We know it’s an uncertain time right now. Last week, we announced how we plan to continue supporting our trade members with their membership costs throughout May. However, we know that your membership costs are only one part of your concerns.
In response, we’ve partnered with Claritas Tax, an accountancy firm which provides tax advisory and compliance services, to offer our trade members advice for this challenging time.
This advice covers three main areas:
- Help for the self-employed
- The Coronavirus Job Retention Scheme
- VAT deferment
Please read on for more information, including links to the supporting government advice pages.
Help for the self-employed
What is it?
The Self-Employment Income Support Scheme (SEISS) will support self-employed individuals (including members of partnerships) whose income has been affected by COVID-19. The scheme will provide a grant to self-employed individuals or partnerships, worth 80% of their profits up to a cap of £2,500 per month.
HMRC will use the average profits from tax returns in 2016-17, 2017-18 and 2018-19 to calculate the size of the grant. If you have not been self-employed for all of these tax years, then HMRC will use averages based on the tax years when you have been self-employed. If you became self-employed in 2019-20 then, unfortunately, the scheme is not applicable to you, and you may need to rely on Universal Credit, which is less generous.
The scheme will be open to you if the majority of your income comes from self-employment and you have profits of less than £50,000 per year. The scheme will be open for an initial three months commencing 1 March 2020 with people able to make their first claim by the beginning of June.
Am I eligible?
To be eligible for the scheme, you must meet all the criteria below:
- Be self-employed or a member of partnership;
- Have lost trading/partnership trading profits due to COVID-19;
- You must have filed a tax return for 2018-19 as self-employed or a member of a trading partnership. If you have not yet filed a tax return for 2018-19 will then you have until 23 April to do so;
- You must have traded in 2019-20 and be currently trading at the point of application (or would be except for COVID 19) and intend to continue to trade in the tax year 2020-21; and
You must have trading profits of less than £50,000 and more than half of your total income come from self- employment. These tests can be measured with reference to at least one of the following periods:
- Your trading profits and total income in 2018/19
- Your average trading profits and total income across up to the three years between 2016-17, 2017-18, and 2018-19
How do I access it?
You should not contact HMRC now. HMRC will use existing information to check your eligibility and invite you to apply once the scheme is operational. HMRC will pay the grant directly to your bank account. HMRC is currently working to deliver the scheme; grants are expected to start being paid out by the beginning of June 2020.
HMRC is publishing guidance on the scheme, available here. This guidance will continue to be updated.
If someone texts, calls or emails you claiming to be from HMRC, saying that you can claim financial help or are owed a tax refund, and asks you to click on a link or to give information such as your name, credit card or bank details, it is a scam.
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When can I access it?
As grants will not be paid until June 2020, you may still be eligible for other government support, including universal credit and business continuity loans in the meantime. Further information on how to access these schemes can be found here.
What are the consequences?
The scheme provides a grant to self-employed individuals and any funds received will not have to be repaid.
The Coronavirus Job Retention Scheme
What is it?
The objective of the scheme is to enable employers to retain staff who will be needed when they begin to rebuild their businesses in the future. It allows employees to be laid off or “furloughed” without the employer having to make them redundant. This will allow work to begin again with a core of staff who have already have knowledge of the business.
The Coronavirus Job Retention Scheme is a temporary scheme open to all UK employers for at least three months starting from 1 March 2020. Employers can use this scheme anytime during this period.
Employers can use a portal to claim for 80% of furloughed employees’ (employees on a leave of absence) usual monthly wage costs, up to £2,500 a month, plus the associated employers’ National Insurance contributions and minimum automatic enrolment employer pension contributions on that wage. This gives a maximum cap of £2,500 +£245 (employers’ NIC) + £59 (auto-enrolled pension contribution) = £2,804 of total possible grant that can be applied for per employee per month.
For full-time and part-time employees, the base for the 80% calculation is the employee’s actual salary as of 28 February 2020. For employees whose pay varies, such as employees on zero-hour contracts, HMRC guidance advises the following:
“If the employee has been employed (or engaged by an employment business) for a full twelve months prior to the claim, you can claim for the higher of either:
- The same month’s earnings from the previous year; or
- Average monthly earnings for the year
“If the employee has been employed for less than a year, claim for an average of their monthly earnings since they started work.
“If the employee only started in February 2020, use a pro-rata for their earnings so far to claim.
