Rishi Sunak has expanded the Bounce Back Loan Scheme’s (BBLS) Pay As You Grow repayment plan.
Businesses can delay repayments for a further six months and extend their loan term:
Originally you had to start repaying your loan 12 months after taking it out. You can now extend this another 6 months – i.e. start repaying it after 18 months rather than 12.
Extend loan term
Also, you can extend the loan repayment period from its original 6 years, to 10 years.
All options summary
In summary, all businesses will be offered the following options by their lender:
Talk to the Bank you took your bounce back loan out from to organise any of these changes.
As we reported last year (here), if you took advantage of HMRC’s scheme to defer your VAT payments between 20 March and 30 June 2020 (as most did), you are required to pay the VAT debt in full by 31 March 2021.
Pay over 11 months
However, you can now pay the amount owed over 11 months by applying via an online portal which will be open from 23 February 2021, but tax agents (like Salonfrog) cannot do this on behalf (although you will be charged interest at 2.6% from 1 April 2021).
HMRC is asking businesses to pay their VAT debts in full by 31 March 2021 if they can. Where the cash is not available the business must apply online to spread the payment of the debt over up to 11 instalments ending in January 2022.
If you don’t pay the full amount by 31 March 21 or join this scheme to pay over 11 months, HMRC will impose penalties for late payment, and possibly initiate debt collection action against you.
The company director or business owner must access this portal themselves, tax agents nor their accountants can’t use it to arrange a VAT payment plan on behalf of clients.
This is because as part of the payment plan the business must set up a direct debit to make regular payments from their business bank account. Tax agents don’t have the authority to make payments out of clients’ bank accounts, so can’t enter the agreement on behalf of clients.
Before a business can use this new VAT deferral scheme it needs to get all its VAT ducks in a row as follows:
The good news is HMRC will allow businesses to arrange a payment plan for the deferred VAT even if they have already entered a time to pay arrangement for other taxes.
The business owner/ director must have the authority to set up a direct debit to pay the remainder of the debt by monthly payments. Where a direct debit can’t be set up, perhaps because there is no UK bank account, or the account has two signatories, the business owner must call HMRC on 0800 024 1222.
If the business doesn’t have the cash to even pay the first instalment of VAT, the owner should contact the HMRC payment support service on 0300 200 3835.
Join sooner rather than later
HMRC wants all of the deferred VAT paid by 31 January 2022, so the later the business signs up to this scheme to spread the payments, the fewer instalments will be available to it.
For example, if the business joins the scheme by 19 March it can spread the payments over 11 instalments starting in March 2021, but if it joins the scheme in June 2021 it can only spread the debt over eight instalments.
If the business owner can’t use the online portal, they should call HMRC on 0800 024 1222 to arrange a payment plan, and this telephone service will be open until 30 June 2021.
Claims for the third SEISS grant must be submitted by 29 January.
Here’s further guidance on making the claim and what to add to your tax return.
The window to apply for the 3rd SEISS grant closes on 29 January and it is not usually possible to make a late claim under the scheme.
The additional conditions for the 3rd grant have caused some confusion:
i. When deciding whether a taxpayer meets the “significant reduction in trading profits” test for the 3rd SEISS grant, the taxpayer does not need to take into account the first and second SEISS grants, nor any other COVID-19 government support payments received.
ii. If the 1 November 2020 to 31 January 2021 eligibility period for the 3rd grant straddles two basis periods, it is sufficient to be able to show a significant reduction in trading profits for one of the basis periods. The taxpayer does not need to show a significant reduction in both basis periods to be eligible for the third grant.
iii. When assessing whether there has been a significant reduction in trading profits, the comparison period is not specified in HMRC’s guidance. The taxpayer can use the previous year or an average of say the last three years trading profits, but a reduction against an earlier forecast for the relevant basis period would also be valid.
iv. Where a taxpayer has more than one trade it is sufficient to show that one of the trades has suffered reduced activity, capacity, or demand, or has been temporarily unable to operate since 1 November 2020, and that the taxpayer reasonably believes that this will cause a significant reduction in the profits compared with what they would otherwise have expected for that trade. The taxpayer does not have to consider the two trades together.
v. In some cases, the reduction in activity, capacity, or demand may be only partly due to COVID-19 restrictions. For example, a taxpayer might decide to take on a part-time job or college course alongside their reduced self-employment. So long as at least some of the reduced activity, capacity or demand is due to COVID-19 restrictions the taxpayer would be eligible for the third grant.
Reporting SEISS grants on tax returns
SEISS grants are all taxable in the 2020/21 tax year, whatever date the taxpayer prepares their accounts to. No element of the SEISS grants should be reported in the 2019/20 self assessment tax returns that are due to be filed by 31 January 2021.
The government has announced that there will be a fourth grant, covering the period February to April 2021. The conditions for the fourth grant, and the amount, have not yet been released . Pending a further announcement it would be advisable to ensure that 2019/20 tax returns are filed by the 31 January deadline.
