Losses and loans

Many businesses in vulnerable sectors may have slipped into a loss making position following lock-down. Some of those businesses may have availed themselves of government backed “soft” loans to provide them with the cash-flow to survive the process.

Even with rigorous planning to reduce costs, furlough employees and benefit from other COVID related grants, businesses that cannot re-establish income streams (sales) will inevitably face the likelihood that outgoings are more than incomings.

The resulting losses will gradually eat away at cash resources – usually funds created and retained from pre-COVID trading activity – and loans may be the only way that affected businesses can hope to ride out the present coronavirus disruption.

Loans, of course, need to be repaid. Even the government guaranteed loans will need to be repaid.

If you find yourself in this position, then being vigilant – and in particular, reviewing monthly accounts – need to move closer to the top of your to-do list.

Companies that rely on loans from third-parties to provide working capital, when they have much reduced turnover, should spotlight their balance sheet. When total liabilities – including loans – are more than total assets the company may be insolvent. If you are consulting with your advisers on a regular basis this will come as no surprise, if you are not in the habit of seeking support from your accountant then pick up the phone.

Self-employed traders with no limitation to their personal liability are in a more difficult position as any potential business insolvency may give creditors recourse to claim against their personal assets including their home. Note, that this recourse – to use a self-employed trader’s home as security – should not apply to certain government backed loans.

A further complication is taxation. Many of the grants received to support all manner of businesses during the pandemic are treated as taxable income. If the grants are subsequently used to defray allowable business costs then no tax should be payable. However, as part of your monthly review it is worth asking your tax adviser to factor in tax considerations.

Clearly, the resumption of normal trading conditions is of prime importance to all businesses. Without a healthy income, businesses will eventually run out of resources and will be forced to close.

The key is to stay vigilant; keep yourself informed. If you are concerned that you need to act based on the contents of this post please get in touch. We can help.

Audiences back in theatres from 1 August

Social distancing will be challenging theatre and other performance arts facilities as they grapple with the news announced last week that indoor performance with socially distanced audiences will be able to take place across the country from 1 August 2020.

The idea that an audience can be socially distanced is mind boggling, adds a whole new dimension to the rush for refreshments and use of facilities in the interval.

The Prime Minister’s announcement on the topic is reproduced in part below.

Audiences adhering to social distancing will be able to return to indoor theatres, music and performance venues from 1 August.

The announcement marks a major step in getting the arts and cultural sectors fully back up and running and follows the government’s announcement of £1.57 billion of funding for the arts, culture and heritage sector earlier this month…

The Department for Digital, Culture, Media and Sport is working with the sector on pilots of performances with socially distanced audiences that will inform final guidance for venues in the run up to August 1. These include the London Symphony Orchestra at St Luke’s, London with a variety of further events in the coming weeks.

This announcement marks the move to stage 4 of the government’s 5-stage roadmap for the return of professional performing arts. Under the new regime, audiences, performers and venues will be expected to maintain social distancing at all times.

Guidance for the performing arts, published earlier this month, also sets out further measures to support the safe return of audiences, including:

  • Reduced venue capacity and limited ticket sales to ensure social distancing can be maintained
  • Tickets will be purchased online and venues encouraged to use e-tickets to reduce contact and help with track and trace
  • Venues should have clearly communicated social distancing marking in place in areas where queues form and adopt a limited entry approach
  • Increased deep cleaning of auditoriums
  • Performances should be scheduled to allow sufficient time to undertake deep cleaning before the next audience arrives
  • Performers, conductors, musicians must observe social distancing wherever possible

Singing and the playing of brass and wind instruments in groups or in front of an audience is still currently limited to professionals only.

This guidance will be for organisations in England. Organisations in Scotland, Wales and Northern Ireland should adhere to the advice of the devolved administrations at all times.

  1. guidance will be updated as the evidence develops around singing, wind and brass instruments, and the wider public health context. The five stages of the phased return to professional performing arts is as follows:
  • Stage One – Rehearsal and training (no audiences and adhering to social distancing guidelines)
  • Stage Two – Performances for broadcast and recording purposes (adhering to social distancing guidelines)
  • Stage Three – Performances outdoors with an audience plus pilots for indoor performances with a limited distance audience from July 11. We will now also work with the sector to get small pilots started as soon as possible and will set out further details in due course
  • Stage Four – Performances allowed indoors / outdoors (but with a limited distanced audience indoors)
  • Stage Five – Performances allowed indoors / outdoors (with a fuller audience indoors)

Employers face difficult choices

The furlough scheme has enabled employers to defer decisions about their workforce – who to retain, who to let go – but as from the beginning of August 2020, employers will be obliged to meet the furlough costs on an incremental basis.

