Understanding COVID-19 Support

By Samantha Senior / 07 May 2020

Accountant Samantha Senior outlines the grants and schemes available to clinic owners

As the current global pandemic unfolds, clinics are still closed and a number of medical aesthetic practitioners are back on the frontline helping support the NHS. Whilst no-one can escape the magnitude of the human cost and uncertainty of COVID-19, clinic owners have the extra worry of wondering, will their business survive? And what kind of financial help might be available? 

The grants or schemes you might be entitled to will depend on whether you are a sole trader, partnership or limited company. Another factor to consider is whether you are renting/own a commercial property, have a clinic in your home, or are renting a room within a business/clinic. This article will consider what aesthetic practitioners need to know during these unprecedented times and help you find the resources and financial assistance you might need.

Coronavirus Job Retention Scheme

While many of you may have already looked into or actioned this, it may be useful to have a thorough understanding. The Coronavirus Job Retention Scheme (CJRS) is basically furloughing staff (including directors) and claiming back 80% of their regular wages.

Having not been familiar with the word until COVID-19, the explanation is evident now. The Oxford Dictionary definition of ‘furlough’ is: ‘If workers are given furlough, they are told to stay away from work for a certain period because there is not enough for them to do’. But what does the word mean for aesthetic clinics that need to close during the COVID-19 crisis? What happens to your staff, and can directors of limited companies furlough themselves?

The CJRS was introduced as a measure to protect staff from losing their jobs due to COVID-19 and was then extended to include directors listed with Companies House. It is not available to sole traders, unless they are listed as an employer; they can then claim for their staff.1 HMRC states that if you have furloughed yourself or your staff you can then claim 80% of the regular salary you would normally pay your employee(s) and yourself. If you are a director, you can only claim 80% of the salary part of your income; dividends are not included, and you can claim up to £2,500 per month.

Please note that although It was previously stated by HMRC that the employees/directors must have been on the payroll scheme on/ before February 28 2020, this has now been updated to included employees/directors up to March 19 2020.1

Since the CJRS has been released it has become apparent that many accountants on behalf of directors do not run an online payroll scheme with HMRC. As such, I would suggest that you immediately register with HMRC (as a PAYE Scheme) or ask your accountant to do so if you have taken the nominal salary and you haven’t run a payroll (if you are taking the nominal salary you must be on the PAYE scheme, regardless of the CJRS). 

Once you have the scheme set up you will need to run late submissions for the pay periods that you physically took your salary payment from the business. Note that after April 19, however, a Early Year Adjustment will need to be submitted rather than a late submission. Enrolling onto a PAYE scheme now may not automatically deem you eligible, but I would recommend you do it anyway and explain to HMRC why you have made a late submission. Then submit evidence of your salary paid into your personal account, on the same dates as the late submissions. You do not need additional payroll software to do this, you can download HMRC’s Basic Tools, which allows you to run a payroll and submit it to HMRC.

In addition, Endeavour Law, an employment law specialist firm, highlights that a record of an employer’s furloughing communication must be kept for five years, as HMRC could investigate the validity of claims in the future. The law specialist states, ‘Employees must be told in writing and a record of that communication kept. Claims should be started from the date the employee finishes work and begins furlough – not the date they are notified of furloughed status (i.e. date of communication)’.3

After you have agreed to furlough your staff and/or yourself as a director, you must follow the guidelines from HMRC. Furloughed employees must not carry out any work for the business. Directors of limited companies that agree to be furloughed should not carry out any work for the limited company that generates revenue.4 

I would recommend reading The Coronavirus Act 2020 Functions of Her Majesty’s Revenue and Customs (Coronavirus Job Retention Scheme) Direction.4 It has a lot of important detail and, of particular relevance, is the clarification that a furloughed director may only undertake work, ‘To fulfil a duty or other obligation arising by or under an Act of Parliament relating to the filing of company accounts or provision of other information relating to the administration of the director’s company’. Paragraph 6.6 gives a very narrow interpretation of the ‘work’ which can be done.4

In regards to what constitutes as generating income and what is administration, financial journalist Martin Lewis notes that it still isn’t entirely clear, giving two examples of conflicting advice from two separate departments at HMRC. When asked if a director can continue to work on marketing their business, for example preparing marketing materials at home, designing leaflets etc., one said it was acceptable, while the other said it wasn’t.5

