UK COVID-19 Financial and Business Support Measures
A Summary of the UK COVID-19 Financial and Business Measures Announced by UK Government
Part 1 – Tax Updates
Part 2 – Liquidity Support Measures
Business rates holiday for retail, hospitality and leisure businesses and for nursery businesses
The Government will introduce a business rates holiday for retail, hospitality and leisure businesses as well as estate agents and letting agencies in England for the 2020/21 tax year.
All businesses in England that are in the retail, hospitality, or leisure sector or are estate agents or letting agencies will be eligible, no matter what their size. In order to benefit properties must be used (wholly or mainly) either:
- As shops, restaurants, cafes, drinking establishments (e.g. bars and pubs), cinemas and live music venues;
- for assembly and leisure;
- as hotels, guest premises and self-catering accommodation.
- as estate agents or letting agencies.
Nursery businesses in England also qualify where their properties are on Ofsted’s Early Years Register or are (wholly or mainly) used to provide Early Years Foundation Stage.
On the 25 March, the Government announced that the business rate holiday for next year would also be extended to estate agents, letting agencies and bingo halls that have closed as a result of the Covid-19 measures.
Eligible businesses do not need to take any action – the relief will be applied automatically in their next council tax bill in April 2020.
While business rates are devolved to the local Governments of Scotland, Wales and Northern Ireland, both Scotland and Wales have announced similar business rate holidays for retail, hospitality and leisure businesses.
This will be welcome news for eligible businesses, particularly given that the relief and that it will apply automatically. However, the overall value of this holiday is unlikely to be substantial for most, who will also need to determine what other measures may help with cashflow. The extension in England of the measure to estate agents, letting agencies and bingo halls will also be welcome news, although the additional restriction that they must have closed may not be helpful for some that have been able to remain open.
Deferring VAT payments
Following on from the announcement in the Budget 2020 that HMRC was permitting increased use of time to pay arrangements for businesses, the UK Government has gone one stage further by allowing all UK VAT registered businesses to defer their VAT liability where it arises in the period 20 March 2020 to 30 June 2020. Businesses do not need to apply for this deferral and businesses can automatically choose to apply it. The deferred VAT would need to be paid on or before 31 March 2021. This measure is in line with similar actions taken by some other European countries. However, the deferral will not be applicable to payments due under the Mini One Stop Shop (MOSS) scheme.
This is a welcome relief for businesses and addresses the difficulty with arranging time to pay agreements which HMRC were previously recommending. On-line traders who are accounting for VAT under MOSS may be unhappy, but as the UK Government is only collecting this VAT on behalf of countries in other EU Member States, this is perhaps not a surprising restriction.
It is important to appreciate that this is a deferral and not a waiving of the liability, albeit that the VAT liability does not need to be paid until 31 March 2021. However, VAT returns should still be completed and submitted as normal.
It applies to all VAT payments that are due in the period from 20 March 2020 to 30 June 2020, so includes payments due by 7 April 2020 for VAT periods ending 29 February 2020. It also includes VAT Payments on Account that are due during this period.
HMRC have confirmed that repayment claims will still be made by HMRC as normal which will be welcome news for development companies and exporters.
Finally, HMRC have confirmed that those businesses that pay their VAT liability by direct debit and want to make use of the deferral will need to cancel the direct debit as soon as possible, otherwise HMRC will call for the payment as normal.
Support for businesses paying tax: Time to Pay service
The Government extended the scope of HMRC’s “Time to Pay” service – making a specific helpline (08000 159 559) available for all businesses (and self-employed individuals) who have outstanding tax liabilities that they are finding difficult to pay due to COVID-19.
These arrangements are agreed on a case-by-case basis and are tailored to individual circumstances and liabilities.
Although partially dealt with by the VAT deferral, the extension of the Time to Pay service is crucial for the cashflow position of many businesses. Whilst some early indications suggest it is still difficult to reach a helpline operative in a timely manner, our experience is that those businesses who are dealt with by the Large Business Service are finding that they have been able to get swift agreement where needed once they have been able to speak to their Customer Care Manager (CCM) to discuss their situation.
Deferring Income Tax payments
Self-employed individuals generally pay their income tax via “Payments on Account” – two installments based on their previous year’s tax bill, with 50% due on 31 January (prior to the relevant tax year) and the remaining 50% on 31 July. The 31 July 2020 due date for the second 2020-21 payment on account will be deferred until 31 January 2021.
