HMRC has released further clarification on a number of its new business measures. Our concise weekly breakdown is intended to help businesses keep up to date with the continuously evolving changes.
Coronavirus Job Retention Scheme (CJRS)
Many UK employers have furloughed staff and have been claiming under the CJRS since 20 April 2020, when HMRC commenced accepting such claims. You can read more about the CJRS in our previous updates.
Since its launch, the following changes have been made to the scheme in addition to those covered in our update of 28 April:
- When making a claim, the employer must include the National Insurance number of each employee. HMRC has instructed that if the employer does not have a National Insurance number for any employee who forms part of the claim, then then employer must contact HMRC. They can be contacted on a specific CJRS helpline on 0800 024 1222, or via their CJRS web chat service .
- The employer must also provide HMRC with their UK bank details. The employer must make sure that the bank account provided can accept a BACS payment.
- HMRC have provided a summary to assist employers in determining whether an employee is eligible for the CJRS:
Was the employee employed with you as of this date?
Date RTI submission notifying payment was made to HMRC
Eligible for CJRS?
On or before 28 February 2020
On or before 19 March 2020
On or after 20 March 2020
On or before 19 March 2020
On or after 20 March 2020
On or after 20 March 2020
On or after 20 March 2020
- Employees should check their most recent payslips and ensure that the National Insurance number used by their employer is correct so as to ensure HMRC is able to pay the CJRS grants swiftly.
Self-Employment Income Support Scheme (SEISS)
The SEISS allows self-employed persons and individual members of partnerships, whose trading profits are not more than £50,000, to claim a taxable grant of 80% of average monthly trading profits. The grant will be paid out in a single instalment covering 3 months, and capped at £7,500 (or £2,500 per month). It is a temporary scheme, but it may be extended. A person who receives this grant can continue to work.
HMRC have issued further clarification on this scheme, and aim to invite eligible individuals to claim using an online service by mid-May 2020. Payments are expected to be made by early June 2020.
- A person whose trade has been adversely affected by coronavirus will be eligible to claim. They should have either traded in 2018/19, or have traded in 2019/20 and intend to continue trading in the current tax year 2020/21. The business could have been adversely affected by coronavirus if:
- The individual is shielding, self-isolating, on sick leave due to COVID-19, or has caring responsibilities because of COVID-19.
- Operations have had to be scaled down or temporarily closed because supply chains have been interrupted, there are fewer customers, or staff members are unable to come in to work.
- An individual member of a partnership will only be eligible for the scheme if their share of the partnership’s trading profit is not more than £50,000. In cases where the SEISS grant is paid to such an individual and the partnership’s rules require the partner to pay the grant into the partnership pot, then the partnership must give the full grant back to that partner. Other partners are not allowed to benefit from the grant payment.
- If an individual’s self-assessment tax returns have been submitted between 26 March 2020 and 23 April 2020, HMRC will consider these as “late cases” which will be subject to additional anti-fraud checks for SEISS.
- If an individual is on parental leave he/she will still be eligible to claim under the SEISS, as long as HMRC treats that person as “still trading”. If an individual is claiming Maternity Allowance, it will not affect her eligibility for the SEISS grant.
- In the case of self-employed individuals who claim averaging relief (e.g. farmers, artists etc.), HMRC will use the amount of profit before the impact of the averaging claims to work out their eligibility and amount of grant.
- If an individual is non-resident or chooses the remittance basis of taxation, they may still be eligible for the SEISS. The individual will need to confirm to HMRC that their UK trading profits are at least equal to their other worldwide income.
- The Self-Employment Income Support Scheme is a state aid granted under the European Commission’s Temporary Framework for state aid designed to respond to COVID19. An individual cannot claim under the SEISS if they are already above the state aid limits or if claiming this grant would take them above those limits. Please see the State Aid section in this update for more information.
HMRC has now provided updated guidance in response to the challenges that are being posed by COVID-19 to corporate residence and permanent establishment.
The presence of individuals (directors or employees) in the UK as a consequence of COVID-19 raises questions about whether foreign companies could be deemed to have established a UK residence or a taxable permanent establishment for UK corporation tax purposes.
