Pay Less Tax Newsletter -2024 Vehicle Special Edition
We set out 3 major COVID-19 developments for 20 May 2020:
Following the release of much needed further government support for small businesses, the Bounce Back Loan Scheme was launched on 04/05/20. This allows any business affected by Covid-19 to apply for a 100% government backed loan from between £2,000 and £50,000, or 25% of turnover if lower. With no repayments or interest for the first year, and then a fixed rate of 2.5% for the remainder of the term, these were much needed for small businesses looking for support in addition to the other grant schemes available.
The loans have been processed much more quickly than the original scheme – The Coronavirus Business Interruption Loan Scheme (CBILS) – which required far more detailed information and was also only guaranteed up to 80% by the government.
The main criteria for the Bounce Back Loan Scheme are:
- Your trading activities have been adversely affected by the COVID-19 lockdown
- Your business wasn’t already in trouble at the end of December 2019
- The business isn’t bankrupt or in liquidation now
- You were trading before 1 March 2020
- You’re not using any of the other coronavirus loan schemes (e.g. CBILS) – unless you intend to use your BBLS loan to pay back the other loan in full
- More than half of the business’s income comes from its trading activity
- You’re not in a restricted sector (i.e. a credit institution, insurance company or public sector organisation)
Whilst this is all good news for businesses, there are significant points to bear in mind in relation to the use of the funds. Based on government guidance, the funds can be used as follows:
- Paying staff salaries (including your own) – but you cannot increase them
- Paying suppliers
- Paying off existing loans
- Paying utility bills / overheads
- Providing a cash reserve to maintain cash flow
- Any other necessary business running costs
As set out above, the money can be used to support your income if you are a company director, however you can’t use it to pay dividends if you don’t have sufficient reserves to do so (but you can if you have the reserves and not the cash).
Effectively, any money drawn out from the company (that isn’t salary) , where there are no reserves, will be treated as a director’s loan which has to be repaid in full within 9 months of the company’s financial year-end. If not, the company will suffer a 32.5% tax charge – at a time when it’s likely the loan repayments will have also started.
To put that into context, if you obtain a £50,000 loan in June 2020, and you draw all of this out as a director’s loan over the next 6 months, and your company has a financial year-end of say 31/12/20 – the following payments will be due in 2021:
- January 2021 – any deferred income tax payments from July 2020
- March 2021 – any deferred VAT payments from February – April 2020 quarters
- July 2021 – Loan repayment – £900
- August 2021 – Loan repayment – £900
- September 2021 – Loan repayment – £900
- October 2021 – Loan repayment – £900
- October 2021 – s.455 Tax Charge – £16,125
- November 2021 – Loan repayment – £900
- December 2021 – Loan repayment – £900
- Total payable (excl VAT and income tax) – £21,525
Putting it another way, if your business usually makes enough profit and cash on a normal year to allow you to take dividends of £50,000 out of the post-tax profits, in 2021 you need to make enough to cover that £50,000 plus the above costs – an additional £21,000 of post-tax profits and cash.
If you are wondering whether the scheme is suitable for you, how you might be able to avoid the issues above, or if you are not sure what other support might be available we are here and happy to offer advice – so please contact us any time.
The government’s new online service allowing small and medium-sized employers to recover Statutory Sick Pay (SSP) payments they have made to their employees, will be launched on 26 May.
This Coronavirus Statutory Sick Pay Rebate Scheme, announced as part of the governments COVID-19 support package, will allow small and medium-sized employers, with fewer than 250 employees, to apply to HMRC to recover the costs of paying coronavirus-related SSP. Please be assured that if Sibbalds acts as your tax agent and prepares your payroll we will be able to make claims on your behalf.
From 26 May eligible employers will receive repayments at the relevant rate of SSP that they have paid to current or former employees for eligible periods of sickness. You can claim for periods of sickness starting on or after:
- 13 March 2020 – if your employee had coronavirus or the symptoms or is self-isolating because someone they live with has symptoms, or,
- 16 April 2020 – if your employee was shielding because of coronavirus
The repayment will cover up to 2 weeks of SSP and is payable if an employee is unable to work because they:
- have coronavirus; or
- are self-isolating and unable to work from home; or
- are shielding because they’ve been advised that they’re at high risk of severe illness from coronavirus
As a guide for the period 13 March 2020 to 5 April 2020 the SSP rate was £94.25 per week. Employers can choose to go further and pay more than the statutory minimum however they will only be able to reclaim the SSP rate.
The scheme covers all types of employment contracts, including:
- full-time employees
- part-time employees
- employees on agency contracts
- employees on flexible or zero-hour contracts
Other SSP eligibility criteria still applies however employees do not have to provide a doctor’s fit note for their employer to make a claim under the scheme. You can ask them to give you either:
- an isolation note from NHS 111 – if they are self-isolating and cannot work because of coronavirus
- 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
Employers can furlough their employees who have been advised to shield in line with public health guidance and are unable to work from home, under the Coronavirus Job Retention Scheme. Once furloughed, the employee should no longer receive SSP and would be classified as a furloughed employee.
If you wish to discuss making a claim under the scheme please contact our payroll manager Adam Armiger.
Almost all workers, including zero-hour contracted workers and those on irregular hours contracts, are legally entitled to 5.6 weeks’ paid holiday per year and workers who have been placed on furlough continue to accrue statutory holiday entitlements, and any additional holiday provided for under their employment contract.
