Updated 03 September 2020
The government has enhanced its support package for businesses, employees and freelancers affected by the coronavirus lockdown, following complaints that many have been unable to access help. So what’s changed? Article by Nick Green.
In mid-March the government announced an unprecedented package of financial support for businesses, and has since published further measures – in particular the furlough arrangements – to help employees and the self-employed alike. However, many who have tried to access the various loans and grants have faced frustrating obstacles. For the latest developments, see Where can my business find more funding in lockdown?
Given how quickly the support package had to be thrown together, it is inevitable that it threw up some big problems almost immediately. First of all there were the CBILS loans, which were meant to be for businesses that might otherwise be refused credit due to inadequate security, and were touted as interest-free for the first year. Some applicants were shocked to be told by banks that they would face interest of up to 30 per cent after the interest-free period, and that their own assets (including their homes) would be at risk. Given that no-one knows how long the crisis will last, this has put directors in an impossible dilemma: lose their business or potentially sacrifice everything.
Of the 130,000+ loan applications from businesses, less than 1 per cent have so far been approved. There have also been complaints that not enough support is being offered to larger businesses with turnovers of £45m and over, which employ a large bulk of the UK workforce.
Another stumbling block has been the furlough scheme. This scheme effectively means the government will pay the wages of millions of workers (or rather, up to 80 per cent of those wages to a maximum £2,500 per month) who are unable to work during the lockdown. This is undoubtedly a huge relief for many people – but it does not apply to anyone who moved jobs between the start of March and the announcement. Such people have essentially ‘fallen through the cracks’ and may find themselves suddenly with no viable job and no income from the government either.
In response to the criticisms, Chancellor Rishi Sunak has issued further clarification and expansion of the COVID-19 support package, aimed to address the many concerns. Financial commentator Martin Lewis has also weighed in to the argument, offering a ray of hope for those who fear they have missed out.
Sunak has now adjusted the conditions for the business continuity (CBILS) loans, saying that they will no longer be limited to those that have been refused regular finance. He has also said he will ‘speak to’ the banks to prevent them from profiteering from the crisis. However, as yet the Treasury has still not restricted how much interest banks can charge after the interest-free period.
The more encouraging news is that banks will no longer be able to ask for personal assets to be offered up as security, if the loan is £250,000 or less. If the loan is over £250,000 then personal guarantees will be limited to 20 per cent of any outstanding amount (after any recoveries have been made from business assets). Furthermore, these personal assets cannot include a director’s own home. This should hopefully provide some reassurance to business owners, particularly those who might face the loss of their business anyway without a CBILS loan.
A further announcement revealed that there would now be more help for larger companies, with turnovers from £45m to £500m. These will be able to access continuity loans of up to £25m.
HMRC has now confirmed that the furlough scheme – also called the Coronavirus Job Retention Scheme – can be applied to workers who have left their employment since the end of February, and would now be without income as a result. Following a campaign by Martin Lewis of Money Saving Expert, HMRC said that employers would now be able to re-hire such workers and furlough them, to ensure they received up to 80 per cent of their income from that employment. This now applies both to those who were made redundant, and to anyone who left voluntarily during that period. However, HMRC stressed that the decision to do this would be up to each individual employer, and that no firm would be required to take people back.
Employers are also able to claim employer national insurance contributions and employer pension contributions at the minimum level of three per cent of salary.
Employees who are on furlough from one employer can be employed by a different employer meanwhile, so can (in theory) receive another wage and also their furlough income at the same time. They can’t, however, do any work for the firm that is furloughing them.
Directors of companies are employees for PAYE purposes, so are included in the standard Coronavirus Job Retention Scheme. However, if you are a self-employed sole trader or member of a partnership, you can effectively put yourself on furlough and claim a grant from the government worth up to 80 per cent of your trading profits. This is up to £2,500 per month for the next three months (with the possibility of extension).
During a live TV broadcast, it was suggested by Martin Lewis that contractors who operate through their own one-person limited companies could put themselves on furlough and then continue to work as freelancers (sole traders). However, Martin admitted that this was an off-the-cuff remark that needed to be checked. In reality, such an arrangement would probably rub up against IR35 legislation, and firms would be reluctant to take such workers on a freelance basis.
If you are an employee, your employer will claim the money from the government to pay your wages (up to 80 per cent or £2,500 per month, whichever is smaller).
If you are an employer, you will be able to claim from the Coronavirus Job Retention Scheme online from the end of April. However, payments will be backdated to 1 March 2020. Eligible organisations include businesses, charities, recruitment agencies and public authorities with payroll schemes active on or before 28 February 2020. Most public sector organisations will not need the scheme as the government is continuing to fund them in the usual way.
If you are self-employed and eligible for a grant, the government will contact you in due course and invite you to apply online. Applications are not yet open, however – this will probably happen towards the end of April or the beginning of May.
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