COVID-19 - HK BUSINESS UPDATE 30 April 2020

This update is written and posted on 29 April 2020 and is likely to quickly become out of date. We will endeavour to update information as it becomes available.

Previous updates and other useful information can be found at our WEBSITE.

We are now sending out weekly updates, as opposed to the daily ones we sent before the Easter break, unless an announcement is made, or something arises which we feel is particularly important, where we will send something at the earliest opportunity.

The Bounce Back Loan Scheme

The Chancellor announced on Monday afternoon to the House of Commons the latest addition to the coronavirus help package for businesses. The scheme is specifically for small businesses who have struggled to benefit from the coronavirus business interruption loan scheme (CBILS) with its high refusal level.

Such businesses can now seek a loan of up to £50,000 backed 100% by the Government.  It is stated that the loan application will be simple (no more than 2 pages), with a very quick decision within a few days.

Mr Sunak said: "We've been in close talks with the banks in recent days and these loans will be available from 9.00 a.m next Monday.”

The loan scheme in summary, based on what we know currently:

• borrow between £2,000 and £50,000;

• The government will guarantee 100% of the loan and there will not be any fees or interest to pay for the first 12 months;

• Loan terms will be up to 6 years. No repayments will be due during the first 12 months. (The government will work with lenders to agree a low rate of interest for the remaining period of the loan);

• As with CBILS, the scheme will be delivered through the banks.

• Business eligibility:
• based in the UK
• has been negatively affected by coronavirus
• was not an ‘undertaking in difficulty’ on 31 December 2019.

Businesses who cannot apply

• banks, insurers and reinsurers (but not insurance brokers);
• public-sector bodies;
• state-funded primary and secondary schools.

or more relevant to our clients - If you’re already claiming the CBILS.

Although, if you have already received a loan of up to £50,000 under CBILS and would like to transfer it into the Bounce Back Loan scheme, you can arrange this with your lender until 4 November 2020.  You may want to do this if you have had to provide a personal guarantee under the CBILS loan.

The scheme is planned to launch on 4 May 2020.

More information about the scheme will be published shortly, in particular if it is to go live on Monday!  The current information can be found HERE. 

If the application process and decision is as smooth as announced, the scheme is very much welcome. However, without wanting to be spoilers, we are hearing that the banks are sending warnings they will not be ready for Monday as they are raising some legal issues and the need to create new digital systems.

If you are considering applying for a CBILS for £50,000 or less, or even just above, may be worth holding on for a few days, to see what the Bounce Back scheme looks like.

Job Retention Scheme (aka Furlough Scheme)

The update from HMRC on the Job Retention Scheme, is that payments for claims made on Monday 20 April (first day you could claim) are now being made, which is the feedback we are also receiving from clients.  (You don’t need to do anything to receive payment. It will automatically be sent to the bank account you nominated in the claim).

With its generosity and speed of set up, it has been seen as one of the best measures introduced to support business in these difficult times, plus it is extended to the end of June.  We have highlighted below a few points/issues/flags that we are picking up on/hearing about:

• With some employees’ initial furlough coming to an end, and decisions to be made to extend, we cannot over-emphasise the importance of making sure you have your employment law/employment contract advice in order – this is an area, where we foresee claims in the future.

• There is no such thing as part furlough, part working. The employee is either furloughed (i.e. cannot do any work) or they are working.  We have heard (not one of our clients), employees furloughed for two days a week, and work three days a week – not possible, this claim would be a fail.

• Do not forget to take into account the NIC employers’ allowance when making your claim.

• For fixed earners, the grant is based on their previous month’s payrolled salary. For those who don’t have fixed earnings, say zero hours contract, then it is an average earnings calculation.  You cannot use averaging for fixed earners.

• Keep your workings used to calculate the grant submission in case an HMRC audit finds an error so that you can show it was an innocent mistake. Which should be fair, trying to get up to speed with a new scheme in difficult times.

