UK business support guidance

On 24 March 2020, the UK government provided an update on its announcement of a series of temporary measures which are intended to support public services, people and businesses in the UK affected by the disruption caused by COVID-19.

This includes a package of measures to support businesses including:

• Key workers in light of the nationwide lockdown
• The COVID-19 Corporate Financing Facility
• The HMRC Time To Pay Scheme
• Business interruption insurance
• VAT and Income Tax payments holiday
• Coronavirus Job Retention Scheme
• Self-employment Income Support Scheme
• IR35 reforms delay
• Coronavirus Business Interruption Loan Scheme
• Coronavirus Large Business Interruption Loan Scheme
• Bounce Back Loan scheme
• £1.25 billion support package for innovative firms
• Statutory sick pay relief for SMEs
• Business rate relief
• Support for businesses that pay little or no business rates
• Commercial lease forfeiture moratorium
• Coronavirus tax implications

The purpose of this note is to provide a brief oversight of the measures introduced by the UK government to help support businesses in light of the COVID-19 pandemic. Further, there is a brief discussion of the tax issues for businesses that are likely to arise as a result of the crisis.

The latest information on the various measures is available here.

Key workers in light of the nationwide lockdown

Lockdown and working from home

On 24 March 2020, the government announced a lockdown, with the aim of minimising spread of COVID-19. The Health Protection (Coronavirus, Business Closure) (England) Regulations set out an initial list of businesses which were required to close down. Further, an additional list of businesses have been instructed to shut down - Guidance: Further businesses and premises to close.

The government also announced that people should not travel to work unless absolutely necessary. There has been some confusion around the meaning of this but we consider that it is clear that the government is not requiring other businesses to shut down and accordingly, where it is “absolutely necessary” to travel to work, employees can continue to do so. In light of this updated guidance, employers are reviewing which employees “absolutely cannot” do their work from home.

Key workers and school closures

With the schools and nurseries closing (from Friday 20 March) - for all but key workers and vulnerable children - employers will face the challenge of dealing with the impact of those closures on their homeworking employees. In these extraordinary circumstances, employers will need to take a pragmatic approach and consider flexible working options where possible. Alternative options include encouraging staff to take holiday, unpaid parental leave, or unpaid emergency dependent leave.

The government has issued a list of “key workers” whose children can still attend school. This includes staff working to provide essential financial services – including but not limited to workers in banks, building societies and financial market infrastructure, and payment providers.

The Guidance also states “If workers think they fall within the critical categories above they should confirm with their employer that, based on their business continuity arrangements, their specific role is necessary for the continuation of this essential public service.”

Employers will need to have reference to business continuity plans and make an assessment of what is critical to continue operations. In addition, the FCA and PRA have both issued guidance on the question of who is a key worker and suggested language for letters to staff who have been so identified.

Both regulators say that the CEO/SMF1 is accountable for ensuring an adequate process so that only roles meeting the definition are designated. They say that firms are best placed to decide which staff are essential – looking at “essential services to the real economy or financial stability” - clearly a different test to whether people need to be in the office (albeit with a lot of crossover).

A list of examples is provided. Both regulators make it clear that critical outsource partners should also be included. We are happy to discuss employment and regulatory implications further and support with template notifications.

Emergency Volunteering

Employees who wish to volunteer need to obtain an Emergency Volunteering Certificate from the NHS or local authority. The certificate will specify the length of the volunteering period which can be 2 weeks, 3 weeks or 4 weeks and the employee must provide a certificate to their employer 3 days before the first day of their volunteering period. The government will compensate employees for lost earnings and expenses, but details of the compensation scheme are not yet available.

Volunteering leave is protected in a similar way to maternity leave - terms and conditions (other than terms and conditions about remuneration) remain in place and employees must not be subjected to a detriment or dismissed. There is no provision for private employers to refuse an employee’s period of emergency volunteer leave. Further information can be found here.

HM Courts and Tribunals Service

HM Courts and Tribunals Service has said that it will provide daily operational summaries, published at 09:00 every morning, to inform those involved about the courts and cases continuing to operate during the coronavirus (COVID-19) pandemic – see announcement.

The COVID-19 Corporate Financing Facility (CCFF)

This scheme will be available to larger investment grade (or equivalent) UK companies who make a material contribution to the UK economy and will be available by way of a facility for the purchase of short-term commercial paper by a fund established by the Bank of England. It is intended to be for companies which are fundamentally strong, but have been affected by a short-term funding squeeze, enabling them to continue financing their short-term liabilities and to support corporate finance markets overall and ease the supply of credit to all firms.

It is intended to make the scheme available from the week commencing 23 March 2020. The Bank of England’s intention is for the CCFF to operate for an initial period of 12 months and it will provide 6 months’ notice of the withdrawal of the CCFF. The Bank of England will operate the scheme on behalf of HM Treasury through The Covid Corporate Financing Facility Limited (the “Fund”).

As mentioned, this is available to larger investment-grade companies and, therefore, there are eligibility criteria. The Fund will purchase the sterling-denominated commercial paper of eligible issuers if it has the following characteristics:

• it must have a maturity of one week to 12 months if issued at issue via a dealer. Drawings can be rolled while the CCFF is open, subject to eligibility.
• where a short-term credit rating is available, it must have a minimum short-term credit rating of A-3 / P-3 / F-3 from at least one of Standard & Poor’s, Moody’s and Fitch as at 1 March 2020. Issuers with split ratings where one or more rating is below the minimum are not eligible.
• where a short-term credit rating is not available, the Bank will consider whether a long-term credit rating can be used to assess eligibility and pricing, or whether the Bank can assess that the issuer is of equivalent financial strength.
• It must be issued directly into Euroclear and/or Clearstream.