Another change this month, July 2020, is that employees can be invited back to work on a part-time basis. Where this is actioned, the costs of the part-time activity will need to be met by the employer and the government will continue to cover the out of work, furloughed costs. 

In his Summer Statement last week, the Chancellor, Rishi Sunak, offered another incentive to employers to retain furloughed staff after the formal Coronavirus Job Retention Scheme closes 31 October 2020.

Aptly called the Job Retention Bonus, the new incentive promises to pay employers if they retain employees for the period November 2020 to January 2021. The bonus will amount to £1,000 for each qualifying employee retained in this way.

The bonus will apply to furloughed employees who remain continuously employed through to the end of January 2021. Employees must earn above the National Insurance Lower Earnings Limit (£520 per month) on average between the end of the Coronavirus Job Retention Scheme and the end of January 2021. Payments will be made from February 2021. Further detail about the scheme will be announced by the end of July 2020.

Whether the additional enticement to retain staff will delay decisions on head-count remains an unknown, but as large-scale redundancies announced recently demonstrate the outlook for the jobs market is looking bleak, especially for those involved in sectors badly affected by the lock-down process.

Planning is required

What is evident, is that decisions will require careful planning. Government incentives will need to be considered but are incidental to the over-riding need to quantify the likely scale of future sales, costs, profitability, cash-flow and solvency.

Employers will need support to plan and we can help. If you are still undecided about your options as we tentatively emerge for lock-down, please call so that we can help you consider your options. 

Time to dust-off your gym shoes and swimming togs

The government announced further easing of lock-down restrictions last week. Outdoor pools can reopen to the public from 11 July, followed by indoor gyms, pools and leisure centres on 25 July 2020.

In a recent press release they said:

The Government has outlined the measures that will allow outdoor pools to reopen from 11 July and indoor gyms, swimming pools and sports facilities to reopen from 25 July, ensuring millions of people can get back into more sport and fitness activities.

The guidance, published by the Department for Digital, Culture, Media and Sport, has been compiled with input from the trade body ukactive, the Sport and Recreation Alliance, Sport England and other sports bodies, and in consultation with Public Health England and the Health and Safety Executive.

It includes advice for providers of pool, gym and leisure facilities on cleaning, social distancing, and protection for staff to help venues get back up and running safely.

It also supports the re-opening of sports halls which are vital to the return of play for many sports, including badminton and volleyball. Guidance produced by National Governing Bodies will complement the government guidance and help ensure indoor sports can be played safely from July 25.

Venues must ensure they can enable customers, staff and volunteers to maintain social distancing before, during and after participation.

Measures to ensure the safety of the public and the staff and volunteers who manage these facilities include:

  • Limiting the number of people using the facility at any one time, for example by using a timed booking system;
  • Reducing class sizes and allowing sufficient time between each class to avoid groups waiting outside during changeover;
  • Ensuring an appropriate number of people are in a swimming pool at any one time;
  • Spacing out equipment or taking some out of service to maintain social distancing;
  • Enhanced cleaning and providing hand sanitizer throughout venues;
  • Considering how the way people walk through their venue could be adjusted to reduce contact, with queue management or one-way systems;
  • Ensuring adequate ventilation;
  • Encouraging the use of outdoor spaces for individual, team or group activities, making sure to comply with the latest restrictions on public gatherings;
  • Exercise or dance studios should have temporary floor markings where possible to help people stay distanced during classes;
  • Customers and staff should be encouraged to shower and change at home wherever possible, although changing rooms will be available.

Today’s announcement follows a recent visit by government, Sport England and public health officials, led by Deputy Chief Medical Officer Professor Jonathan Van-Tam, to a series of ukactive member sites. This allowed officials to see first-hand how the sector is preparing to reopen safely.

This guidance is for gyms, swimming pools and indoor sports facilities in England. Those in Scotland, Wales and Northern Ireland should refer to guidance from the devolved administrations.

 

Its tax payment time again

If you submit a self-assessment tax return you may need to consider your options as any second payments on account for 2019-20, are coming due for payment 31 July 2020. In a nut-shell you have three options:

 

Defer payment until 31 January 2021

As part of his support for taxpayers during the present disruption, Rishi Sunak has given you the opportunity to defer payment of the July instalment until 31 January 2021.

This is generous, but readers should be cautious as this is not a cancellation of amounts due. If you do defer your July payment you will need to plan your cash flow carefully, as the total self-assessment tax (and possibly NIC) due 31 January 2021 will include:

  • The deferred July 2020 payment
  • Any balance of tax due for 2019-20, and
  • The first payment on account for 2020-21.

If you do defer, HMRC have confirmed that they will not charge interest or penalties as long as amounts due are paid on or before 31 January 2021.

 

Make the July 2020 payment

The deferment is an option. If you have already reserved funds you may prefer to pay the tax and reduce amounts due January 2021.

