Furlough and SEISS grant changes re November lockdown

As a result of the latest lockdown, announced on 31 October, 2020, two important changes have been made to the above schemes.

Firstly, furlough (or Coronavirus Job Retention Scheme, CJRS) was planned to end on 31 October, to be replaced by the JSS schemes, but has instead been extended for November. The furlough extension will see employers being able to claim 80% of furloughed employee wages, other criteria etc remain the same. Employees must have been on the employer’s payroll and details submitted to HMRC under RTI submissions before the end of October. **Update 5/11/20 – the furlough scheme has now been extended to March 2021 but the jobs retention bonus originally due for payment in February is now in doubt**

Secondly, there are two changes to the self employed income support scheme (SEISS). This is available to sole traders and partners who were eligible for the first two SEISS payments earlier in the year. Unfortunately, the eligibility criteria hasn’t changed, so those who were ineligible for the first two payments remain ineligible for the November onwards payments. The extension will last initially for three months from November 2020 to January 2021. The government will pay 80% of average monthly profits for November and then 40% of average monthly profits for December and January. The claims will be made monthly, with eligible sole traders and partners being able to claim from 30 November 2020 using their Gov.uk account. **Update 5/11/20 – SEISS scheme support has now been increased to 80% for each month instead of reducing to 40% – unfortunately still no change in the eligibility rules, so those excluded from claiming the first two payments remain excluded as things stand**

Details are, again, sketchy at this early stage, but hopefully more detail will be provided on the gov.uk website in due course.

National Audit Office Estimates 2.9 million self employed not eligible for Govt’s Covid support schemes

A National Audit Office report issued 23 October 2020 has estimated that up to 2.9 million self employed people havn’t been eligible for the Government’s Covid support schemes. (Para 14).

1.6 million self employed were excluded from the SEISS scheme because their trading profits in 2018/19 were less than half their total income, or losses were made, or profits were over £50,000. These criteria were only enforced for self employed and not employees, which was, apparently a ministerial decision.

Job Support Scheme Announced

*Written before the latest changes/announcements were made in week ended 23/10/20. Will be updated shortly when full details of the new schemes are published – now out of date due to second lockdown in December for which the previous furlough scheme has been extended*

The Chancellor has recently announced the replacement to the existing furlough scheme. The new Job Support Scheme will come into force on 1 November 2020.

According to the very limited information currently available, “the Government will pay a third of hours not worked up to a cap, with the employer also contributing a third. This will ensure employees earn a minimum of 77% of their normal wages, where the Government contribution has not been capped.”

Unfortunately, at the time of writing, no detailed information has been published and, for example, we simply don’t know whether directors of their own limited companies will be eligible or how their claims will be calculated, as there is the requirement to work a third of their usual hours, but directors don’t have “usual” hours. There are other areas of uncertainty too so we await further information from the Government.

Details of what has been announced so far is on the Gov.uk website in a scant 4 page factsheet.

Furlough support reducing to 70% from 1 September.

Although the amount of furlough to be paid by employers to their furloughed staff remains at 80%, the amount employers can reclaim from the Government reduces to 70% from 1 September 2020, so employers have to fund the 10% difference themselves.

Emergency Covid Funds Worth £1.5bn unclaimed

Small businesses and self employed are being urged by The Federation of Small Businesses (FSB) to claim emergency funds which are currently sat in local authority bank accounts and will be otherwise repaid to Government at the end of the month!

Read the full article on the BBC website

Self Employed Income Support Scheme (SEISS) Second Payment

Eligible self-employed people will be able to claim a second and final SEISS grant in August; this will be a taxable grant worth 70% of their average monthly trading profits for three months, paid out in a single instalment and capped at £6,570 in total.

The eligibility criteria for the second grant will be the same as for the first grant. People do not need to have claimed the first grant to claim the second grant: for example, their business may have been adversely affected by COVID-19 (coronavirus) more recently.

However, in order to claim the second grant, businesses will need to confirm that they were being “adversely affected” due to Covid on or after 14 July 2020. So if, by that time, you have re-opened your business and you’re back to normal operations, then you won’t be “adversely affected” on or after 14 July, so you’ll not be eligible for the second payment.

The Government have published some guidance as to what they mean by “adversely affected” which includes:-

“you’ve had to scale down or temporarily stop trading because:

  • your supply chain has been interrupted
  • you have fewer or no customers or clients
  • your staff are unable to come in to work

There is also a good article by journalist Martin Lewis on his MoneysavingExpert website, where he says:

“HMRC is not looking to try to catch people out who are making honest declarations. So even if you’re working all hours and bringing some money in, if your business isn’t where it should be and coronavirus is to blame, then you’re entitled to say yes to the grant. And the payment isn’t structured to be proportionate to the impact, it’s binary – if you’re due money, you’re due it all; if you’re not, you’re not due a penny.”

The deadline for making the second claim is 19 October 2020, so even if you’re not affected on 14 July 2020, you may be affected by further restrictions such as localised lock-downs, you may be a retailer hit by fewer customers due to compulsory face masks, or if yourself, staff or customers catch Covid, you may have to close your business for deep cleaning and/or self isolation, etc. So, even if you’re not currently adversely affected, don’t forget to bear the support scheme in mind if you become affected during August and September.

Deadline looming to start furlough

10 June is the final day an employer can furlough an employee for the first time. The Coronavirus Job Retention Scheme closes to new entrants on 30 June. After this date, only employees who have been furloughed for at least 3 consecutive weeks can be put on furlough again. 