The deferral is automatic and no penalties or interest for late payment will be charged in the deferral period.
Self-employed individuals will no doubt appreciate the automatic deferral of the July 2020 payment on account, which should help to ease cashflow issues. This move will also ensure that individuals do not have to make a payment based on their prior year’s tax liability, which may be too high for some.
It is, of course, possible that with the current downtime for many self-employed individuals, there may still be difficulties in making a tax payment in respect of last year’s tax income. Further help may be available via the extended Time to Pay scheme.
Government Wage Protection Scheme
On 26 March the Government provided further details of the "Coronavirus Job Retention Scheme" which covers 80% of salary up to £2,500 per month and the associated employer costs (i.e. employer National Insurance contributions and the minimum automatic enrolment employer pension contributions on that salary), for employees of any employer in the country who are not working, but have been kept on rather than made redundant (i.e. who have been furloughed).
The scheme will cover employees who were on payroll on 28 February (including both part-time and full-time employees, as well as those on agency contracts or on zero-hour or other flexible contracts). For employees with regular hours the claim is calculated by reference to the employee’s actual salary before tax as of 28 February (excluding any bonuses or similar). For employees with variable hours the calculation is based on the higher of the same month’s earnings from the previous year or the average monthly earnings from the 2019-20 tax year (or, where employed for less than a year, the average of their monthly earnings since they started work).
The employer will need to designate the employees as “furloughed workers” and notify them as such. It is important to note that when on furlough an employee cannot undertake any work for or on behalf of the employer. Employees who are on reduced hours rather than furloughed are not covered.
The scheme will be administered by HMRC through an online portal and should be up and running for the first grants very shortly. It has been confirmed that the scheme will be backdated to 1 March 2020 and will initially run for 3 months, but may be extended as necessary.
This will no doubt be a very welcome measure for employers who are keen to retain employees during this difficult period but who are struggling to fund salary costs. The recent additional clarification provides further positive news, confirming that the associated employer National Insurance contributions and minimum auto-enrolment employer pension contribution costs are covered which will be of help to employers. Employers may decide to pay furloughed employees more than the subsidy if they wish (for example, by continuing the employees regular pay) but do not have to.
Of key importance for employers will be ensuring that the claim process is quick and easy so as to not add undue administrative burden at this difficult time. It is perhaps disappointing that the current guidance suggests that employers will be required to calculate their own claims (including the amount of employer National Insurance contributions and auto-enrolment contributions), but we await details of the final claims system, expected shortly.
In addition, employers will also need to consider their legal obligations under employment law (including equality and discrimination laws) when furloughing workers – something that many employers are unlikely to have done before. There may be additional legal fees incurred for employers at this difficult time. As well as the claim itself there will be additional administrative steps for employers to take, including writing to affected employees and keeping sufficient records.
Employers may also face difficult decisions when the scheme comes to an end, with a decision on whether to continue furlough arrangements, put employees back onto their regular hours, or terminate contracts – especially if they are still struggling financially.
HMRC’s current full guidance, covering various types of employees and situations, is available here.
Self-Employed Income Support Scheme
Similar to the Coronavirus Job Retention Scheme, eligible self-employed individuals will be able to apply for a taxable grant worth 80% of their profits, up to £2,500 per month, covering the 3 months from March to May 2020.
The new “Self-Employed Income Support Scheme” will be open to self-employed individuals with a trading profit of less than £50,000 in 2018-19 or an average trading profit of less than £50,000 from 2016-17, 2017-18 and 2018-19. To ensure that only genuine self-employed individuals can claim, more than half of an individual’s income in these periods must come from self-employment. Individuals who use a personal service company (as is the case for many contractors) will not be covered by the scheme – they are not self employed – but where they pay themselves a salary through their company some help may be available via the Job Retention Scheme, assuming they are operating PAYE schemes.
HMRC will use existing information to check potential eligibility and will notify eligible taxpayers directly with guidance on how they can apply through an online portal.
The Government have confirmed that grants will be paid in a single lump sum instalment, which will start to be paid at the beginning of June.
For those self-employed workers who are covered this should provide welcome news, although for many who are struggling with cash flow right now it may be disappointing that they will not receive any payments until June, at the earliest. Eligible individuals may be able to receive a business interruption loan in the interim to provide some additional help.