HMRC has stated in its guidance that they consider that the existing legislation and existing guidance is sufficient in providing flexibility to deal with changes in business activities necessitated by the response to the COVID-19 pandemic.
- Corporate residence
- Where the central management and control (CMC) of a company actually abides is a question of fact.
- HMRC‘s view is that occasional UK board meetings, or participation in such meetings from the UK, does not necessarily result in CMC abiding in the UK. This should therefore not cause a foreign company to be considered as UK resident.
- HMRC however reserve their position by also stating that each case turns on its own facts and circumstances which makes it difficult for HMRC to provide definitive guidance as to where CMC may abide in cases where businesses are forced to make changes in response to the COVID-19 pandemic.
- It is therefore important for foreign companies in this position to carefully understand what their circumstances are and if there are any changes that should be made in order to avoid inadvertent UK residence.
- Permanent establishment (PE)
- For a PE to exist, tax legislation requires either that a business is carried on through a “fixed place of business” in the UK, or that an agent acting on behalf of the company has and habitually exercises authority to carry out the company’s business in the UK.
- HMRC guidance also makes it clear that a non-resident company will not have a PE through a UK fixed place of business after a short period of time (normally 6 months) as a degree of permanence is required. The 6 month gauge does not apply if activities are of a recurrent nature, in which case a combination of the times at which the fixed place is used may be required.
- The habitual conclusion of contracts by an agent in the UK would also create a PE in the UK. , it is a matter of fact and degree as to whether that habitual condition is met.
- Again, HMRC reserve their position by stating that it is a matter of fact and degree as to whether that habitual condition is met.
UK corporate residence and the existence of a PE are complicated areas of tax law, covered by detailed legislation and case law. If there is concern that the logistical challenges posed by the pandemic may cause a foreign company to become UK resident or create a PE, then please contact us to discuss your specific circumstances.
Business support grants
The government had promised business support grants in response to the crisis. The support has taken place in the form of two grant funding schemes being:
- the Small Business Grant Fund, and
- the Retail, Hospitality and Leisure Grant Fund.
Local authorities are responsible for delivering the funding to eligible businesses, and required to make payments as quickly as possible to support struggling businesses. Eligible businesses are being contacted by their local authority and payments under these schemes commenced on 6 April 2020. In some cases, businesses are required to apply to the council if they feel that they are eligible but have not yet been contacted by their local authority.
Guidance issued to businesses in respect of these grants now clarify that:
- Grant income received by a business is taxable therefore the Small Business Grants, and the Retail, Hospitality and Leisure Grants will be subject to tax.
- Only businesses which make an overall profit once grant income is included will be subject to tax. Therefore, if a business finds that it has made an overall loss in the accounting period in which they received the grant, then no specific tax will be payable in respect of the grant income.
Under the SBGF all businesses in England in receipt of either Small Business Rates Relief or Rural Rates Relief in the business rates system should be eligible for a payment of £10,000.
Exclusions to the SBGF would be properties occupied for personal use e.g. private stables, beach huts and moorings. Car parks and parking spaces will also be excluded.
Businesses which were dissolved or in liquidation as at 11 March 2020 will also not be eligible.
Under the RHLG, businesses in England that would have been in receipt of a discount under the Expanded Retail Discount Scheme (which covers retail, hospitality and leisure) on 11 March with a rateable value of less than £51,000 will be eligible for the following cash grants per property:
- Eligible businesses in these sectors with a property that has a rateable value of up to and including £15,000 will receive a grant of £10,000.
- Eligible businesses in these sectors with a property that has a rateable value of over £15,000 and less than £51,000 will receive a grant of £25,000.
Charities which would otherwise meet this criteria but whose bill had been reduced to nil by a local discretionary award should still be considered as eligible for the RHLG.
Businesses with a rateable value of £51,000 or over are not eligible for this scheme. In addition, businesses which are not ratepayers in the business rates system are not included in this scheme.
Exclusions to the RHLG would be properties occupied for personal use e.g. private stables, beach huts and moorings. Car parks and parking spaces will also be excluded. Recipients of the SBGF will also be excluded.
