The Fizz! Blog

A round-up of help available to sole traders and partners in partnerships

Now that new announcements have dried up (for a little at least), we’ve put together a round-up of the help available for sole traders and partners in partnerships (you can see our equivalent for limited company owners – the same in many respects – here). 

Self-Employment Income Support Scheme

We’ve emailed clients about this scheme in detail already, but in short anyone who was a sole trader or partner in a partnership in 2018-19, got most of their income that way, and had profits of less than £50,000 will be eligible for a grant.  That’s as long as they’re still a sole trader or partner, and as long as their business has been affected by coronavirus.  The grant will be based on 80% of average profits, capped at £2,500 a month, initially paid for three months.  It'll be taxable, just as the profit would have been.

Even if you do qualify, HMRC's aim is to start to get money to people at the end of June, and the process will involve *them* contacting *you* on the basis of the information they hold about your income, not the other way round.  So there's a cashflow gap to bridge, and there's nothing you can do to speed the process along.

VAT and Tax deferrals

The vast majority of our clients are great at saving for VAT and personal tax as they go, and the tax payment deferral measures should mean that you can safely dip into your tax savings for a while if you need to.  If you want to do that, then:

• VAT payments for the quarters ending in February, March or April can be delayed until early 2021 (though if you’ve a direct debit in place with HMRC for your VAT it’s important that you cancel it – they’ll take the VAT on time otherwise).
• You can delay your July 2020 personal self-assessment payment until January 2021.

Deferring PAYE payments if you have employees

The VAT and self-assessment deferments above are automatic and you don’t have to apply for them.  There aren’t any formal general agreements that PAYE can be delayed.  But HMRC have set up a special helpline for businesses that need to discuss deferring other payments.

It might take a long time to get through, although a client called them one day last week at 8.15am and she was through within five minutes, so aiming for the start or end of the day is probably sensible.  It sounds as if generally HMRC are very open to agreeing more generous payment terms.

Grants

• Rates-related grants - If you formally rent premises subject to Business Rates, you should be eligible for a grant if either (a) you currently benefit from Small Business Rate Relief (remembering that you will qualify even if SBRR means you pay no business rates all), or (b) you’re in the retail, hospitality, nursery or leisure sectors.
• Job Retention Scheme - If you employ staff but don’t currently have work for them, you can use the JRS to claim a grant to cover 80% of their wages.
• Statutory Sick Pay – some years ago HMRC stopped reimbursing employers for SSP they paid to staff – but they will now reimburse it if it’s coronavirus-related. Not right away, though, there’s no mechanism for doing so right now, so you’ll need to fund the (modest) cashflow to begin with.
• A self-employed person can’t get SSP, but if you’re unable to work because of coronavirus, or you’re having to self-isolate and cannot work from home, you may be able to claim ESA, albeit it’s not a lot of money and has similar conditions as Universal Credit.

Other things to consider

• Check your business insurance policy, in case you have Business Interruption cover.
• Speak to your landlord (for both your home if you rent, and your business premises) to see if you can delay payments, get a discount, or a rent-free period. Some landlords are open to this.
• Consider talking to your lender to arrange a mortgage payment holiday.
• Talk to your bank to see if you can arrange a business or personal overdraft facility.
• If a loan would be more appropriate, consider asking your bank about the government-backed Business Interruption Loan Scheme.
• If you want to take another job during this period, that’s absolutely fine – there’s nothing to stop you from having a job as well as being self-employed.
• Universal Credit may be available to you – you’ll need to check online to see whether you meet the criteria, but it’s potentially worth a look.
• Some clients are finding opportunities to use their skills to provide different services, or to deliver their services in new ways, or to find new customers to target. It could be worth asking yourself whether you can adapt your business model to find opportunities in the current circumstances – we’re seeing a number of clients doing this successfully.
• Remember also that it’s fine to dip into your savings. While it’s natural to want to preserve them, one of the great benefits of having savings is to help you survive an unexpected loss of income.  With interest rates on cash savings being low, it’s unlikely to cost much in terms of lost interest, and you can look to rebuild savings once things return to normal.  You’ll need to check the rules for withdrawals from your particular account, but even some ISAs now allow you to withdraw cash and replace it later in the same tax year.

Hopefully there are some helpful pointers here, and we’ll of course let you know as and when any new measures are announced.

www.fizzhq.com

Can directors furlough themselves?

