What financial support is available to small businesses and the self-employed during the COVID-19 pandemic?

The government has created numerous support packages to help small businesses and contractors during the coronavirus pandemic. This includes the Coronavirus Job Retention Scheme and a similar scheme designed exclusively for the self-employed. This blog will summarise what support is available to small business owners, contractors and freelancers.

The government has had to act quickly

The United Nations chief Antonio Guterres has warned that the world is “facing a global health crisis unlike any in the 75-year history of the United Nations – one that is killing people, spreading human suffering, and upending people’s lives.” Boris Johnson has also made numerous references comparing the COVID-19 pandemic to the likes of the Second World War. There is no question that we have entered difficult and unfamiliar times.

To help protect the UK’s workforce, the government has created several schemes to try and keep the economy afloat. The intention of these schemes is excellent – to ease the financial impact the coronavirus is having on households, families and businesses. Due to the rapid inception of these schemes, some issues desperately need addressing. However, there are plenty of support mechanisms in place that small businesses and the self-employed can already start benefitting from.

The Coronavirus Job Retention Scheme (CJRS)

The Coronavirus Job Retention Scheme (CJRS) has been introduced to offer support to businesses and their workforce. Employers can furlough their staff (backdated from 1^st April and up until the 31^st May) as an alternative from making redundancies. This will allow them to keep their employees on their company’s payroll for the future.

Furloughed employees are entitled to 80% of their salary – up to a maximum of £2,500 per month. This will be paid to them at their normal payroll intervals. Employers need to claim a grant online, using a new government portal that only went online on the 20th April. Once the online form has been completed, payments should reach the employer’s bank account within six days.

To benefit from the CJRS, a furloughed worker is not permitted to complete any work for their employer. Also, the length of furlough leave is not allowed to be under three weeks in duration. This also applies to contractors who are limited company directors. If they decide to furlough themselves (or anyone else on their limited company’s books), they are not allowed to continue working.

Remarkably, the CJRS has already received over half a million claims to the value of £4.5 billion. More information on the CJRS for contractors is below.

Personal Service Companies

A majority of contractors who operate through a personal service company (PSC) pay themselves a low salary while taking dividends. Unfortunately, the CJRS does not allow contractors operating in this way to claim any dividends. Instead, they are entitled to 80% of their salary – up to £2,500 (which is likely to be 80% of the National Minimum Wage). Still, this support is better than none.

Churchill Knight is advising our limited company clients who are interested in government support to claim via the Coronavirus Job Retention Scheme. Find out how to take advantage in our blog ‘How to Claim using the Coronavirus Job Retention Scheme’. If you have any additional questions, please email your Churchill Knight Account Manager. The online application form is available here.

Umbrella Company Workers

If you are working through an umbrella company, you may be entitled to furloughed leave. However, there is currently a lack of information provided by the government about how umbrella companies will process the furlough pay of their clients.

The main issue is whether or not the government will reimburse umbrella companies for the accrued Holiday Pay and the Apprenticeship Levy of their clients. Without confirmation from the government that umbrella companies will get these amounts paid back to them, they are not in a position to start processing furlough pay. Doing so would almost certainly put their financial wellbeing at risk. If they did start processing furlough pay and discovered they could not claim the full amount back – they would be at risk of insolvency.

Five of the UK’s leading professional bodies (including the FCSA) have rallied together to demand answers from the government. We will keep you up to date with their progress, and we’re hopeful HMRC does the right thing and supports the UK’s temporary workforce. After all, there are over 600,000 contractors and freelancers using umbrella companies at the moment.

As things stand, Churchill Knight Umbrella is unable to furlough clients as part of the Coronavirus Job Retention Scheme. This is because we are awaiting further clarification from the government. Please visit our blog ‘Why Churchill Knight Umbrella is currently unable to offer furloughed leave’ for more information.

Self-Employment Income Support Scheme (SEISS)

Sole traders and partnership arrangements may be able to use the Self-Employed Income Support Scheme (SEISS), and it shares many similarities with the CJRS. To qualify for this scheme, you must have:

• Have submitted a tax return (self-assessment) for the tax year 2018/19;
• Have traded in the tax year 2019/20;
• Have currently be trading (although you may not be due to coronavirus);
• Intend to continue trading as you are in the tax year 2020/21;
• Have lost “trading profits” do to COVID-19.

Also, in order to claim via SEISS, your trading profits in the tax year 2018/19, and the average trading profit of the 2016/17, 2017/18, 2018/19 tax years must not exceed £50,000.

As things stand, SEISS will allow self-employed workers (and partnerships) to claim a taxable grant of 80% of trading profits – up to £2,500 per month. The scheme is currently available for three months (March, April and May), but may be extended. While you are waiting for the grant, you may be eligible to apply for Universal Credit. Before you do this, be aware of the following advice from the government: “You should record the grant as part of your self-employment income, and it may affect the amount of Universal Credit you get. This will not affect Universal Credit claims for earlier periods.”

Please be aware that if you are looking to claim through the SEISS, you are not able to do this yet, as the required infrastructure is not in place yet. The official government websites states: “HMRC will aim to contact you by mid May 2020 if you’re eligible for the scheme, and invite you to claim using the GOV.UK online service.”

It also interesting to know that if you receive the grant, you are eligible to continue working, or take on other work, including as a volunteer.

Coronavirus Business Interuption Loan Scheme (CBILS)

This scheme is aimed to help small and medium-sized businesses cope with the impact of the coronavirus – by having access to financial help (loan) up to £5 million.

The Coronavirus Business Interuption Loan Scheme (CBILS) is available to businesses with an annual turnover of up to £45 million, and will grant access to “loans, overdrafts, invoice finance and asset finance of up to £5 million for up to 6 years.” As part of this scheme, the government will help business cover the first years’ worth of interest payments – with a Business Interuption Payment. How will this work? The government has stated they will “provide lenders with a guarantee of 80% on each loan (subject to pre-lender cap on claims) to give lenders further confidence in continuing to provide finance to small and medium-sized businesses.”

You are eligible to apply for the CBILS if your company:

• Is UK based;
• Has an annual turnover under £45 million;
• Is currently borrowing money which the lender might consider viable because of COVID-19;
• Can provide proof that coronavirus has “adversely” had an impact already.

Businesses are not eligible to the CBILS if:

• They are a bank, insurer or reinsurer;
• They are a public-sector body;
• They are a further-education establishment (and grant-funded);
• They are a state-funded school (primary and secondary).

If you wish to apply for financial support via the Coronavirus Business Interuption Loan Scheme, more information is available on the British Business Bank website.

Bounce Back Loans for Small Businesses

Running alongside the CBILS, small businesses are able to apply for a government-backed loan between £2,000 and £50,000 by completing the form here. The loan will be completely backed by the government and will have no interest for the first 12 months. Instalments will not need to be paid back for 12 months. Once approved, businesses can have access to the requested funds within days.

In regards to the newly announced loans for small businesses, Alok Sharma, Business Secretary, said: “This rapid loan scheme offers additional protection so small companies across the country can get access to the finance they need immediately, as part of the unprecedented package of support we have put in place.”

Deferral of VAT payments

To help with cashflow, VAT registered businesses can defer their VAT payments that were otherwise due between the 20^th March and 30^th June 2020. If you pay VAT via a direct debit, you will need to amend this – or the government will continue to take VAT payments as usual. If you decide to defer your VAT payments, the outstanding balance must be settled by 31^st March 2020.