Deferral of VAT Payments
HMRC have confirmed that a business can only defer the following types of VAT payments:
- VAT payments relating to quarterly and monthly VAT returns for the periods ending in February, March and April 2020
- VAT “payments on account” due between 20 March 2020 and 30 June 2020. Payments on account are advance payments towards a business’s VAT liability. HMRC requires a business to make payments on account if their VAT liability is more than £2.3m in any period of 12 months or less.
- Any annual accounting advance payments becoming due between 20 March 2020 and 30 June 2020.
The deferral does not cover payments for VAT payable under the Mini One Stop Shop (MOSS) scheme or any import VAT.
- The government has announced an immediate temporary zero-rating for supplies of personal protective equipment (PPE) in response to the pandemic. The zero-rating will apply to supplies of PPE made between 1 May and 31 July 2020 and which are recommended for use by Public Health England. Products covered by this temporary zero-rating include:
- disposable gloves
- disposable plastic aprons
- disposable fluid-resistant coveralls or gowns
- surgical masks – including fluid-resistant type IIR surgical masks
- filtering face piece respirators
- eye and face protection – including single or reusable full-face visors or goggles
- With effect from 1 May 2020, electronic supplies of the products listed below, unless they are wholly or predominantly devoted to advertising, audio or video content will be zero rated:
- journals and periodicals (which include magazines)
- children’s picture and painting books
Therefore, this zero-rating will not include advertising e-publications, audiobooks, electronic supply of intellectual property, e-readers, e-reading software and similar products.
The lending of any of the zero rated e-publications for a charge (for example, by a library) is also zero-rated.
State Aid and COVID-19
The European Union’s State Aid rules continue to apply to the UK until the end of 2020 despite the UK having exited the EU. The State Aid provisions are in place to ensure that any state aid, such as grants and subsidies, provided by the government of a member country does not distort competition and trade within the EU. Under EU rules, small amounts of aid under €200,000 over 3 consecutive years is not considered likely to distort competition and trade within the EU, and so amounts below this “De Minimis” threshold can be provided to a single undertaking and are exempt from the State Aid rules.
In March 2020 the European Commission adopted a Temporary Framework of state aid measures to respond to the COVID-19 outbreak. This Temporary Framework has since been extended in order to ensure necessary targeted aid is delivered to businesses suffering from the crisis.
This enables the UK and other member states to give State Aid of up to €800,000 per business in various forms such as interest free loans, grants etc. This amount is reduced to €120,000 per undertaking active in the fishery and aquaculture sector or €100,000 per undertaking active in the primary production of agricultural products.
The allowance under the Temporary Framework can be combined with the “De Minimis” aid limit of up to €200,000 per business, to bring the total State Aid per business to up to €1 million.
The various support measures introduced by the UK government for businesses during this pandemic have the following State Aid implications:
- Government guaranteed loans
- Under the Coronavirus Business Interruption Loan Scheme (CBILS), payments (e.g. interest, fees etc.) made by the government on behalf of the business will fall under the Temporary Framework for State Aid.
- Currently there is no specific information regarding State Aid in respect of the new Bounce Back Loan Scheme, but initial thoughts are that the interest payments and fees payable by the government would also be counted as State Aid under either the De Minimis rules or the Temporary Framework.
- Grant Funding Schemes
- The Small Business Grant Fund (SBGF) will be primarily managed under existing State Aid rules permitting De Minimis aid, meaning applicants can receive up to €200,000 of aid within a three-year period. Where this threshold has or would be reached by accepting the SBGF, a business can receive the £10,000 grant under the Temporary Framework.
- The Retail, Hospitality and Leisure Grant (RHLG) is given as aid under the Temporary Framework. If a business has been offered RHLG, it can only receive up to €800,000 under the Temporary Framework and must also confirm that it was not an undertaking in distress on 31 December 2019. This may be particularly relevant to those premises that are part of a large chain, where the cumulative total of grant funding received could exceed these thresholds.
- Coronavirus Job Retention Scheme (CJRS)
- The UK's Department for Business, Energy and Industrial Strategy has confirmed that CJRS grants do not constitute State Aid.
- Statutory Sick Pay (SSP) rebate scheme
- The SSP rebate scheme is State Aid under the Temporary Framework and a business will therefore be subject to the €800,000 ceiling under the Temporary Framework.