A couple of weeks ago the government announced that they would subsidise employees' wages if, rather than laying them off in the crisis, employers kept them on anyway.  If they do that, and the employer expects the government subsidy, the employee is to all intents and purposes not allowed to work at all.  That process is known as "furloughing".  It's been a big deal.  Between 2007 and the Friday before last, the word "furlough" came up in precisely two of Greg's emails in 13 years.  Since the Friday before last, it appears in 189 separate conversations.

The scheme is aimed at employees, not business owners.  But some directors of limited companies have found that their work has completely dried up, and so understandably have asked if they can furlough themselves so that their company gets some contribution towards their own (usually around £700) salary.

The idea of a company director furloughing themselves is basically a logical nonsense.  Even if absolutely every bit of fee-earning work has dried up, and there's no point looking for more, a company director still has legal obligations around the stewardship of the company - there's an obvious Catch 22, where as soon as a director suggests to us that they've furloughed themselves, the fact that they're talking to us means they're still engaged in company business!  And even if fee-earning work has disappeared, many directors will be working hard to try and find new revenue for the company to fill the gap.

However - it's now clear HMRC are in practice going to be content with claims from companies against part of a director's small salary where the company's income-generating work has totally dried up.  They probably realise that limited company owners - especially ones with company income under £50,000 who would have been given some support had they been a sole trader - have fallen through a crack in the system, and they're saying they'll accept claims from companies relating to small director salaries if absolutely all fee-earning work has disappeared.  On that basis, the subsidy the company could expect for a month of inactivity would be about £575, at present for up to three months (assuming a total absence of fee-earning work over a three month period).

Anyway, there's no action to take now.  The claims process for getting the subsidy for furloughed workers doesn't exist yet, and HMRC are hoping to have it in late April.  So for now, directors with no fee-earning work to do will have to be patient - and in the meantime try and find some other source of company income, which hopefully will be greater than that relatively small subsidy.  Of course, as soon as the reclaim portal exists we'll be letting clients know!

www.fizzhq.com

A round-up of help available to limited company owners

As announcements about financial help and support in the current crisis have been released gradually over the last week or so, now seems a good time for a round-up of the help available to limited company owners.  While there is no single measure aimed specifically at director/shareholders (unlike employees, sole traders and partners in partnerships), there is still help available.

VAT and Tax deferrals

The vast majority of our limited company clients are great at saving for corporation tax, VAT and personal tax as they go, and the tax payment deferral measures should mean that you can safely dip into your tax savings for a while if you need to.

• VAT payments for the quarters ending in February, March or April can be delayed until early 2021 (though if you’ve a direct debit in place with HMRC for your VAT it’s important that you cancel it – they’ll take the VAT on time otherwise).
• It’s now been confirmed that all self-assessment taxpayers (not just sole traders and partners) can delay their July 2020 personal tax payment until January 2021.
• For companies with a March year-end, you should hopefully have a year’s worth of corporation tax in the bank, which isn’t due to be paid until the end of this year.

This should mean that must companies will have a cash reserve available to draw on.  And if you don’t have sufficient profits to pay dividends, then borrowing money from your company is an option.

Deferring other taxes

The VAT and self-assessment deferments above are automatic and you don’t have to apply for them.  There aren’t any formal general agreements that other tax payments can be delayed.  But HMRC have set up a special helpline for businesses that need to discuss deferring other payments.

It might take a long time to get through, although a client called them one day last week at 8.15am and she was through within five minutes, so aiming for the start or end of the day is probably sensible.  It sounds as if generally HMRC are very open to agreeing more generous payment terms.

Grants

• Rates-related grants - If you formally rent premises subject to Business Rates, you should be eligible for a grant if either (a) you currently benefit from Small Business Rate Relief (remembering that you will qualify even if SBRR means you pay no business rates all), or (b) you’re in the retail, hospitality, nursery or leisure sectors.

• Job Retention Scheme - If you employ staff but don’t currently have work for them, you can use the JRS to claim a grant to cover 80% of their wages. This scheme is not intended to cover directors, but it's looking quite likely that HMRC may end up being sympathetic to eventual claims from companies against part of a director's small salary where the company's work has totally dried up.  But nobody knows that yet, the claims process won't exist for at least a month, and there's no action you can take now that will make a difference.  So you'll just have to be patient on that one.