It is not yet know whether information from 2019/20 tax returns will be taken into account for the fourth grant, but suggests it would be wise to ensure that they are filed on time in case that does happen.
Full details of the third SEISS grant to support self-employed people affected by coronavirus (COVID-19) have just been published on GOV.UK.
The rules on who is eligible to claim have changed.
However, you will still need to have submitted a Self Assessment tax return for the tax year 2018 to 2019 showing self-employment income in order to claim (unless one of the existing exceptions applies).
The third grant, which offers 80% of three months’ average trading profits, paid out in a single taxable instalment capped at £7,500, will be available covering the period from 1 November 2020 to 29 January 2021. Self-employed people who are eligible and in need of support will be able to claim the third grant at any time from 30 November 2020 to 29 January 2021.
Unfortunately we cannot do this for our Clients
Like SEISS 1 and 2, we cannot claim this grant on behalf of our clients
Check you are eligible
You should check since this 3rd grant is different to the previous SEISS grants.
To make a claim for the third grant, you must meet a number of conditions, and make an honest assessment about whether you reasonably believe your trading profits will be significantly reduced due to coronavirus.
As before, to make a claim for the third grant, you must be:
i.e. Only claim if the reduction in profits is caused by reduced business activity, capacity or demand, or inability to trade due to coronavirus – reduction in profits due to increased costs (such as having to buy masks) does not count for this purpose.
Your business must have been impacted on or after 1 November 2020. You must keep evidence to show the impact and reduction in your business activity across the qualifying period.
For more information and examples to help you check eligibility to claim, go to GOV.UK and search for ‘Self Employment Income Support Scheme’.
HMRC is contacting all self-employed people in the UK that may be eligible to let them know about the third grant.
There will also be a fourth grant (covering the three-month period from February 2021 to April 2021). We’ll tell you more about that nearer the time, including how much it will be and the rules for claiming.
If you (like most salons) deferred your VAT payment between 20 March and 30 June 2020 under the coronavirus VAT scheme, you now have a new choice on how to repay it. Previously it was simply due by the end of March 2021, but now you have a second option:
If you want to opt in to the new payment scheme
This new scheme has just been announced by HMRC.
So instead of paying the full amount you owe by the end of March 2021, you can make up to 11 smaller monthly instalments, interest free.
All instalments must be paid by the end of March 2022.
To do this however, you must be up to date with your other VAT returns (having submitted and paid all other ones due).
You cannot opt in just yet – the online ‘opt in’ process will not be available until early 2021 but that’s not too far away now.
In the meantime, if you are repaying this VAT, consider using this scheme instead.
You have to opt in yourself as HMRC have said that HMRC agents (which Salonfrog is) cannot do this for you. No idea why this is.
However, when the opt in is available, we’ll see what you have to do and provide you detailed instructions.
Here’s the key points about the extended furlough scheme (CJRS):
From 1 November, you can add new employees who were not eligible under the scheme before November.
The earlier versions of the CJRS (which ended on 31st October) required an employee to have been employed and an RTI submission to have been made on or before 19 March 2020.
You can now include staff employed at 30 October 2020 provided an RTI submission has been made between 20 March 2020 and 30 October 2020 notifying at least one payment of earnings for that employee.
In other words, staff hired in late spring and summer are now eligible for furlough grants.
Employers should remember to change the terms of employment contracts (with each staff’s agreement) before furlough starts. This is very important as HMRC has threatened to start checking this; and in fact HMRC says that only contracts signed and dated up until 13 November 2020 can be relied on for the purposes of a CJRS claim.
What can employers claim for periods starting from 1 November 2020?
Scenario 1: Employee on fixed pay
The claim is based on 80% of the usual salary/wages in a reference period.
The reference period is the last pay period ending on or before 19 March 2020 for employees who:
Scenario 2: Employee on variable pay
For an employee on variable pay, or variable hours, their ‘usual’ hours should be used.
Again, the claim is based on 80% of the usual salary/wages in a reference period.
For an employee:
Pension and NIC
You cannot claim for any pension or NIC paid by you for your employees.
How long will support remain at 80%?
CJRS has been extended to 31 March for all parts of the UK. From 1 November, the UK Government will pay 80% of employees’ usual wages for the hours not worked, up to a cap of £2,500 per month. But, the UK Government has said it will review the policy in January for claims for February and March.
HMRC has said it intends to publish details of employers who use the scheme for claim periods from December 2020 onwards. It will publish the employer name and also, where relevant, the company registration number, including for LLPs.
Employees will be able to find out if their employer has claimed for them under the scheme. It has not yet been confirmed how employees will be able to obtain this information.
There are now shorter deadlines for submitting monthly claims. Claims for periods starting on/after 1 November must be submitted within 14 calendar days after the month they relate to, unless this falls on a weekend, in which case the deadline is the next week-day.
However, a claim once made can be increased provided it is amended within 28 calendar days of the end of the month it relates to (note that if you have over-claimed, this extension doesn’t apply).