It is clearly still a grey area, so I would recommend reading the Coronavirus Act 2020 para 6.6 carefully and consider HMRC’s statement: ‘Where furloughed directors need to carry out particular duties to fulfil the statutory obligations they owe to their company, they may do so provided they do no more than would be judged reasonably necessary for the purposes, i.e. they should not do work of a kind they would carry out in normal circumstances to generate commercial revenue or provides services to or on behalf of their company’.4 

It is also worth noting that if you are furloughed as an employee or director you are not able to work for your business/ limited company that is furloughing you, BUT you can work elsewhere – if you are able too.5 This also includes freelancing. As long as it adheres to the social distancing guidelines there is no reason why you can’t freelance your skills; maybe as an online tutor to other practitioners to create an income unrelated to your limited company. Just make sure you follow HMRC’s guidelines on becoming self-employed. You can read my article in the January 2020 issue of Aesthetics which shares advice on how to become self-employed and what requirements need to be fulfilled.

Another point to consider is that if you are in a position where you are debating to furlough or not, I would consider that for 80% of the optimum salary (for a single director company) of £719 – which equates to £575.20 per month – is it worth not furloughing and working on your business to stay ahead of the competition? 

Creating content, marketing material and engaging in potential patient relationships may constitute to more revenue in the long term than the income the grants provide. It is at the discretion of the individual director, but it is worth weighing up if it is beneficial to furlough or not. HMRC has promised that the first portal to claim CJRS will go live on the April 20, which is after the time of writing so is hopefully now in place.8

Statutory Sick Pay refund

Employers are allowed to claim a full refund of Statutory Sick Pay (SSP) of up to two weeks for any employee including directors who are away from work due to COVID-19. This means your employees and directors may be eligible for £95.85 for up to 28 weeks.9

The Government is still working on the legislation and the scheme, and as soon as it is updated it will be included on HMRC’s website.

Coronavirus Business Interruption Loans Scheme

On March 17, the Chancellor announced an unprecedented package of Government-backed and guaranteed loans to support businesses, making available an initial £330 billion of guarantees – equivalent to 15% of GDP.10 The Coronavirus Business Interruption Loan Scheme (CBILS) are loans for businesses that do not fit the criteria for normal borrowings, and the Government will pay the interest for the first 12 months.11 I would speak to your accountant and your financial advisor before looking at a loan. The loans can be obtained directly via your own business bank or from various lenders. For those businesses that use a separate personal account for their business, I would recommend opening a separate business bank account as soon as possible as per the requirements.

Sole traders/partnerships

Self Employment Income Support Scheme

The Self Employment Income Support Scheme (SEISS) is 80% of the Average Monthly Trading Profit. According to HMRC’s website the criteria is as follows; sole traders and partnerships can claim the SEISS and you will be eligible if you:13

  • Have submitted your income tax self-assessment tax return for the tax year 2018-19
  • Traded in the tax year 2019-20
  • Are trading when you apply, or would be if it weren’t for COVID-19
  • Intend to continue to trade in the tax year 2020-21
  • Have lost trading/partnership trading profits due to COVID-19

Your self-employed trading profits must also be less than £50,000 and more than half of your income from self-employment. This is determined by at least one of the following conditions being true:13

  • Having trading profits/partnership trading profits in 2018-19 of less than £50,000 and these profits constituting more than half of your total taxable income
  • Having average trading profits in 2016-17, 2017-18, and 2018-19 of less than £50,000 and these profits constituting more than half of your average taxable income in the same period
  • If you have not submitted your income tax self-assessment tax return for the tax year 2018-19, you must have done so by 23 April 2020. This was an extra breather from HMRC, as the 2018-19 Tax Return was due on January 31 2020 so there is unlikely to be a further extension.13

HMRC will use data on 2018-19 returns already submitted to identify those eligible and will risk-assess any late income tax returns filed before the 23 April 2020 deadline in the usual way. It important to note that at present there is nowhere to apply for SEISS – HMRC has stated that you will be contacted accordingly and the grant will be paid automatically in June. If you are eligible and wish to calculate your grant amount, you need to collate your tax calculations for the relevant tax years. If you have not traded in the full three years, you only need the tax calculations for the years that you have traded/ submitted (and work the calculation based on the years you have).