• Statutory Sick Pay – some years ago HMRC stopped reimbursing employers for SSP they paid to staff – but they will now reimburse it if it’s coronavirus-related. Not right away, though, there’s no mechanism for doing so right now, so you’ll need to fund the (modest) cashflow to begin with.

Director’s Loan Account and profit reserves

• It may well be that your company owes you some money on your Director’s Loan Account, which can be paid out to you tax-free while you’re not earning. Do check with us if you’re unsure.

• Don’t forget that if you have profits built up from previous years, you can use those to keep paying yourself dividends, even if you’re not currently working. The beauty of a limited company is that you have the ability to smooth out dividends, even when profits are volatile.  For those of you who have been in the habit of drawing less than the company has made in profits in the past, now is the time to make use of those extra profits!

Other things to consider

• Check your business insurance policy, in case you have Business Interruption cover.
• Speak to your landlord (for both your home if you rent, and your business premises) to see if you can delay payments, get a discount, or a rent-free period. Some landlords are open to this.
• Consider talking to your lender to arrange a mortgage payment holiday.
• Talk to your bank to see if you can arrange a business or personal overdraft facility.
• If a loan would be more appropriate, consider asking your bank about the government-backed Business Interruption Loan Scheme
• If you want to take another job during this period, that’s absolutely fine – there’s nothing to stop you from having a job alongside your own limited company.
• Universal Credit may be available to you – you’ll need to check online to see whether you meet the criteria, but it’s potentially worth a look.
• Some clients are finding opportunities to use their skills to provide different services, or to deliver their services in new ways, or to find new customers to target. It could be worth asking yourself whether you can adapt your business model to find opportunities in the current circumstances – we’re seeing a number of clients doing this successfully.
• Remember also that it’s fine to dip into your savings. While it’s natural to want to preserve them, one of the great benefits of having savings is to help you survive an unexpected loss of income.  With interest rates on cash savings being low, it’s unlikely to cost much in terms of lost interest, and you can look to rebuild savings once things return to normal.  You’ll need to check the rules for withdrawals from your particular account, but even some ISAs now allow you to withdraw cash and replace it later in the same tax year.

Hopefully there are some helpful pointers here, and we’ll of course let you know as and when any new measures are announced.

www.fizzhq.com

A Fizz March update - further business measures (including IR35)

We send out an email update to all our clients each month; we don't usually post it here, but this is an update to this month's news that we sent out this morning...

We thought we’d be following up our Budget email with some further updates pretty soon, and here we are.  There were some more announcements last night.  On the lending and Business Rates items, there’s no detail yet about how things will work in practice, but we wanted to let you know about them as soon as we could.  If you’ve got immediate concerns about payment of tax due to coronavirus, HMRC have set up a helpline for businesses to call them (although we imagine you can expect a lengthy queue):

https://www.gov.uk/government/news/tax-helpline-to-support-businesses-affected-by-coronavirus-covid-19

At the moment, the people who don't really have much in the way of specific support are the self-employed, consultants, freelancers and the like, especially if IR35 wasn't a problem for you and you rent your home.  The Chancellor did say in the Budget that the government would make claiming Universal Credit "quicker and easier" (from which one would logically conclude that if and when things settle down they'll revert to making it slow and hard), but that's about it.  Supposedly there will be more announcements soon though, in which case we'll be emailing you yet again.

So, last night’s news.  The first thing is that the IR35 changes due to come in from 6 April have been postponed for a year.  This will not be of any help to contractors who’ve already switched to PAYE status in anticipation of the change, or end users like HSBC and Vodafone that had already stopped using contractors entirely.  But there are still plenty of contractors and freelancers wrangling over status and day rates with clients and agencies, so it’s one fewer thing to worry about for them.  Of course, IR35 still exists, and contractors remain responsible for determining their own status and paying employment taxes if they consider it appropriate.  But the compulsion for medium and large customers to make the call, which in practice they’ve largely been dealing with by forcing contractors on to PAYE or into umbrella companies (which is also PAYE) has been put back until 2021.

Next, the reduction in Business Rates for retail and leisure business was extended.  None of them will have to pay Business Rates at all in 2020-21.  Local authorities are supposed to get guidance from that from the government on Friday, probably you’ll hear from them some time after that.  Plus, the £3,000 cash grants that were to be given to similar businesses occupying commercial premises but not paying business rates to begin with have been increased – up to £25,000 in some cases.  And businesses in other sectors who similarly have premises but pay little or nothing in rates will also now get (smaller) grants.  Funding for that is supposed to be provided from some time in April, so don’t expect any money to appear in your bank account right now.

