Now that we are coming out of lockdown, we have updated this page to summarise the current position on government reliefs, and to provide tax tips for small business owners.
Please get in touch with us if you need a detailed advice on your situation.
Coronavirus Job Retention Scheme
In the current phase of the scheme 1 July to 31 October, employees can work for you on a part-time basis. The furlough claim is for the hours each employee does not work.
The scheme applies only to employees previously furloughed for a minimum of three consecutive weeks before 30 June. No new entrants are allowed.
The amount of government funding reduces monthly to October, while the employer contribution rate increases:
|Month||HMRC pays||Employer pays|
|July||80% of wages up to £2,500 pm per employee, + Employer’s NI and minimum pension contributions|
Top up of 20% is voluntary
|Aug||80% of wages up to £2,500 pm per employee||Employer’s NI and minimum pension contributions|
|Sep||70% of wages up to £2,187 pm per employee|
Must top up 10% of each employee’s salary to make 80%
Pay NI + min pension
|Oct||60% of wages up to £1,875 pm per employee|
Must top up 20% of each employee’s salary to make 80%
Pay NI + min pension
Tip: Make sure that you keep full details of your furlough claims for six years so that you can give them on demand if there is a PAYE inspection in future.
In addition to the claim calculations, keep records of each employee’s usual hours, hours worked, and the furlough hours claimed. A fresh agreement must be made in writing for employees brought back part-time from 1 July, in addition to the written agreement you made with them for the original furlough period before 30 June.
HMRC can recover all furlough grants they consider were claimed incorrectly, together with a penalty of 30 – 100%.
Job Retention Bonus
HMRC will pay a bonus of £1,000 for each furloughed employee who is then employed continuously until 31 January 2021. They must earn more than £520 pm. The bonuses will be paid in February 2021.
Statutory Sick Pay (SSP)
Small companies (<250 employees) can reclaim up to two weeks’ SSP paid to employees who are absent from work due to Coronavirus.
The claim includes for employees who either are self-isolating as they or another member of their household has symptoms of the virus, or if the NHS notify them to self-isolate as part of their trace and contact program.
SSP is £95.85 per week. It applies to Coronavirus sick periods from day one; you do not need to deduct the usual three qualifying days.
Tip: You cannot, unfortunately, make the SSP claim for employees who must quarantine on return from a holiday outside the UK.
Self-Employment Income Support Scheme (SEISS)
There is no P11D taxable benefit on an employee for equipment supplied to allow the working from home due to coronavirus. The cost of the equipment is a deductible expense against the employer’s business profits.
The examples of the equipment: computers, webcams, monitors or office furniture such as ergonomic chairs.
Tip: Before your employees rush out to buy massage tables and surround sound home cinema systems – the equipment must be for the sole purpose of enabling the employee to work from home due to coronavirus, and they must discuss the purchase with you first.
Tip: As we start to turn the heating on in the autumn and winter months, it is worth remembering that you can pay up to £24 per month to each employee (including yourself as a director) as a tax-free flat–rate allowance for additional household costs.
Equipment and Supplies for Employees working from home
The SEISS grant is payable to sole traders and partners in an unincorporated business (not Ltd or Llp), whose annual earnings are not more than £50,000 and their business has been adversely affected by Coronavirus.
The original grant was equivalent to 80% of three months’ average profits to a maximum claim of £7,500. If the business continues to be affected by Covid, you may claim a second grant in August based on 70% of three months average profits up to £6,750.
Tip: You do not need to have claimed under the first grant to claim for the second grant.
Tip: Contact us if you believe that your business has still made a loss, even with the grant.
Bounce Back Loan Scheme (BBLS)
BBLS is the main source of finance available to small businesses affected by Covid. Its bigger brother, the Coronavirus Business Interruption Loan Scheme (CBILS) is for bigger businesses.
A small business established before March 2020 can borrow between £2,000 and £50,000 under BBLS, capped at 25% of their turnover. Applying directly to your bank and backed 100% by the government, the funds are quick to arrive.
No repayments are required in the first 12 months, nor are fees or interest charged. After that, the interest rate is 2.5%, and the loan can be repayable over six years.
Tip: As part of the application process, you must declare that the business has been adversely affected by Covid, the loan will be used for the benefit of the business and not for personal purposes. The Treasury has warned that misuse of BBLS could result in prosecution for fraud.
Deferring the 2nd personal tax payment on account, due 31 July 2020
Taxpayers, including Directors receiving dividends, had the option to defer their self-assessment 2nd payment on account from July 2020 up to January 2021. There was no need to make a separate claim with HMRC, just to show that they are finding it difficult to make that 2nd payment due to Covid.
Tip: Watch out for the ‘triple whammy’ on 31 January 2021 – the July 2020 deferred payment + balancing payment 2020/21 + 1st payment on account for 2021/22. The balancing payment and 1st payment on account are both based on your income to 6 April 2020, i.e. just before the full force of Covid hitting. So you have limited scope to claim a reduction. Make sure that you plan for 31 January in your cashflow forecasts!
Deferred VAT return payment
If you deferred the payment against your VAT return for the quarter ended March, April or May 2020, that deferred amount must be paid by 31 March 2021.
Tip: Again, make sure that this amount is allowed for in your cash flow forecast.
Covid and small Ltd companies
Finally, a few things to be aware of and to watch out for, in a small limited company:
- Where you normally extract income as dividends, then remember that you can only pay dividends out of retained profits. Retained profits may no longer exist if significant losses have been incurred. If you have not already done so, consider a loan of up to £10,000 for each director instead. Otherwise, higher PAYE salaries can be voted as these can be paid even if creating a loss.
- Monies spent on additional expenses such as on PPE are tax-deductible expenses in the usual way. Similarly, capital allowances can be claimed on capital costs for making the office Covid–secure.
- Be particularly careful at your normal accounting year-end, to identify any amounts owed by your customers where you doubt that they will be able to pay you. Make a provision for bad and doubtful debts in your accounts, so that you do not pay corporation tax on the owed amount. Reclaim the VAT at the point of 6 months after payment was due.
- Losses can be carried back against the profits for the previous 12 months or carried forward against future profits. Complications can arise if you diversified your activities due to Covid, e.g. a hairdresser changes activity to making face masks.
- If you are struggling to pay your corporation tax, you may be able to agree on a time-to-pay deal with HMRC.
- If you are struggling to prepare your year-end company accounts by the filing deadline of nine months due to Covid, then you can apply to Companies House for a three–month extension. The extension brings the deadline into line with the maximum 12 months allowed for filing your corporation tax return.
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