To find your tax calculation:

If you filed your own self-assessment tax return, you can log on to your Tax Account at gov.uk and in the ‘Tax Years Options’ you will be able to click on the relevant years and print out your tax calculations.

If your accountant filed your tax returns and used a HMRC agent account to do so, you should be able to print out the returns as above. If an accountant filed your tax returns using third-party software you should have a copy of your tax calculation sent to you by your accountant before and after it was submitted – if you can’t find this your accountant should have a copy.

The figure that you need from your tax calculation is ‘Profits from Self Employment’, which is the same as what the Chancellor is calling ‘Trading Profits’. See Figure 1 for an example.

Please note, if your profits are in the same region as the example detailed, it is likely that you will have been advised to set up a limited company for the tax-saving benefit. In this scenario, as the eligibility for the SEISS is that you continue to trade (as self-employed) in 2019/2020 and continue to trade in 2020/2021, you will need to ensure that your self-employment income is more than your employment income (and dividends) from your limited company, or you will not be eligible for the SEISS grant.13 

I would recommend contacting your accountant and ask them to advise the best route in regards to continuing as a sole trader or a limited company. Another point to mention is that for the SEISS, you can carry on working for your business (unlike furloughed employees or furloughed directors) as long as it adheres to the Government guidelines on social distancing.13

Figure 1: Example of how to calculate your possible grant amount for the Self Employment Income Support Scheme 

Deferral of self-assessment payments on accounts and VAT payments

This section is relevant to individuals who pay their tax on account. For example, if you had more than £1,000 of tax to pay for the last tax year, you will automatically have been asked to make a payment for the following tax year, which is an estimate based on the previous year’s tax due. This payment on account is normally due by July 31, which has been deferred to January 31 2021, and can be paid in full or via a payment plan. No penalties or interest will be charged on the deferred payment.14 The same goes for VAT payments; if you owe VAT, you will be able to defer the payment. The period covered by the VAT deferral is March 20 to June 30 2020, and the payment can be deferred until March 31, 2021.15 I would recommend that if you pay by direct debit, you cancel this immediately to create some cashflow. You will still need to complete and submit your VAT returns as normal.

Universal credit

This is available for anyone (unless you are already claiming working/ child tax credits) who is self-employed or is a furloughed director. HMRC has removed the minimum income floor. individuals who do not have more than £16,000 of capital can claim.16 Claiming is all completed online and there is an option for a hardship fund, which

can pay out on the same day.16 I would refer to Universal Credits directly to complete its online calculator to see if you are eligible, which will be dependent on your personal circumstances and savings. The LITRG has free advice and resources in regards to Universal Credit.17

Limited companies

Extended deadline for filing company accounts

The Government has extended the deadline for filing company accounts for three months. To apply for this extension, you will need to complete an online form at the Companies House website. It will be fast-tracked and automatically accepted during the pandemic.18

Suspension of wrongful trading rules

Wrongful trading is when a director enters into a financial agreement with a creditor knowing the company has no money. There are strict guidelines in regards to wrongful trading, and it has severe repercussions for directors as it is a civil offence.19 In these unprecedented times, the wrongful training rules have been suspended, taking the pressure from the director of the business, and the Government is trying to ensure that limited companies emerge intact from the pandemic, giving them breathing space from creditors.20 Further details on the suspension of wrongful trading will need to be announced to ensure that it is not abused. Nevertheless, businesses genuinely struggling due to the lockdown will have some reassurance.

Moving forward

During these times of uncertainty, I suggest you follow HMRC and Low Income Tax Reform Group (LITRG) websites for accurate advice. In regards to furloughing staff and directors, I would recommend that you get legal advice from the Advisory, Conciliation and Arbitration Service (ACAS) or an employment lawyer. I would also suggest that you contact your own local council or Local Enterprise Partnership (LEP) Growth Hubs to access a wealth of free information and guidance. Some local councils/LEPs have funds of their own to distribute to businesses that need help, which are shared at their discretion.

NOTE: The help available and cited in this article is correct at the time of writing, however some changes may have occurred at your time of reading.

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