As we approach May, we are still hearing statements for Government backed schemes as well as receiving more detailed guidance for already launched measures. This week, the Chancellor has stated that there is a new Bounce Back Loan Scheme for small businesses.
We will continue to provide summaries of these updates and the latest news, as we work through the COVID-19 pandemic.
Coronavirus Job Retention Scheme (CJRS)
On 20 March 2020 the Government announced the Coronavirus Job Retention Scheme. The purpose of the Scheme is to provide grants to employers to ensure that they can retain and continue to pay staff, despite the effects of the COVID-19 pandemic.
The scheme is in place for 4 months starting from 1 March 2020, but may be extended if necessary and employers can use this scheme anytime during this period.
The Treasury issued its official framework of the scheme to H M Revenue & Customs on 15 April 2020. The House of Commons has compared this framework to the existing Government guidance provided since the introduction of the scheme on 20 March 2020. We have highlighted some areas where further clarification has been provided.
- When a business changes owner, its employees may be protected under the Transfer of Undertakings (Protection of Employment) regulations, more commonly known as “TUPE”. Where employees are employed by one employer on 19 March but transferred to a new employer after that date under TUPE rules, they can be furloughed by the new employer. However, if an employee is transferred under TUPE rules prior to 19 March it would appear that the new employer can only claim under the Scheme if they made an RTI submission by that date.
- The Treasury rules make it clear that it is not a requirement for an employer to prove that they cannot otherwise pay their employees. An employer can furlough workers provided “the instruction is given by reason of circumstances arising as a result of coronavirus or coronavirus disease”. This means that the employee is being furloughed due to circumstances arising as a result of the pandemic.
- Government guidance states that furloughed employees can engage in training as long as, in undertaking the training, the employee does not provide services to, or generate revenue for the employer. The Treasury’s framework has a narrower interpretation and provides that employees can only undertake training that is “directly relevant” to their job.
- Government guidance on how to furlough an employee states that“[t]here needs to be a written record, but the employee does not have to provide a written response.” However, the Treasury’s rules say that an employee will only be furloughed if there is a written agreement between the employer and the employee that they will stop working. Therefore it is best to obtain a written agreement from the employee of their acceptance of being put on furlough. This written agreement can be by email.
Other updates that have taken place are as follows:
- If an employer wants their accountant to make the CJRS claim on its behalf, the accountant will need to be authorised for PAYE online by the employer. If there is no authority in place, the employer should log in to their own PAYE online account and enter the accountants Agent ID for PAYE services. The accountant will then be able to submit the CJRS claim on behalf of the employer. The employer may use the same procedure to withdraw the authority once the claim has been submitted.
- To be eligible for the grant, there must be a written agreement of furlough between the employer and the employee. A collective agreement reached between an employer and a trade union is also acceptable for the purpose of the claim. There needs to be a written record, but the employee does not have to provide a written response as the trade union would be representing the employee. A record of this communication must be kept for five years.
- HMRC expect to make payments within 6 working days after receiving the claims. The first payments are expected today (28 April) for claims submitted on 20 April when the online portal became available.
- Employees on fixed term contracts can be furloughed and their contract can be renewed or extended whilst they are on furlough. This is as long as their contract has not ended. HMRC has clarified that fixed term contracts which ended, without extension or renewal, on or before 19 March 2020 will not qualify for the grant.
- Furloughed employees have been requested not to contact HMRC directly in respect of any CJRS claim made by the employer as HMRC will not be able to provide any information on an individual basis.
Coronavirus Statutory Sick Pay Rebate Scheme
The Coronavirus SSP Rebate Scheme will repay employers the current rate of SSP that they pay to employees for periods of sickness related to coronavirus starting on or after 13 March 2020. The scheme can only be used by employers who had fewer than 250 employees on 28 Feb 2020.
The scheme will be operated via an online service which is yet to be launched. HMRC has yet to clarify when the service is to be available.