The government was keen to highlight that the scheme will cover 95% of self-employed workers. That being said, it will still be disheartening for those whose trading profit is slightly over £50,000, or for those who have only become self-employed since 6 April 2019 who will not receive any support under this scheme.
During the announcement the Chancellor also alluded to a potential equalisation of National Insurance contribution rates for self-employed and employed people in the future – something the Government previously tried to implement, but abandoned due to negative reaction.
Statutory Sick Pay (“SSP”)
The Government will refund eligible SSP costs to all employers with fewer than 250 employees (measured as at 28 February 2020).
Employers will need to maintain records of absences and related SSP payments.
This measure should help employers to cover the cost of sick pay for staff. However, many employers offer contractual sick pay which is in excess of SSP and, therefore, may not receive full reimbursement for their costs.
We await details of the process for facilitating the employer refunds for SSP, as there is no current system in place. The Government has stated they will work with employers to set up the repayment mechanism as soon as possible.
An overview of other tax and fiscal measures introduced in other global jurisdictions can be found here: https://wts.com/global/insights/covid19
Stamp Duty on transfers of unlisted UK shares
HMRC Stamp Office has announced temporary processes to deal with Stamp Duty for the duration of this emergency period. While transfers of listed shares are carried out electronically, ordinarily the stock transfer forms used to transfer ownership of unlisted UK shares have to be physically presented to the Stamp Office for stamping. The emergency processes mean that the documents may be scanned and emailed (with payments of duty also being made electronically). Electronic receipts will allow company registrars to update registers of members.
New guidance can be found on Gov.UK, at Completing a Stock Transfer Form and Paying Stamp Duty. More detailed guidance will be added shortly.
Postal applications relating to stamp duty should no longer be made.
This is a practical and welcomed change that both enables more HMRC staff to work from home, and also removes the difficulties about sending and receiving correspondence. Further guidance will be issued in relation to group relief and claiming other exemptions. Challenges to be anticipated will be around file size limitations, and turnaround times, but HMRC are looking to work together with the taxpayers to ensure any issues are minimised.
Making Tax Digital – Delay to the Requirement for Digital Links
The Making tax Digital for VAT regulations require businesses to ensure that VAT returns are submitted digitally, and for there to be digital links between the various pieces of software that are used so that there is no manual intervention in the “digital journey” of the data from it being inputted to the submission of the VAT return.
While most business will have already signed up and submitted their first VAT returns under these new regulations, HMRC allowed a “soft-landing” period of 12 months for the digital link requirement. This meant that businesses were not required to have the digital links in place before VAT return periods starting on or after 1 April 2020 (or 1 October 2020 for some businesses where MTD was deferred by six months). Now, as a result of the Covid-19 crisis, HMRC have announced that the digital link requirement will be delayed further by twelve months to VAT return periods starting on or after 1 April 2021. This new timeline will affect all businesses, even those who only required the digital links to be effective from 1 October 2020.
For some SME’s, whose only piece of relevant software is their financial package, this announcement will not be relevant as they will already be fully compliant with Making Tax Digital. However, for larger businesses and those with multiple systems which may have required remediating actions and improvements, this delay will be welcomed.
Carrying Over Annual Leave
Workers (including agency workers and those on zero-hours contracts) who have not taken all of their statutory annual leave entitlement due to COVID-19 will now be able to carry up to 4 weeks of unused holiday over into the next 2 leave years.
The changes will help to ease the requirements on businesses to ensure that workers take their statutory amount of annual leave in the year. This will ensure that employers in key industries heavily affected by COVID-19 will remain well-staffed by allowing key workers to carry over annual leave at a time when granting annual leave could leave them short-staffed.
What is not yet clear is whether these changes force employers affected by COVID-19 to allow employees to carry over leave or rather no longer requires them to ensure that the employee takes the full 28 days leave in one year. The new regulations state that workers have the right to carry over where it is not reasonably practicable for a worker to take some, or all, of the holiday to which they are entitled to due to COVID-19. To the extent an employee cannot reasonably take leave due to commitments arising from COVID-19 then the employer will be forced to allow the employee to carry over leave. However, it remains to be seen whether if an employer provides the employee a reasonable opportunity to take leave then they cannot be forced to allow a carry-over under these changes.
No Import Duty and VAT on Vital Medical Supplies
The Chancellor has removed import duties and VAT on vital medical supplies and equipment (including protective garments and eye protection, cleaning solutions and disinfectants, diagnostic reagents and certain medical consumables) brought into the UK from non-EU countries during the COVID-19 outbreak.