Taking Holiday
Workers on furlough can take holiday without disrupting their furlough. The notice requirements for their employer requiring a worker to take leave or to refuse a request for leave continue to apply. These are:
- double the length of the holiday if the employer wishes to require a worker to take holiday on particular days
- the length of the planned holiday if the employer wishes to cancel a worker’s holiday or require the worker not to take holiday on particular dates
Employers can also ask workers to take or cancel holiday with less notice but need the workers’ agreement to do so. Employers should engage with their workforce and explain reasons for wanting them to take leave before requiring them to do so.
If an employer requires a worker to take holiday while on furlough, the employer should consider whether any restrictions the worker is under, such as the need to socially distance or self-isolate, would prevent the worker from resting, relaxing and enjoying leisure time, which is the fundamental purpose of holiday.
Bank Holidays
Where a bank holiday falls inside a worker’s period of furlough and the worker would have usually worked the bank holiday, their furlough will be unaffected by the bank holiday. However, if the worker would usually have had the bank holiday as annual leave, there are 2 options.
- The bank holiday is taken as annual leave
If the employer and the worker agree that the bank holiday can be taken as annual leave while on furlough, the employer must pay the correct holiday pay for the worker. Employers may also require workers to take the bank holiday as annual leave with the correct notice periods.
- The bank holiday is deferred
If the employer and the worker agree that the bank holiday will not be taken as annual leave at that time, the worker must still receive the day of annual leave that they would have received. This holiday can be deferred till a later date, but the worker should still receive their full holiday entitlement.
Holiday pay
Holiday pay, whether a worker is on furlough or not, should be calculated in line with current legislation and based on a worker’s usual earnings. The underlying principle is that a worker should not be financially worse off through taking holiday.
An employer should not therefore automatically pay a worker on holiday the rate of pay that they are receiving while on furlough, unless the employer has agreed to not reduce the worker’s pay while on furlough.
Instead if a worker on furlough takes annual leave, an employer must calculate and pay the correct holiday pay in accordance with current legislation. Where this calculated rate is above the pay the worker receives while on furlough, the employer must pay the difference.
However, as taking holiday does not break the furlough period, the employer can continue to claim the 80% grant from the government to cover most of the cost of holiday pay.
Carrying annual leave into future leave years
The government has passed new emergency legislation to ensure businesses have the flexibility they need to respond to the coronavirus pandemic and to protect workers from losing their statutory holiday. These regulations enable workers to carry holiday forward where the impact of coronavirus means that it has not been reasonably practicable to take it in the leave year to which it relates.
Where it has not been reasonably practicable the untaken amount may be carried forward into the following 2 leave years.
Employers should do everything reasonably practicable to ensure that the worker is able to take as much of their leave as possible in the year to which it relates, and where leave is carried forward, it is best practice to give workers the opportunity to take holiday at the earliest practicable opportunity.
Workers who are on furlough are unlikely to need to carry forward statutory annual leave, as they will be able to take it during the furlough. However, to do so they must be paid the correct holiday pay which is likely to be higher than the rate of pay that will be covered by government grants, with the employer making up the difference.
If, due to the impact of coronavirus on operations, the employer is unable to fund the difference, it is likely that this would make it not reasonably practicable for the worker to take their leave, enabling the worker to carry their annual leave forwards.
In this situation, the worker must still be given the opportunity to take their annual leave, at the correct holiday pay, before the carried annual leave is lost at the end of the next 2 leave years.
Handling leave that has been carried forward
When a worker carries leave forwards due to the coronavirus, they will continue to accrue holiday in the next leave year. As such, they will have 2 entitlements:
- the holiday that has been carried forward that must be taken in the next 2 leave years
- the entitlement that relates to the new leave year
When a worker with multiple entitlements takes holiday, it is generally best practice to allow the worker to take holiday from the entitlement that expires first. In practice, this means that workers should be allowed to take the holiday to which they are entitled in the new leave year before they take the ‘carried’ holiday, as the ‘carried holiday’ entitlement lasts for 2 years.
The employer may request that the worker takes “carried holiday” instead of their regular entitlement. If they do so, the employer must still ensure that the worker receives their full regular entitlement in the leave year to which it relates, in addition to any carried holiday taken.
Where carried leave is carried into a further leave year, the employer must facilitate the worker taking their leave in that later year.
Giving notice to workers
To ensure that workers do not lose the holiday entitlement that they are entitled to, it is best practice for employers to inform workers of both the need to carry forward, and how much leave will be carried.
Requiring workers to take annual leave
An employer’s ability to require a worker to take annual leave is unaffected by the ability to carry holiday into future leave years. Where it is reasonably practicable for a worker to take annual leave, employers should facilitate this. Generally, employers remain able to require workers to take annual leave to ensure that holiday is taken in the leave year to which it relates.
Payment in lieu for carried leave
Carried leave is still subject to the usual rules around payment in lieu. An employer must facilitate the worker taking their annual leave and not replace it with a financial payment (known as payment in lieu). However, if the worker leaves employment, the employer must pay the worker for any untaken leave.
Please note that the government suggests the updated guidance should not be treated as legal advice. Employers and workers should always check individual contracts and if necessary seek independent legal advice. We can assist in helping you find this advice so do not hesitate to contact us.
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