Self Employed Income Support Scheme (SEISS) Upate

The Chancellor, Rishi Sunak, has just announced changes to the Self Employed Income Support Scheme for those whose trade continues to be adversely affected by Covid-19.

Eligible self-employed people will be able to claim a second and final SEISS grant in August; this will be a taxable grant worth 70% of their average monthly trading profits for three months, paid out in a single instalment and capped at £6,570 in total.

The eligibility criteria for the second grant will be the same as for the first grant. People do not need to have claimed the first grant to claim the second grant: for example, their business may have been adversely affected by COVID-19 (coronavirus) more recently.

Claims for the first SEISS grant, which opened on 13‌‌ May, must be made no later than 13‌‌ July. More information about the second SEISS grant will be available on GOV.‌‌UK on 12‌‌ June.

More details are available via the Gov.uk website.

Furlough Scheme Changes

The Chancellor, Rishi Sunak, has just announced changes to the Covid Furlough Scheme.

From 1/7/20, employees who were previously furloughed can return to work on a part time basis. This is a very welcome change for small business directors who previously had to “moth ball” their company to qualify for furlough as they were prevented from doing any work whilst on furlough. Directors will be able to work part time and claim furlough for the hours they’re not working.

For a director who has not yet put themselves on Furlough, current understanding of the rules is that they have until 10 June 2020 to furlough themselves, as they have to be furloughed prior to 1/7/20 and the furlough period is a minimum of 3 weeks. For the last 3 weeks of June, they’d have to do NO WORK for their company at all, other than training and statutory obligations, i.e. no chargeable nor marketing work etc. Then they could move onto the flexible furlough from 1/7/20 to work say 50:50 and claim furlough for half their usual working hours.

The furlough scheme will then be phased out during September and October as follows:-

From August, the furlough scheme will no longer cover employers NIC nor employers workplace pension contributions.

From September, the 80% furlough will reduce to 70%.

From October, the 70% furlough will reduce to 60%

Official guidance notes/announcement is linked here.

Re-starting your business

Now that we’re slowly coming out of lockdown, it’s time to start to plan re-starting your closed business.

Whilst many small businesses could legally have stayed open throughout the lock-down, many closed, either because of social distancing (staff and/or customers), owners shielding, lack of customers, lack of suppliers, or shielding staff. Other small businesses have stayed open throughout, having been able to make changes pretty quickly at the outset.

Many businesses have already re-opened, albeit in a smaller or different way, such as restaurants offering a takeaway service or shops which are only taking telephone orders. As restrictions are lifted, more suppliers re-open and more potential customers are out and about again, more and more small businesses will be planning to re-open over the coming weeks.

Re-starting sooner rather than later (in a safe way) will help you in the longer term. You really don’t want to stay closed when your competitors are open, and the longer you stay closed, the more likelihood of your regular customers forgetting about you, changing their buying habits, etc.

There are plenty of resources on the internet about necessary safety precautions for customers and staff, social distancing, alterations to premises, etc which I don’t want to repeat. A good starting point is the Gov.uk website.

What I want to talk about in this post is the “financials” of re-starting.

First thing to think about are the costs of alterations to your premises, i.e. social distancing signage, temporary screens, new equipment, fixtures or fittings that you may need, etc. You should be eligible for tax relief on such costs, either as an expense against income or via capital allowances.

Secondly, are other incidental costs, such as cleaning/hygiene supplies for yourself, staff and maybe customers. Also in this heading, I’d include advertising and marketing costs relating to your re-opening, such as social media or local printed media advertising, development of a new website or app (maybe for online/advance ordering), etc. Likewise, these would normally be eligible for tax relief by reducing profits.

Thirdly, most closed businesses will have made a loss over the period of closure and re-starting. For some who’ve received government grants and support (which are taxable), the receipt of government help will reduce your losses, or maybe even turn a loss into a profit. If your losses are severe and you end up with a loss for the full tax year, then relief can be claimed against profits or prior or future years.

Finally, you need to think about “modelling” the finances of your re-start. Most business won’t be able to return quickly to “normal” as they’ll be re-starting on reduced working hours, or reduced product range, or they simply won’t be able to serve the same number of customers due to social distancing. You need to be realistic about your likely sales revenue in the first few weeks and months of re-starting.

From your sales forecasts, you can estimate your “direct costs”, i.e. costs of raw materials or stocks you need to make those sales. Then you can also think about what staffing you need to service those sales. If you’re open fewer hours and serving fewer customers, you may need fewer staff or you may need them for fewer hours, This ties in with recent announcements about the flexibility of the furlough scheme where part time working is to be allowed from August. Finally, your other expenses – break them down into fixed costs and variable costs. Again, some elements, such as bank charges, power, vehicle running costs, etc., may be a lot lower than usual due to the reduction in business activity.

Once you have all these figures, you can see how much profit or loss you may make in the first few weeks. This highlights whether your reserves are adequate or whether you may need to apply for a loan from one of the Govt schemes, such as their bounce back loan scheme. It may also highlight that with reductions in costs due to lower trading activity (such as fewer staff hours) you may actually make more profit (or make a smaller loss) than you’d have expected from much lower sales.

If any clients wish us to help them with their financial modelling or help with preparing cash flow forecasts or budgets, then I’ll be delighted to help.

On a related subject, if you’re current VAT registered, then the temporary closure of your business and a slow re-start over many weeks could mean that you’re eligible for de-registration from VAT, which may be helpful for your finances if your customers are mostly domestic customers (such as a shop).