The relief can be claimed immediately by:
- State organisations, including state bodies, public bodies and other bodies governed by public law
- Other authorised non-state bodies. Organisations can request authorisation by contacting the National Import Relief Unit (NIRU) by emailing firstname.lastname@example.org
These organisations can claim for relief on certain imported goods that are for distribution, free of charge, to those affected by, at risk from or involved in combating COVID-19, regardless of whether they remain the property of the organisation importing them. Additionally, medical supplies imported for donation or onward sale to the NHS are also eligible for this relief. However, only imported goods will be affected by this relief, VAT on domestic supplies will continue to be charged at the normal rate.
This measure will continue until 31 July 2020. However, if the goods cease to be used by those affected by the coronavirus HMRC must be notified of that change of use and import duties and VAT are likely to apply.
While relief for import duty and VAT can already apply in certain circumstances, this measure will be welcome by those organisations involved in the testing and caring for COVID-19 patients. However, further guidance on which non-state bodies can be authorised and whether there will be any restrictions have not yet been provided. Therefore is it possible that certain bodies may not be eligible for this relief. Furthermore organisations may be concerned that a retrospective clawback of the relieved duty and VAT may arise once the crisis is over. Therefore this is an area which should be kept under review.
As part of the financial measures announced by the UK Government on 20 March 2020 to support UK workers and businesses through the anticipated downturn expected by COVID-19, access to emergency liquidity will be provided through a number of mechanisms, including:
- The joint HM Treasury and Bank of England Covid-19 Corporate Financing Facility (“CCFF”) have announced they will support liquidity for larger businesses through accelerated access to low cost commercial paper; and
- The UK government backed Coronavirus Business Interruption Loan Scheme (“CBILS”) is to provide SME liquidity via participating lenders.
In addition, companies will benefit from various other liquidity support measures including the Coronavirus Job Retention Scheme (“CJRS”) to cover up to 80% of the wages of workers not currently working but retained on payroll as well as various business rates and taxation incentives and payment deferrals.
Overview of CCFF and what we know today
The CCFF scheme has been designed to provide liquidity to larger businesses where the Bank of England will purchase directly qualifying companies’ commercial paper on behalf of HM Treasury. The latest guidance suggests:
- Eligibility will be based on companies’ credit ratings prior to COVID-19 i.e. facility will look through the current impacts of COVID-19 on balance sheet and cash flows;
- Facilities are expected to have a maturity of a minimum of 12 months with 6 months notice in the event of Bank of England withdrawal of support; and
- Financial applications are to be requested directly from the Bank of England under confidential arrangements though the exact form of the application not as yet finalised.
What are the eligibility criteria for applying for CCFF?
Whilst details are as yet not finalized, the Bank of England will purchase commercial paper directly from companies making a material contribution to the UK economy and purchase on the secondary market for other large eligible institutions.
Guidance suggests that companies making a material contribution to the UK economy are UK incorporated companies with genuine interests in the UK, qualifying criteria are expected to include; companies with significant headcount, head quartered in the UK, significant UK revenue, significant UK customers and with UK operating sites.
In order to qualify the commercial paper must be GBP denominated and meet the following criteria:
- Maturity of 1 week to 12 months if issued to the Bank of England via a dealer with option to roll subject to CCFF remaining open and ongoing eligibility;
- Minimum short term credit rating of A-3 / P-3 / F-3 from at least one of Standard & Poor’s, Moody’s and Fitch as at 1 March 2020;
- Where no short term credit rating available long-term credit rating to be considered;
- Issued directly into Euroclear and/ or Clearstream; and
- If an issuer is downgraded after 1 March 2020 below the minimum credit ratings as above, the issuer will remain eligible for primary and secondary market purchase in the CCFF, subject to HM Treasury approval.
What are the costs and timelines involved?
Once accepted onto the scheme, the commercial paper for sale will need to be submitted to the Bank of England’s Sterling Dealing Desk and purchases made with a minimum nominal value of £1m with £0.1m increments with settlement on a T+2 basis.
No pricing schedule has yet been issued however purchases are expected to be made at a spread over the sterling overnight index swap curve.
Further details are included on the Bank of England’s website with the latest press release here.
Overview of the CBILS and what we know today
The CBILS scheme has been designed to provide SME businesses with access to credit during the COVID-19 outbreak via UK Government guarantee of loans, which issued under the CBILS scheme, equate to up to £5m per borrower.