The announcement with a big number in front of it was £330bn of loans and loan guarantees to be made to businesses.  It’s said that these loans will be on attractive terms, but there’s no definition of what that represents right now.  This funding will supposedly start to become available next week.  Big companies will get money from the Bank of England, but you can expect most businesses to be getting such loans through more usual lenders.   Of course, a loan isn’t a grant, and in the long-term it won’t save a business that has been fatally compromised by the outbreak.  But for sound businesses that will be able to get back on their feet, but in the meantime need help to bridge a gap and cover wages and overheads, this is likely to be an attractive route to take.

And, on the domestic front, homeowners who are struggling to pay their mortgage will be eligible for a three-month payment holiday.  Note, though, that this isn’t a cost saving – interest will still be building up on the amount you owe, and you’ll still have to pay it all back in the end.  So it’s a cashflow break, but in fact you’ll wind up paying a bit more over the life of the mortgage as a bit more interest will be building up.  You wouldn’t just automatically take the holiday if you’ve got the ability to pay.

There’s some more info – and a recap on the things we’ve already told you about on Statutory Sick Pay and the like – here:

https://www.gov.uk/government/publications/guidance-to-employers-and-businesses-about-covid-19/covid-19-support-for-businesses

We hope that’s of some help and interest.  We’re happy to hear from you if you’ve any questions about it – but, again, do bear in mind that nobody can answer the question “how exactly will this work?” at this point, because that information isn’t available yet!

www.fizzhq.com

How much can I charge my client for mileage?

How much can I charge my client for mileage?

Quite often we're asked "Is the mileage rate still 45p"?  To which the answer is - 45p is still the maximum amount you can reimburse an employee tax-free for the business miles they drive in their own car in a year (for the first 10,000 miles).  But that's all it is.

People frequently have the idea that 45p is somehow the "correct" amount for mileage in absolutely any scenario.  For example, recharging mileage to a client.  There's nothing special about 45p in that context - if you can agree £45 a mile, then fine!  It'll be taxable income in your company, of course, and a cost in theirs.  In reality, 45p a mile does get used often in that context, but there's no technical reason it has to be.

www.fizzhq.com

Can I tick the Gift Aid box?

Generally, when you donate to a UK charity, there's a box on the form, asking if you want to donate through Gift Aid.  There's seldom any useful description or discussion of what that means, though, meaning people are often confused by it.

When you make a donation to a UK charity, you'll usually get tax relief on it.  What that means in practice is that, if you donate £80 and tick the Gift Aid box, the charity will go to HMRC and ask for another £20 (so, a quarter of the amount it's received from you).  That means that the charity's got £100, but you're only out of pocket by £80.  You've effectively donated £100 to the charity and have saved tax at 20%, which is the basic rate of tax (in England, Wales and Northern Ireland, anyway!).  If your income for the year ends up being enough to pay tax at 40%, or 60%, or 45%, you can save more tax on the donation by making a claim either on your Self Assessment Tax Return or via a letter or form, but for most people the process ends once the charity claims that initial bit of tax back.

When you tick that Gift Aid box on the form, you're promising that you're going to pay at least enough tax to HMRC that year to cover the tax that the various charities you donate to are going to reclaim from them.  So if you donate £1,100 in the year and tick the Gift Aid box every time, the charities are going to claim a further £275 back from HMRC, a quarter of the amount they've received from you, giving them £1,375 in total.  To tick the box, you're supposed to be confident you're going to be paying enough tax (either Income Tax or Capital Gains Tax) to cover the amounts that the charities will claim back.

So, what happens if you tick the box and don't end up paying enough tax?  If you're someone who has to submit Self Assessment Tax Returns, and you fill in the return correctly and honestly, HMRC will ask you to reimburse them for the top-up payments they've made to the charities.  So, if that person who donates £1,100 and ticks every box in sight winds up with no tax to pay, then via their tax return they'll have to pay £275 to HMRC.  That way, the charities are sitting on £1,375 and the donor is £1,375 down with no tax relief, which is how it's supposed to work.  And if you're someone who doesn't have to submit Self Assessment Tax Returns?  In honesty you're likely to get away with it - but really you shouldn't be ticking the box if you don't expect to pay tax equivalent to a quarter of the donations you make in a year.

www.fizzhq.com