- The rebate was initially available for employees who are unable to work because they either have COVID-19 or because they are self-isolating at home. The rebate is now also available for an employee unable to work because they are shielding in line with public health guidance. Shielding is required by people who are clinically extremely vulnerable. Such people will have been contacted by NHS England advising them to shield.
- After 7 days of sickness, the employer is advised ask the employee for proof of their sickness. This could be:
- an isolation note from NHS 111 - if they are self-isolating and cannot work because of COVID-19,
- a fit note from their doctor or a hospital (sometimes called a sick note) - if they have any other illness, or
- the NHS or GP letter telling them to stay at home for at least 12 weeks because they’re at high risk of severe illness from coronavirus (shielding).
- The claim amounts under the rebate scheme must be within the COVID-19 Temporary State Aid framework ceiling of €800,000 for direct grants, equity injections, selective tax advantages and advance payments. Therefore, the grant claim under this SSP rebate scheme together with any other state aid received must be under this ceiling. This is a complicated area and if a business is in receipt of state aid it should consider the implications caused by this limit carefully. State aid could be in the form of loans, grants, tax breaks etc. A lower ceiling applies to employers in Agriculture (€100,000) and Aquaculture and Fisheries (€120,000).
- HMRC’s guidance is silent on whether CJRS grants are state aid. The ICAEW has advised that until HMRC advises otherwise assume that CJRS grants do not need to be reported as state aid.
- However, the Small Business Grants Fund (SBGF) and the Retail, Hospitality, and Leisure Grant Fund (RHLGF) are both designated state aid.
The repayment will cover up to 2 weeks, starting from the first day of sickness.
Employers paying more than the current rate of SSP can only claim the current rate under the rebate scheme. Records must be kept for at least 3 years following a claim under this rebate scheme.
Under standard employment legislation, employees are entitled to time off work to help someone who depends on them (a ‘dependant’) in an unexpected event or emergency. The same rule would apply to situations related to COVID-19. For example:
- if they have children they need to look after or arrange childcare for because their school has closed as a result of COVID-19, or
- to help their child or another dependant if they’re sick, or need to go into isolation or hospital.
There is no statutory right to pay for this time off, and pay will depend on the employee’s contract or workplace policy.
Deferral of VAT payments
Businesses are able to defer any VAT payments arising between 20 March and 30 June 2020. These payments can instead be made to HMRC by 31 March 2021. This deferral was introduced as an automatic measure to help businesses struggling with cash flow problems.
No penalties or interest will be charged by HMRC in respect of any payments deferred.
Any VAT payments arising after 30 June 2020 are payable as normal. For example, the VAT payment for a VAT period ending on 31 May 2020 would be payable by the normal due date of 7 July 2020. There is no facility to defer this payment at the moment.
HMRC has advised businesses to ignore any reminder issued for a VAT payment that falls between 20 March and 30 June 2020 which they have chosen to defer.
VAT returns must be filed by their normal due dates.
The Future Fund
The £500m Future Fund was introduced by the Chancellor on 20 April 2020 to support the UK’s innovative businesses currently affected by COVID-19. These businesses have been unable to access other government business support programmes, such as CBILS, because they are either pre-revenue or pre-profit and typically rely on equity investment.
The main features of the fund were covered in our update of 21 April, and we detail below further developments to the implementation of the fund:
- In a corporate group scenario, it is only the ultimate parent company, which must be a UK registered company, which can receive the loan.
- The Government’s loan will be unsecured and shall be no more than 50% of the funding being provided to the company. The remaining amount will need to be matched by private investors.
- Although the Government will only lend a maximum of £5m, there shall be no cap on the amount that private investors may loan to the company and therefore no cap on the aggregate funding being provided.
- The loans can only be used for working capital purposes. Specifically, the company/group cannot use the funds to:
- repay any borrowings;
- make any dividends;
- make bonus payments to staff, management, or consultants; or
- pay any advisory or placement fees or bonuses to external advisers.
