who is eligible. To apply, you must:

·   Be a self-employed individual or a partner in a business partnership.

·   Have traded in the tax year 2019-2020.

·   Have submitted your income tax self-assessment return for the tax year 2018-2019.

·   Be trading when you apply (or would be trading except for COVID-19).

·   Intend to trade in the next tax year (2020-2021).

·   Have lost trading profits due to COVID-19.

·   Have trading profits of less than £50,000.

·   Be able to show that more than half of your income comes from self-employment.

If you’ve been trading for a few years, HMRC will use your submitted tax returns to work out a taxable grant based on 80% of your average trading profits from the tax years 2016-2017, 2017-2018 and 2018-2019.

Those eligible will get a grant of up to £2,500 per month (for three months) paid directly into their bank account in one installment. It’s not clear when this will be paid. You can’t apply yet, but HMRC will contact you in due course and invite you to apply. Learn more.

What about Personal Service Companies (PSCs) and directors of limited companies?

If you are working through an umbrella company, or you’re the director of a limited company, the Self-employment Income Support Scheme won’t apply to you. But providing you’re on PAYE, you can be furloughed, and therefore may be eligible for support under the Job Retention Scheme.

If this is the case, you’ll receive the 80% wages reimbursement on the PAYE element of your earnings, based on your earnings in February 2020.

Deferring income tax payments

Businesses that pay income tax through self-assessment can benefit from deferring their second self-assessment payment, due on 31 July 2020, until 31 January 2021. Eligible businesses include those who are due to pay a second self-assessment payment on account in July. You don’t necessarily need to be self-employed to be eligible.

Government guidance does stipulate that if you can pay your second payment on account when it’s due, you should do so.

How the government support impacts VAT

The Chancellor has announced that companies with a UK VAT registration may defer VAT payments (due between 20 March 2020 and 30 June 2020) if they’re struggling with cash flow. Any VAT deferred as a result of this announcement must be paid by 31 March 2021.

To opt-in, businesses can choose not to make VAT payments during this period. They should cancel their direct debit with their bank, insufficient time, so that HRMC doesn’t attempt to collect the payment due automatically.

Affected businesses must continue to submit VAT returns as normal, and those businesses that can continue making VAT payments during the next few months should do so. HMRC will continue paying repayment claims as usual. Learn more.

What to expect from your accountant

Your accountant will be able to advise you further on the COVID-19 financial packages that the government has set out. While your accountant will want to help you get the maximum support that you’re entitled to, they will only be able to fulfill legal requests.  

For example, if you’re a PSC or the director of a limited company, your accountant will not be able to backdate or rerun payroll records or make it look as though you had a pay rise in February 2020. This is illegal.

Financial help is available for businesses – but don’t abuse the system

The government has dug deep to come up with such an extensive package of financial support for businesses. Help is available (or will be) for employers, employees and the self-employed. Note that if you operate a PSC, the self-employed support won’t apply. However, you may be able to access the Job Retention Scheme for employed people instead (but only in relation to your director’s salary and not dividend).

It’s crucial that you only take the financial support on offer for your business if you really need it. If you know you’re going to struggle to pay bills or buy food in the next few weeks because your business activities have taken a nosedive, by all means, apply for the relevant support.

But understand that this money needs to be paid back in taxes in the future. If you take more than you need from the government now, you’ll make it harder for each and every taxpayer in the future.

If you need any help in managing your business finances during this challenging time, we’re happy to help. Please contact us.