• An employee cannot do any level of work while on furlough and in speaking to someone who has a “close ear” to the HMRC team who devised the scheme, this means nothing. Checking emails daily, completing the VAT return, dealing with the furlough claim, answering your company mobile, all given as examples of an employee working.  This is fair enough, because if the employee was not furloughed they would be made redundant.  The only exemptions to the no work rule are: 

• Training, but the employee has to be paid the national minimum wage for training, if the 80% grant would otherwise pay them below the national minimum wage. Relevant for apprentices.
• Furloughed directors undertaking pure director duties to keep the company legal. The examples given by the HMRC officer, if you answer the phone to a client and just say we are closed call back in a couple of weeks, fine, answer the phone take the customer details and advise call back, then “no” as this is seen by HMRC, as revenue generation.  They advised that chasing debts would not be allowed, unless the Company got to a point that it would go under (when is this point defined?).

We have warned previously that HMRC have advised they will audit claims and have a hotline for disclosing employers who are abusing the scheme.  Remember,  HMRC have their IT systems which are very sophisticated and able to trawl for information on the worldwide web, say marketing tweets, Facebook posts etc,  they could ask to check email accounts over the period of furlough etc.

There are gaps in the scheme, which we do not believe will be fixed, which is unfortunate in some cases.

1. Although the scheme’s qualifying date was changed from 28 February to 19 March, this will only benefit an employee who joined after 28 February, and their company ran a payroll before the 19^th March. If the Company runs a monthly payroll at the end of the month, therefore after 19^th March, the change in date is of no benefit.
2. Directors who operate an annual payroll, i.e. one return, generally submitted in March, if this return was submitted after 19^th March they will not qualify.
3. Those who only take dividend income, or small salary and significant dividends – dividend is not salary and HMRC have advised no plans to bring this income into this support scheme.

Miscellaneous:

• With the next VAT deadline date of 7 May fast approaching, this is a quick reminder that those who wish to utilise the VAT payment deferral must cancel their direct debit. There is no need to apply for a deferral, BUT you must still file a return.  (Save the VAT and only use if you have to, as you will need to pay it to HMRC in due course).

• The Government has introduced measures to protect businesses from aggressive rent collection. The Government introduced legislation last month to ban the forfeiture of commercial leases for non-payment of rent until at least June 30, but did not prevent landlords from taking action to recover money owed.  The new measures will prevent landlords from using statutory demands and winding-up orders to claim rent unpaid during the crisis.  It is rumoured that landlords have started to thrash out a deal with the Treasury to secure support for landlords facing billions of pounds in lost or deferred rents.

• The FCA has confirmed there will be a three-month repayment freeze for customers with car finance leases, goods bought on high-cost credit, and pawnbroker credit during the coronavirus pandemic.

• Tax tribunal cases have been suspended until 30 June.

• If you have not received your small business rates grant (£10K), or the larger grant up to £25K, then we recommend that you contact your Local Authority to check your position. The latest figures released by the Government show how many companies are yet to claim the grants, which in the main is believed to be because the local authority is finding it difficult to contact the business, either because they hold out of date contact details or directors are working from home, etc.

• A word of warning in respect of employees giving up salary or taking pay cuts (nothing to do with the furlough scheme) and asking the employer to, say, donate the wages to fund/charity supporting the Covid crisis, you could still be taxed on the wages given up. Section 203A Income Taxes Earnings Pension Act 2003 may impact you!

• The Defence and Security Accelerator (DASA), has launched a £1m fund to develop technology that predicts and counters cyber-attacks.  Further details can be found at HERE

More information of non-Government funding opportunities, which we update regularly and can be found HERE  

We know that this is a very difficult time for all businesses and some difficult decisions are having to be made.  We have spoken to many of you and for those we have not, we would like you to know that we are here ready to help if you need us to provide advice, deal with queries, or just be a business sounding board.

Contact the office on 01452 713277 or email us.