- There is a set order of conversion into equity, dependent on the company achieving its next “qualifying funding round” or upon an election of the majority of matched private investors on a “non-qualifying funding round”.
- A "qualifying funding round" is where the company raises an amount in new equity capital equal to at least the aggregate amount of the bridge funding. On achieving a qualifying funding round, the government’s funding will automatically convert into equity at a minimum conversion discount of 20% of the price set by that funding round.
- A "non-qualifying funding round" is where the company raises less in equity capital than the amount required for a "qualifying funding round". Upon an election by the majority of the matched private investors the governments funding will convert into equity at the same discount rate of 20% of the price set by that funding round.
- On conversion, the loan will convert into the most senior class of shares in the company.
- The Government will receive a minimum of 8% per annum (non- compounding) interest on the loan. The interest rate will be higher if a higher rate is agreed between the company and the matched private investors.
- The interest is payable upon maturity of the loan.
- The maturity term of the loan will be a maximum of 36 months.
- The government is to have limited corporate governance rights, both as a debt-holder and as a subsequent shareholder.
- In the event that a company issues further convertible loans with more favourable terms, then those terms will apply to the loans provide under the Future Fund.
- The government will be entitled to transfer the loan or converted shares to an institutional investor which is acquiring a portfolio of the Government’s interest in at least ten companies owned in respect of the Future Fund. The Government will also be able to transfer any of its shares within Government and to entities wholly owned by central government departments.
Coronavirus Large Business Interruption Loan Scheme (CLBILS)
The Coronavirus Large Business Interruption Loan Scheme (CLBILS) is now open and supports large businesses, with an annual turnover of over £45 million.
- Businesses from any sector can apply, except for Credit Institutions, Insurers and Reinsurers, Building Societies, Public sector bodies, grant funded further education establishments, and state-funded primary and secondary schools.
- If a business is utilising the Bank of England’s CCFF (COVID Corporate Financing Facility), then it is not eligible for the CLBILS. The business can utilise any of the other government support measures such as the CJRS, business rate reliefs, or any available grants etc.
- No personal guarantees will be permitted for facilities under £250,000. For facilities of £250,000 and over, claims on personal guarantees applied to the scheme facility cannot exceed 20% of losses on the scheme facility after all other recoveries have been applied.
- Businesses with a turnover of more than £45m will be able to apply for up to £25m of finance.
- Businesses with a turnover of more than £250m can borrow up to £50m.
- Repayment terms are limited to a maximum of three years.
- The scheme is administered by the British Business Bank, and a list of the accredited lenders is available on the British Business Bank website.
Bounce Back Loan Scheme
A new 100% government backed loan scheme for small business was introduced by the Chancellor yesterday. This scheme has come about in response to the pressure faced by the government to extend its loan guarantee under the Coronavirus Business Interruption Loan Scheme (CBILS) from 80% to 100%. The Chancellor was not convinced that there is a case for guaranteeing 100% of the loans offered under CBILS and has therefore introduced the Bounce Back Loan Scheme.
The main features of the scheme are:
- Small businesses that are affected by the coronavirus pandemic will be able to borrow between £2,000 and £50,000.
- The money will be accessible by the business within days.
- The loan will be easy to apply for through a short, standardised online application.
- The government will guarantee 100% of the loan so that lenders do not need to ask for any personal guarantees from business owners.
- The loan term will be up to 6 years.
- The government will cover any interest and fees payable in respect of the loan for the first 12 months, and the government will work with lenders to agree a low rate of interest for the remaining period of the loan
- Businesses will not need to make any repayments for the first 12 months.
- The scheme will be available from 4th May 2020 and businesses will be able to access it from a network of accredited lenders.
- A business which has received a loan under CBILS will not be eligible for the Bounce Back Loan scheme, and vice versa.
If you wish to discuss any of the key points and receive advice on how best to manage the next steps, then please contact us. We understand the difficulties that businesses face during this challenging time, and we can offer guidance to you, your business and your employees.