“Once you’ve worked out how much of an employee’s salary you can claim for, you must then work out the amount of Employer National Insurance Contributions and minimum automatic enrolment employer pension contributions you are entitled to claim.”
The scheme is open to all UK employers that had created and started a PAYE payroll scheme on 28 February 2020. Any employee who was made redundant after that date can be re-employed and furloughed. An employee does not have to accept furlough if offered, but the employer could then make the employee redundant instead using the usual employment law procedure.
The scheme pays a grant (not a loan) to the employer.
Am I eligible?
Any UK organisation with employees can apply. You must have created and started a PAYE payroll scheme on or before 28 February 2020 and have a UK bank account.
Furloughed members of staff must not work for the employer during the period of furlough. It is however understood that the employee can hold a separate employment with an unconnected employer, although that may amount to a breach of the employment contract.
Application to company owners
Many owner-managed company director/shareholders take small salaries and the balance of their income as dividends. The scheme does not extend to dividends. Only the salary is relevant to the scheme but, otherwise, there is no difference between the application of the scheme to employees and to company owners (but business owners who do not operate through a limited company will be only able to benefit from the Self-employment Income Support Scheme). Such companies must have been paying a salary through a payroll to be eligible for a grant.
How do I access it?
The scheme is available from 1 March 2020, so is to be backdated. It will last for at least three months and may be extended. A firm will only be eligible to claim the grant once they have agreed the furlough with their staff and staff have stopped working for the employer. The changes to employment contracts will be subject to employment law in the usual way.
The grant will be paid to the employer through a new online system which is being built for this purpose. There is no detail about the application process at the moment.
The employer will pay the employee through payroll, and report payments to HMRC using the Real Time Information (RTI) system as usual.
When can I access it?
The scheme will be administered by HMRC. As the claims system will take time to build, you may want to look to the Coronavirus Business Interruption Loan Scheme to support your cash flow in the meantime.
What are the consequences?
As the scheme provides employers with a grant, there will be no need for this to be repaid at a later date.
The government has announced that it will support businesses by deferring Valued Added Tax (VAT) payments for three months.
If you are a UK VAT registered business and have a VAT payment due between 20 March 2020 and 30 June 2020, you have the option to:
- Defer the payment until a later date; or
- Pay the VAT due as normal
HMRC will not charge interest or penalties on any amount deferred. However, you will still need to submit your VAT returns to HMRC on time. You do not need to tell HMRC that you are deferring your VAT payment
If you do decide to defer your VAT payment as a result of coronavirus, you must pay the VAT due on or before 31 March 2021.
If you normally pay by direct debit, you should contact your bank to cancel your direct debit as soon as you can.
VAT payments due following the end of the deferral period (i.e. 30 June 2020) will have to be paid as normal. Further information about how to repay the VAT you have deferred is yet to be announced.
Self-Assessment payment on account deferment
If you are due to pay a self-assessment payment on account by 31 July 2020, but the impact of the coronavirus causes you difficulty in making payment by that date, then you may defer payment until January 2021.
You are eligible if you are due to pay your second self-assessment payment on account on 31 July. You do not need to be self-employed to be eligible for the deferment.
The deferment is optional. If you are still able to pay your second payment on account on 31 July, you may choose to do so.
This is an automatic offer, and no application is required. No penalties or interest for late payment will be charged if you defer payment until 31 January 2021.
During the deferral period, you can set up a budget payment plan to help you pay the deferred payment on account when it comes due. For further information please see the following link:
Further government guidance is available under the following links
- Guidance for employers on the Coronavirus Job Retention Scheme
- Support for employees on whether they are covered by the Coronavirus Job Retention Scheme
- Check if you could be covered by the coronavirus job retention scheme
- Claim for wage costs through the coronavirus job retention scheme
- Guidance to employers and businesses about covid-19 guidance for employees
- Guidance to employers and businesses about covid-19 support for businesses
- Claim a grant through the coronavirus covid-19 self-employment income support scheme
At Claritas Tax Limited, our philosophy is simple. We provide high quality, value-added tax advisory and compliance services to privately owned businesses and their stakeholders. With offices in Birmingham and Manchester, Claritas cover the whole of the UK and are experienced in multiple business sectors.
If you want to discuss any of the above, please contact Claritas Tax on 0121 726 1717 or 0161 470 3011 or visit www.claritastax.co.uk.