The scheme is intended to cover a wide range of funding instruments extending to term facilities, revolving facilities (overdrafts) and asset financing (including invoice financing).
The scheme is provided by the British Business Bank via participating lenders (currently c. 40 lenders, some of which may be restricted to the type of funding instruments they can support).
A key point to note is that companies will remain liable for the capital amount of any loan provided under CBILS, but the UK Government will provide guarantees to the lenders for the capital amount of the loan and first 12 months of interest.
What are the eligibility criteria for applying for CBILS?
Companies will apply to participating lenders, where lenders consider the borrowing proposal to be sound but there to be insufficient security, the lenders will consider the company for support under CBILS.
Whilst full eligibility criteria are expected to be published, sectors that are not eligible or are restricted are published here.
Protection Against Eviction of Commercial Tenants
The Government announced additional protections for commercial tenants who have difficulties paying their rent due to COVID-19. Whilst all commercial tenants remain liable for rent they will now be protected from eviction if they are not able to pay.
Commercial tenants will not automatically forfeit their lease and cannot be forced out of their premises due to missed payments up to 30 June 2020 (subject to a potential extension).
This will apply for all commercial tenants in England, Wales, and Northern Ireland.
Many commercial tenants will already be engaged in active discussion with their landlords in the current climate, especially where they are cashflow difficulties. This new is likely to be welcomed by commercial tenants who are struggling to pay their rent, but may receive a mixed response from landlords suffering their own cashflow issues. In this regard the Government has confirmed it will actively monitor the impact on landlords’.
Suspension of Wrongful Trading Provisions
The UK business secretary has announced that the Government will temporarily suspend the wrongful trading provision of Section 214 Insolvency Act 1986, retrospectively, for 3 months from 1 March 2020. This will enable company directors to continue to operate their businesses without the threat of personal liability, should they fall into insolvency.
The suspension will allow directors of companies to continue to trade, and pay staff and suppliers even if the they believe the company could become insolvent. Without this suspension, directors facing liquidity issues would have to file for insolvency to avoid the personal liability of continuing to trade.
Existing fraudulent trading laws and the threat of director disqualification should continue to act as a deterrent against director misconduct.
The suspension of wrongful trading provisions should assist in allowing directors to focus on their employees and their businesses without a concern of falling foul of a technical breach of the wrongful trading provisions, given the back-drop of unprecedented uncertainty. Maintaining the fraudulent trading laws also provides some appropriate protection for creditors. The proposed measures are silent on any potential steps to not prevent creditors seeking winding-up petitions. In response to the current situation, restrictions to hostile winding-up petitions have been implemented in Germany and Australia.
Changes to the UK's Insolvency Framework
In addition to the suspension of the wrongful trading provisions, the Government have proposed changes to the UK’s Insolvency Framework to prevent businesses unable to meet debts due to COVID-19 from being forced to file for insolvency.
The changes will include:
- a moratorium for companies giving them breathing space from creditors enforcing their debts for a period of time whilst they seek a rescue or restructure;
- protection of their supplies to enable them to continue trading during the moratorium; and
- a new restructuring plan, binding creditors to that plan
Whilst the proposals are not yet finalized the Government have ensured that the changes will include key safeguards for creditors and suppliers to ensure they are paid while a solution is sought.
There has been extensive consultation on the proposed changes to the UK’s Insolvency Framework in 2016 and 2018 and it appears that there is now an increased government emphasis on these reforms. The details of the updated proposals are yet to be confirmed, and the timing remains uncertain. During consultation, the proposed reforms were generally welcomed (subject to clarification of detail) and would add to the existing restructuring and insolvency toolkit without taking any of our existing tools off the table.
The moratorium was previously proposed as an initial 28 days and up to 3 months in duration. It will be important to understand the moratorium eligibility criteria and scope in due course. The protection of supplies was previously anticipated to be in relation essential services (e.g. IT software and connectivity) – again further clarity will be needed on how this is proposed to operate in practice. The key additional benefit of the proposed new restructuring plan is likely to be cross-class cram down which is not available in a Scheme of Arrangement.
Pending these proposals being implemented, where an insolvency process is required the existing administration process does provide for the option to achieve the rescue of the company. A rescue of the company (rather than the business) is often not achievable, however, for companies with genuine short-term challenges this could be an option in the current circumstances.
Last updated 01/04/2020 at 17.30
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