Maximum number of employees
When CJRS V2 was introduced from 1 July 2020, the maximum number of employees which could be included in a claim was limited to the maximum number the employer had ever previously claimed for in any single claim made for periods before 30 June 2020.
For claims under CJRS V3 this limit no longer applies. This will be useful to businesses who have taken on additional staff since 1 July, who would otherwise not have been able to furlough all their staff, eg, those currently facing a new compulsory lock down of their entire business.
Some other bits to remember
Today we listened to Rishi Sunak expanding support for businesses once the existing furlough scheme ends.
All the detail here:
A longer read than usual for one of our posts but Nicholas Macpherson, former permanent secretary to three chancellors, hits the nail on the head, just like tax is going to hit us all in the pocket to pay for furlough in the not too distant future…
Taxes are going to have to rise.
As with war, the immediate cost of the coronavirus can be financed by borrowing. But as and when we return to normal times, the government will need to set out a plan which stabilises and then reduces public sector debt as a share of national income.
The problem is public expectations of healthcare are rising. Voters will expect greater spare capacity to guard against future pandemics and they will demand better care homes. Demographic pressures on spending are already on the rise. And Mr Johnson’s government has shown little interest in public expenditure control: it was elected on a platform of ending ‘austerity’.
My guess is that taxes will have to rise by at least £50bn a year. The question is how?
I worked on two major fiscal consolidations when I was at the Treasury: 1992–93 and 2010–12.
The first lesson I learnt is that tax reform and tax increases are difficult to reconcile. Extending VAT to domestic fuel in the early 1990s led to an almighty row and government defeat. Similarly, George Osborne had little difficulty raising an extra £13bn by raising the VAT rate from 17.5% to 20%, but he found it impossible to raise £100m by extending VAT to pasties and holiday caravans. It’s better to leave tax reform to the good times when you can lower the rate while extending the base, as Nigel Lawson demonstrated in the 1980s.
The second lesson is that introducing small new taxes can help, but if they are not to cause upset the government should not push them too far. Airport passenger duty and insurance premium tax have been nice little earners. But the revenue they raised initially was in millions not billions. Everybody is in favour of a carbon tax in principle, until they have to pay a higher price at the pump or on their fuel bills. There’s a wider point about tax acceptability: push a tax too far, as New Labour did with council tax and the fuel duty escalator, and you spend many years repenting at leisure as you freeze the tax.
The third lesson is about fairness. Voters won’t tolerate openly regressive taxes like the so-called community charge or poll tax. But at the same time, you won’t raise serious money by soaking the rich. It’s tempting to think that the rich and the companies they own can bear the burden of higher taxes. They won’t. Capital is mobile. Tax it more and it tends to move elsewhere. It’s irritating that digital companies operate out of Luxembourg or Ireland but, the United States apart, governments are never going to extract serious revenue from them. The same can be said of the rich. President Hollande’s tax hike in 2012 merely led to an exodus of the affluent, many of whom came to London.
Taxing wealth is tempting. But wealth taxes rarely raise much revenue, once the inevitable exemption for housing is introduced. And experience suggests that people will go to extraordinary lengths to avoid inheritance tax.
There’s a good case in principle for taxing land – after all, it doesn’t move. But the politics of property taxation are notoriously difficult. All the chancellors I worked for worried about the asset rich but income poor widow. And it is no coincidence that there hasn’t been a revaluation of council tax in 30 years. I much admired the Irish reform of reducing stamp duty rates and introducing a self-assessed property tax. Stamp duty rates are too high and discourage mobility. But I can’t see it happening here. And even if it did, it would be more likely to take the form of a revenue neutral package than as a serious tax raiser.
That does not mean the government should do nothing in these areas. Corporation tax rates were probably reduced too far too fast. And there’s a good case for higher tax rates on capital gains, though economists tend to overestimate the likely yield: experience suggests if you wait long enough a government is elected which will tax your gains at a much lower rate. It’s worth looking again at pensions tax relief though this is already constrained and fiendishly complicated. The government might also consider more council tax bands, though in the absence of a revaluation it might be difficult to make these stick. But measures like these will raise billions rather than tens of billions.
That takes me to the final lesson I learnt. If you need to raise serious revenue, there is no substitute for raising the main rate of one of the big taxes. There is a reason why income tax, national insurance and VAT account for the vast majority of tax revenue. They are easy to collect and they are paid by most of the population.
The problem, in the short run at least, is the government made a manifesto commitment not to raise the rates of these taxes.
Here, the solution is simple. Introduce a new tax: a ‘temporary’ social solidarity charge. It would be modelled on national insurance and based on ability to pay, but unlike NICs it would be paid by old as well as young, and on pension, dividend and rental income as well as earnings. Unlike income tax, there would be no reliefs, and so with the broadest possible base the increase in tax rates could be kept to the minimum.
The new charge could be sold as a way of spending more on health and social care. I’m under no illusion. It won’t be popular. Taxes never are. Sometimes, you have to raise taxes to recreate a coalition for lower spending. The pendulum will swing.