Reduce tax due 31 July 2020

A third option you could consider is applying to reduce payments on account for 2019-20 and therefore reduce the amount payable 31 July 2020? You can do this if the following applies.

The payments on account – due 31 January and 31 July 2020 – are for the tax year 2019-20. Until your tax return is filed for 2019-20, these payments on accounts will be based on figures for the previous tax year, 2018-29.

If your profits for 2019-20 are lower than those for 2018-29, then you can elect to reduce payments on account for 2019-20.

Accordingly, if you feel that your business profits or other income assessable during 2019-20 were lower than those for 2018-19, then we should consider this option.

Summer Statement 8 July 2020

The Chancellor, Rishi Sunak continued with his campaign to support the business and jobs community today, 8 July 2020, as firms engage with the disruption caused by the coronavirus outbreak and the measures taken to control infection.

The main thrust of his announcements during his Summer Economic update concerned his nominated Plan for Jobs 2020, details are listed below.

He also announced measures to support the hospitality and tourism industry including a novel voucher scheme and a temporary reduction in VAT. Again, details are provided in the following update.

In an attempt to boost the flagging property market Stamp Duty is being temporarily reduced in England and Northern Ireland. Separate announcements on this topic are awaited for Scotland and Wales who have their own Stamp Duty regimes.
Details of these announcements follow:

1. Job Retention Bonus: employers that bring back an employee that was furloughed, and continuously employ them through to January 2021, will be paid a £1,000 government bonus per employee retained. Employees must be seen to be gainfully employed during this period and be paid at least £520 a month, on average, from November 2020 to January 2021. All furloughed employees returned to employment in this way will be available for the £1,000 bonus.

2. Kickstart scheme: this new scheme will cover the wages (plus associated costs) of new jobs created for any 16 to 24-year-old – at risk of long-term unemployment – for six months. These will have to be new jobs, of at least 25 hours a week and paid the National Minimum Wage. Employers will need to offer kickstarters training and support to find a permanent job. Employers can apply to be part of this new scheme from next month – August 2020 with first jobs starting in the autumn. Government has made an initial £2bn available for this scheme, but there is no cap on the number of places made available.

3. Apprenticeships: for the next six months government will pay employers to create new apprenticeships. The amount payable will be £2,000 for each apprentice. A new bonus to take on apprentices aged over 25 has also been announced. This will amount to £1,500 per appointment.

4. Green jobs initiatives: as an incentive to create jobs in the green jobs’ market a number of new grants have been announced. From September 2020, homeowners and landlords in England will be able to apply for a grant to make their home more energy efficient. The £2bn Green Homes grant will cover at least two-thirds of the cost up to £5,000 per household. For low income households these grants will cover all costs up to £10,000. There will also be a further £1bn allocated to make public buildings greener.

5. Boost for the housing market: Presently, in England and Northern Ireland (different amounts apply in the regions) no Stamp Duty Land Tax is payable on residential property purchases below £125,000. From today – for a temporary period to 31 March 2021 – this threshold is increased to £500,000. It is projected that this will reduce the average stamp duty bill by £4,500. Regional variations may apply. Purchasers buying a second residential property will still have to pay the 3% Stamp Duty Land Tax for property purchases up to £500,000.

6. VAT reduction for hospitality and tourism: for the next six months VAT charged on food, accommodation and attractions (such as eat-in or takeaway food in restaurants, cafes, pubs, cinemas, theme parks and zoos) will see VAT reduced from 20% to 5%. This will apply from 15th July 2020 until 12th January 2021.

7. Eat Out to Help Out discount: for the month of August 2020, meals eaten at any participating business Monday, Tuesday or Wednesday, will be 50% off up to a maximum discount of £10 per head including children. To access the discount businesses will need to register and can do so through a website to be opened next Monday, 13 July 2020. Businesses will be able to claim the money back weekly with the money in their bank accounts within 5 working days.

As we manage the cautious steps to emerge from lock-down, still wary of COVID-19, the new incentives announced by Rishi Sunak today should be welcomed.
As more details emerge on the various schemes announced today they will be published accordingly.

Which businesses can reopen 4th July 2020

As the town of Leicester demonstrates, the recent announcement that many businesses would be able to reopen since 4 July 2020, depends on local conditions. Rates of infection in Leicester are causing concerns and consequently, local businesses were unable to reopen.

However, for the rest of England (regional variations may apply for Scotland, Wales and Northern Ireland) all businesses can reopen apart from those listed below:

Businesses that will remain closed

  • Nightclubs
  • Casinos
  • Bowling alleys and Indoor skating rinks
  • Indoor play areas including soft-play
  • Spas
  • Nail bars, beauty salons and tanning salons
  • Massage, tattoo and piercing parlours
  • Indoor fitness and dance studios, and indoor gyms and sports venues/facilities
  • Swimming pools including water parks
  • Exhibition or conference centres must remain closed for events such as exhibitions or conferences, other than for those who work for the business or organisation who run the venue.

