VAT

Action – Cancel your direct debit to stop HMRC collecting your VAT. HMRC have announced that VAT payments due between 20 March and 30 June can be postponed until March 2021. You will however need to cancel your VAT direct debit, otherwise VAT will be collected in the normal way. Do it now!

Help for self employed

I highlighted some of this yesterday and last night the Chancellor gave clarification. It works as follows;

> The grant is worth the lower of:
> 80% of the average of your last 3 years trading profits
> up to year ended 5 April 2019
> calculated on a monthly basis
> £2,500

To qualify you need to:

> have submitted your 2018/19 tax return (that was due 31 Jan 2020)
> traded in tax year 2019/20
> are trading when you apply, or would have been if not for COVID-19
> expect to trade in the tax year (as a self employed person) in the tax year 2020/21
> have lost trading profits due to COVID-19 (no indication how you prove this)

You are excluded if:

> your annual trading profits (averaged over the 3 years ending 2018/19) are greater than £50k AND your trading profits in 2018/19 exceeded £50k
> you only started trading on or after 6 April 2019
> your trading profits, as a percentage of all your income, are less than 50%
> you operate through and receive the majority of your income through a limited company (dividends do not count as trading profits)

Other points:

> if you have traded for less than 3 years (up to and including 2018/19), HMRC will look at whatever data is available
> you need to have submitted a tax return for each year you have traded
> the scheme is proposed to last 3 months (April, May and June) – longer if necessary
> no payments will be made before June but will be backdated in one lump sum at that point
> if your average profits are above £37,500, but less than £50k, you will get the maximum grant (£2,500 pm)

How to apply:

You don’t apply. HMRC will review all 2018/19 tax returns, and contact you
(despite there being a button on HMRC’s site ‘claim a grant through Self Employed Income Support’)

Summary – self employed income support

> if you are self employed (or in a partnership)
> not a director of a limited company (as your sole source of income)
> your trading profits are less than £50k in 2018/19 or on average over the past 3 years ended 5 April 2019
> then you are in for a grant and HMRC will contact you
> you won’t get paid until June

Limited Company directors

There are no grants (or support) to cover your personal loss of income from the impact of COVID-19 on your business.

> you may be eligible to obtain loan from a ‘high street lender’ – where the Government guarantees to reimburse 80% to the lender if you are unable to pay – you will remain liable to a) the bank for 20%, b) the Government for 80%)
> if your business is in retail, leisure, hospitality
> you will be eligible for a grant of up £25k (paid automatically) depending on the rateable value of your property
> you will also be eligible for a 12 month rates holiday
> if you have a business premises and pay small business rates or no rates due to exemption
> you will be eligible for a £10K grant (paid automatically)
> if you receive a salary through your company you have the option to be ‘furloughed’ and you are able to reclaim 80% of your ’normal’ salary (up to a maximum of £2,500)
> you needed to be on the payroll as at 28th Feb 2020 to qualify
> the grant is claimed from HMRC, through a portal (currently under construction)
> first payments are due late April
> can be back dated to 1st March 2020

Some thoughts regarding the treatment of company directors

The challenge faced by the Government in keeping the economy from completely crashing and giving handouts to those that need them is a near impossible task. What the Government have done, in certain areas is commendable, in other areas is half cocked, and in the remaining areas hopelessly inadequate.

In the commendable category;

> employees – a grant to cover furloughed payments,
> self employed who earn less than £50k – a grant to cover loss of profits
> retail leisure hospitality – an automatic grant of up to £25k
> businesses who pay little or no rates – grant of £10k

In the half-cocked category

> Coronavirus Business Interruption Loan Scheme

upside

> there’s a greater chance you will get a loan because the Government guarantee to underwrite 80% of the loan to reimburse the lender
> The Government will cover the first 12 months interest

downside

> You may be asked for security including personal guarantees
> you are 100% liable for the loan – so even if you are a limited company the personal guarantee wipes out any protection you have thought you had (note – Banks have the discretion whether or not to seek security for the first £250k of any loan)

Furloughed payments to employees

> the danger being that the employee thinks it’s a massive paid holiday (albeit indoors, and at 80%) whilst the business owner is left running the business.

Furloughed payments to directors

> is it really possible to be furloughed as a director of a limited company and do nothing?

Deferring VAT until 31 March 2021

> we hope so, but it may be a tall order to repay this debt so soon after recovering from this economic shut down

HMRC – time to pay

> yes, of course it helps, but terms for repayment need to be realistic

In the hopelessly inadequate category

All limited company directors

this category represents 80% of our client base
> there is no income support whatsoever
> up until now directors of limited companies pay income tax, corporation tax, VAT and employer’s national insurance – far more taxes than any other individual – so where is the help?
> if you want the economy to keep moving, help all the people that are needed to do that, including the owners of the businesses

self employed people who earn over £50k

> if there is no cap on employed earnings (who also benefit from paid holidays, sick leave and pensions) why on earth is there a cap on the self employed earnings?
> is it right to just switch from £2,500pm to zero in the space of one pound between £50k and £50,001?

If you have questions, need to discuss something or feel the need to rant;

> Landline – 01326 660022
> Mobile/What’s App/Text – 07779799995 – Mike Hutchinson
> Zoom – ID 205-677-7765 – Mike Hutchinson