Category Archives: The Coronavirus Business Interruption Loan Scheme

COVID-19: Accounting for grants and loans

COVID-19: Accounting for grants and loans

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COVID-19: HMRC Job Retention Scheme Video+

The COVID-19: HMRC Job Retention Scheme Video by HMRC is very comprehensive and worth listening to.

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COVID-19: HMRC Job Retention Scheme Video+

COVID-19: The forgotten self-employed

COVID-19: The forgotten self-employed are individuals who have started their self-employment businesses since 5th April 2019 and, as a consequence are excluded from claiming grants through the self-employment Income Support Scheme.

Being self-employed is like walking a tightrope and trying to balance the demands of creditors, staff and bank overdrafts on the one hand while using the other hand to extract payments from customers while driving new sales. This is on top of satisfying your own physiological needs. Even without a pandemic, walking the walk can be hazardous with the slightest jolt capable of disrupting the balancing act.

Then along comes the news that the government’s coronavirus self-employment Income support scheme excludes individuals who started their businesses as sole traders and/or partnerships after 5th April 2019.

Who can claim a grant for Self-Employment Income Support?

The Self-Employment Income Support Scheme provides a taxable grant worth 80% of self employment trading profits up to a maximum of £2,500 per month for the next 3 months starting 1 March 2020 with the possibility of being extended.

COVID-19: The forgotten self-employed

To be eligible to apply, the application must be a self-employed individual or a member of a partnership satisfying the following conditions:

  • have submitted a Self Assessment tax return for the tax year 2018-19
  • traded in the tax year 2019-20
  • are trading when they apply, or would have been except for COVID-19
  • intend to continue to trade in the tax year 2020-21
  • have lost trading profits due to COVID-19
  • self-employed trading profits must be less than £50,000
  • more than half of the individual’s income must come from self-employment

Further, the averaging process will only apply to those years between 2016 and 2019 where a Self Assessment tax return has been submitted to HMRC.

Allowance for late submission of 2018/19 SA tax return

HMRC has agreed to allow late submissions of Income Tax return for the tax year 2018-19 by 23 April 2020. However, late returns will be risk assessed.

Why not allow the early submission of 2019/20 SA tax return

Considering the 2019/20 tax year comes to an end on 5th April 2020 and the grants are not going to be paid for several months until June 2020, why can’t the government ask the newly self employed to get their 2019/20 SA tax returns submitted online before the end of May 2020.

This is indeed a strange anomaly because the same computer logic that’s required to check whether or not the self-employed is still trading in 2019/20 could easily be applied to process the tax returns of newly created self employment business for 2019/20.

In order to save these new entrepreneurs from the growing food bank and universal credit queues, the government should request all self employed businesses to submit their 2019/20 tax returns before 31 May 2020.

No doubt HMRC are keen to mitigate the risk of fraud from false claims. However, the same risk assessment process being applied to late 2018/19 tax returns could be applied to early returns for 2019/20.

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COVID-19: Job Retention Scheme Update

Today, the COVID-19 Job Retention Scheme Update was announced by the government to provide further clarity on how the scheme will operate.

According to the announcement, the scheme will be backdated to 1 March 2020 and provided staff remain employed throughout the crisis the funding will be open to all employers with a PAYE payroll scheme that was created and started on or before 28 February 2020, including charities.

The announcement further explained that the grants will cover 80% of furloughed employees’ (employees on a leave of absence) monthly wage costs, up to £2,500 a month, plus the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on that wage.

HMRC Step by Step Guide for submitting claims

COVID-19: Job Retention Scheme Update

The cashflow dilemma for employers

The major stumbling block for employers is cashflow to fund the March 2020 payroll because the government is expected to cover 80% of both March and April payrolls at the end of April 2020.  

One option is to take out a business interruption loan or overdraft which is being guaranteed by the government and interest free for 12 months. Unfortunately, some banks are requesting personal guarantees which may deter some directors from considering this option.

Employers may also utilise the COVID-19 Time to Pay Scheme and the VAT Deferral scheme to free up cash resources to pay employees while waiting on the government Job Retention Scheme funds.

However, it is almost predictable that the majority of the business interruption loans and overdrafts secured under the government’s 80% guarantee will go bad and get hived off to the British Business Bank as COVID-19 bad loans.

The government’s 80% guarantee doesn’t equate to free money to employers and directors giving personal guarantees. These loans and overdrafts will have to be paid back by employers for as long as it takes or they will go to the wall.

Therefore, the dilemma is whether employers protect their own future or act in the national interest and provide for their staff during the COVID-19 crisis.

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COVID-19: Government loan scheme

The government loan scheme has been introduce by the UK government to help businesses to survive the downturn caused by measures to defeat COVID-19.

The Coronavirus Business Interruption Loan Scheme

The Coronavirus Business Interruption Loan Scheme provides access to bank lending and overdrafts in order to support small and medium-sized businesses during the pandemic and is expected to start on 23 March 2020.

Guarantee for loans and interest

The government will provide lenders with a guarantee of 80% on each loan (subject to a per-lender cap on claims) to give lenders further confidence in continuing to provide finance to SMEs. The government will not charge businesses or banks for this guarantee, and the Scheme will support loans of up to £5 million in value.

In addition, businesses will be able to access the first 12 months of that finance interest free, as the government promises to cover the first 12 months of interest payments.

Eligibility

The scheme will be supervised by the British Business Bank which maintains an accredited list of lenders that includes all major banks.

Eligible businesses will need to satisfy the following criteria:

  1. Be UK based, with turnover of no more than £45 million per annum
  2. Operate within an eligible industrial sector
  3. Be able to confirm that they have not received de minimis State aid beyond €200,000 equivalent over the current and previous two fiscal years
  4. Be unable to meet a lender’s normal lending requirements for a fully commercial loan or other facility, but would be considered viable in the longer-term.

In order to allow lenders to act quickly, employers are advised to contact their bank or finance provider as soon as possible to discuss their business plans.

In addition, those with existing loan facilities are advised to ask their lenders for a repayment holiday to help with cash flow.

COVID-19: Government loan scheme

Business plans

The coronavirus business interruption loan scheme is a purely commercial arrangement between the business and their lenders with the government providing guarantees. The borrower always remains 100% liable for the debt.

Therefore, businesses will be expected to produce business plans along with cash flow projections to justify their application to access funding under the Coronavirus Business Interruption Loan Scheme.

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