It has also been announced that cafes, restaurants and shops that are self-contained and can be accessed from the outside, will still be permitted to open.

Track and Trace

As part of government initiatives to control the spread of the COVID virus, track and trace is an important element. Accordingly, businesses are requested to keep a record of customers and visitors for 21 days, in a way that is manageable for your business, and assist NHS Test and Trace with requests for that data if needed. This could help contain clusters or outbreaks. Many businesses that take bookings already have systems for recording their customers and visitors – including restaurants, hotels, and hair salons.

Government has requested that if you do not already do this, you should do so to help fight the virus. They will also work with industry and relevant bodies to design this recording system in line with data protection legislation. Details will be issued shortly.

 

 

What happens if VAT rates are changed

A number of EU countries have reduced VAT rates in an attempt to stimulate the economy: if VAT rates fall, prices should fall encouraging consumers to spend more.

There has been much press commentary recently that Rishi Sunak will announce a similar reduction in the UK. Note, at present this is pure speculation.

If announced, any reduction will no doubt be for a limited period as the cost in lost tax revenue will be considerable.

However, if and when a reduction is announced what will VAT registered businesses need to do? We have listed below some of the issues that will need to be considered:

Accounts software

If you use bookkeeping software cloud versions may make changes to VAT rates for you. If not, they will presumably provide users with clear instructions. Essentially, from the announced date, the rate of VAT charged on sales will need to be adjusted.

Many businesses invoice for their services by using features in their accounting software. In these cases, the rate of VAT charged from the date any reduction is announced will automatically be applied. Businesses that use other processes to create sales invoices will need to use the amended VAT rate from the appointed day.

Retailers

Retailers, who normally show VAT inclusive prices on price tags, will have two choices:

  • to leave prices at the pre-VAT reduction levels – this will increase their profits on items sold or
  • reduce their prices – thereby passing on the VAT reduction to their customers.

The intention of any VAT reduction is to stimulate consumer expenditure and so the preferred option from the government’s point of view is that retailers will reduce their prices for goods subject to a VAT charge.

Subscriptions

If your business has subscribers, members or any other model that charges for services on a fixed monthly basis, presumably customers will expect any VAT reductions to be passed on their periodic payments reduced accordingly.

Aside from the changes to invoicing, affected businesses that have set up standing order arrangements may face a challenging conundrum. They will need to contact each customer and ask them to reduce their standing order payments.

An option that affected businesses could consider is switching from standing order payment to direct debit. There are a number of cloud based direct debit facilitators that could be considered.

We can help

If rates are reduced for a limited period we can help you devise a strategy to cope with any changes to your pricing or admin systems.

Brexit – no extension to transition period

It is now confirmed that the UK will neither accept nor seek any extension to the Transition Period.

From 1 January 2020, the UK will have the autonomy to introduce its own approach to goods imported to GB from the EU.

Recognising the impact of coronavirus on businesses’ ability to prepare, and following the announcement in February that the UK would implement full border controls on imports coming into GB from the EU, the UK has taken the decision to introduce the new border controls in three stages up until 1 July 2021. This flexible and pragmatic approach will give industry extra time to make necessary arrangements. The stages are:

  • From January 2021: Traders importing standard goods, covering everything from clothes to electronics, will need to prepare for basic customs requirements, such as keeping sufficient records of imported goods, and will have up to six months to complete customs declarations. While tariffs will need to be paid on all imports, payments can be deferred until the customs declaration has been made. There will be checks on controlled goods like alcohol and tobacco. Businesses will also need to consider how they account for VAT on imported goods. There will also be physical checks at the point of destination or other approved premises on all high risk live animals and plants.
  • From April 2021: All products of animal origin (POAO) – for example meat, pet food, honey, milk or egg products – and all regulated plants and plant products will also require pre-notification and the relevant health documentation.
  • From July 2021: Traders moving all goods will have to make declarations at the point of importation and pay relevant tariffs. Full Safety and Security declarations will be required, while for SPS commodities there will be an increase in physical checks and the taking of samples: checks for animals, plants and their products will now take place at GB Border Control Posts.

Parents returning from paternity or maternal leave

One aspect of the 1 July changes to the CJRS was the closing date to new entrants was set as 30 June 2020. This disadvantaged parents who had been on extended parental or maternal leave in recent months and were intending to return to work after 30 June.

The government has now confirmed that parents on statutory maternity and paternity leave who return to work in the coming months, after a long period of absence, will be permitted to be furloughed.

This will only apply where they work for an employer who has previously furloughed employees.