- VAT and Income Tax payment deferrals, and the Time to Pay scheme
- On the basis that these measures are available to all businesses, they are non-selective (i.e. they do not provide a selective advantage to any specific business) and hence are not considered State Aid.
- Business Rates Holiday
- The government guidance clarifies that its assessment is that, given the impact of COVID-19 in the sectors receiving the relief, the business rates expanded retail, leisure and hospitality discount for 2020-21 is not State Aid. The government has considered this matter in discussions with the European Commission and is content with this analysis following those discussions.
Bounce Back Loan Scheme
The Bounce Back Loan Scheme was launched yesterday and businesses are able to apply for quick and easy-to-access loans of between £2,000 and £50,000. These loans will 100% backed by the government and businesses can apply online through a short and simple form.
The main features of this facility are:
- The maximum amount that will be lent to a business is the lower of 25% of its turnover or £50,000.
- The government has agreed with lenders that an affordable flat rate of 2.5% interest will be charged on these loans.
- The repayment terms will be fixed at six years, however early repayment is permitted at any stage. Lenders will not be allowed to charge any early repayment fees.
- Government will cover any interest payable in the first 12 months through a “Business Interruption Payment” which is to be made directly to the lender.
- Lenders are not permitted to ask for personal guarantees under the scheme. For sole traders or small partnerships, who often risk their personal assets when borrowing, the terms of the scheme means that no recovery action can be taken over their principal private residence or a primary personal vehicle.
- The scheme will be open until 4 November 2020 with a possibility for the government to extend it.
- The British Business Bank is in charge of administering the scheme and their website has a list of accredited lenders. Businesses may apply through any of these lenders, however they are recommended to contact their main bank first if it is an accredited lender.
- A business that has already taken out a loan of £50,000 or less under the Coronavirus Business Interruption Loan Scheme (CBILS) will be able to switch to this new scheme. This switching facility is available until 4 November 2020.
- Despite the government guarantee, borrowers remain liable to repay the loan in full. The guarantee only secures the lender if they cannot recover the loan from the borrower.
- The business is required to be engaged in trading or commercial activity in the UK at the date of the application.
- The borrower should have been carrying on business on 1 March 2020, and has been adversely affected by COVID-19.
- A business cannot apply for a new Bounce Back Loan if it has already obtained a loan under CBILS or the Coronavirus Large Business Interruption Loan Scheme (CLBILS).
- The business is required to be a UK limited company or partnership, or tax resident in the UK.
- At the time of submitting the loan application, the business should not be in bankruptcy, liquidation or undergoing debt restructuring.
- The borrower should not be a “business in difficulty” on 31 December 2019.
- More than 50% of the income of the borrower’s business should be derived from its trading activity.
- The business applying for the Bounce Back Loan cannot be not a bank, building society, insurance company, public sector organisation, or a state-funded school. Insurance brokers are not excluded from applying to the scheme.
Top-up to local business grant funds scheme
Over the weekend, the government announced the set-up of a new discretionary fund to assist small businesses that fall outside the scope of the Small Business Grants Fund (SBGF) and the Retail, Hospitality and Leisure Grants Fund (RHLGF). These small businesses fall outside the SBGF and RHLGF schemes mainly because they do not pay any business rates, but have ongoing fixed property-related costs such as electricity, water rates, service charges, rent commitments etc.
Total funds of up to £617m will be distributed to local authorities, and the exact amount that each authority will get is to be confirmed this week.
- Businesses must be small, i.e. have less than 50 employees.
- Businesses must be able to demonstrate a significant drop in income due to COVID-19.
- Under £10,000 at the local authority’s discretion,
- A maximum of £25,000
The allocation of funding to any business will be at the discretion of the local authority.
- Those in shared spaces,
- Regular market traders,
- Small charity properties that would meet the criteria for Small Business Rates Relief, and
- Bed and breakfasts that pay council tax rather than business rates.
However, local authorities have the discretion to make payments to other business types based on local economic need.
Small businesses seeking to benefit from these grants should look out for updates published by their own local authority. The application process is likely to vary between local authorities.
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.