Where an issuer is eligible, there will be limits imposed. Purchases of eligible commercial paper in the primary markets may be limited by issuer. Any such limits applying to individual issuers will be made available, on request, to the issuer only. Where two or more issuers are part of the same group, an aggregate limit may be applied within which any limits applying to the individual issuers are wholly or partly fungible.

If, in your view, the impact on your business’ market is short-term then this facility could provide short-term support to weather the effects of the global pandemic on your business.

Further information and advice on how issuers can take advantage of the CCFF can be provided on request. For more information, please see our article here.

The HMRC Time To Pay Scheme

All businesses and self-employed people in financial distress, and with outstanding tax liabilities, may be eligible to receive support with their tax affairs through HMRC’s Time To Pay service. These arrangements are agreed on a case-by-case basis and are tailored to individual circumstances and liabilities.

The UK government has set up a dedicated helpline on 0800 0159 559 for businesses who are concerned about their ability to meet their tax liabilities on time. For those that are unable to meet their tax liabilities due to COVID-19 then HMRC can use the following options to help support businesses (it is unclear whether this list is exhaustive):

• agreeing an instalment arrangement;
• suspending debt collection proceedings that would normally follow; and
• cancelling penalties and interest where you have administrative difficulties contacting or paying HMRC.

While this is available to all UK businesses and self-employed people in financial distress, it is likely to be particularly relevant to those businesses that rely heavily on certain B2B and/or B2C revenue streams. Especially if their client base is made up of smaller businesses or individuals that are feeling the impact on the global economy more harshly.

Business interruption insurance

The UK government has also stated that in its view businesses that have cover for both pandemics and government-ordered closure should be covered, as the government and insurance industry confirmed on 17 March 2020 that advice to avoid pubs, theatres etc. is sufficient to make a claim. The UK government webpage also advises that insurance policies differ significantly, so businesses are encouraged to check the terms and conditions of their specific policy and contact their providers. However, they consider that most businesses are unlikely to be covered, as standard business interruption insurance policies are dependent on damage to property and will exclude pandemics.

Alongside checking the terms and conditions of any business interruption policies, it is important to note that the UK government designated COVID-19 as a “notifiable disease” as of 5 March 2020. This often counts as a trigger point in certain insurance policies but, as noted above, this will have to be confirmed as it will not necessarily be covered by business interruption insurance. Further information has been provided by the Association of British Insurers here. Confirming the level of cover under such policies will be of significant importance for global businesses that may rely on a number of contracts with smaller businesses that may be feeling the impact of the pandemic more than larger, more resilient, companies.

VAT and Income Tax payments deferral

VAT

To aid the cash flow for businesses in the short-term, VAT payments have been deferred for this quarter meaning that the next VAT payment will not be due until June 2020. As it suggests, this VAT payment has not been cancelled but rather deferred. It will have to be paid by the end of the 2020/21 financial year but, importantly, it is not envisaged that interest will be accrued on the deferred payment. VAT refunds and reclaims will be paid by the government as normal.

Therefore, consideration should be given to whether it would be financially beneficial for your business to hold the cash set aside for this payment until the end of the 2020/21 financial year.

Income Tax

The UK government announced that self-employed contractors that would have otherwise had to make their self-assessment tax payment by 31 July 2020 will now be able to defer this payment until 31 January 2021. This is an automatic offer with no applications required. Similarly, to the VAT payment holiday, no penalties or interest for late payment will be charged in the deferral period.

Coronavirus Job Retention Scheme

One of the most well received support mechanisms has been the announcement of the job retention scheme that will be introduced for all UK businesses. Essentially, the scheme will be implemented by way of a government grant to help employers retain employees that would otherwise be laid off on furlough. The key details of the grant are as follows:

• it will cover up to 80% of salaries up to a value of £2,500 per calendar month (through a new reimbursement system that is being developed);
• it will have retrospective effect from 1 March 2020;
• the intention is for it to be available to businesses by the end of April
• three weeks is the minimum length for which an employer can furlough an employee (which means that rotating one week on/one week off will not be possible): and
• it does not negate any requirements to pay PAYE/NIC contributions.

Importantly, employees should be aware this is targeted at employees that would have been asked to take temporary furlough rather than those key workers/employees that are working from home that remain working as normal. HMRC has provided some information as to how businesses can access the scheme. To access the scheme, businesses should:

• designate affected employees as ‘furloughed workers’ and notify their employees of this change - changing the status of employees remains subject to existing employment law and, depending on the employment contract, may be subject to negotiation; and
• submit this information to HMRC about the employees that have been furloughed and their earnings through a new online portal (HMRC will set out further details on the information required).

HMRC has now announced that employers can claim in respect of the following categories of ‘furloughed workers’ who were on their PAYE payroll as of 28 February 2020:

• full-time employees;
• part-time employees;
• employees on agency contracts; and
• employees on flexible or zero-hour contracts.

Further, an employer can claim for:

(A) up to £2,500 per month per employee or 80% of their regular wage if less.

• for employees paid a salary this is gross salary before fees, bonus and commission.
• for employees whose wage varies, the claim can be based on the higher of (i) the same month’s earnings in the previous year or (ii) average monthly earnings in the 2019/20 tax year. For employees with less than a year’s service, the claim should be based on average monthly earnings.

(B) employers’ NICs on the claimed wage; and

(C) the minimum automatic enrolment employer pension contributions on that wage, i.e. 3%.

Employees who were made redundant after 28 February 2020 can be reemployed and then claimed for under the scheme. This clarifies that the use of the word “lay off” in the Chancellor’s previous announcement was the layman’s use of that word and not referring to lay off in a technical sense. The employee must be undertaking no work for the employer for the employer to be able to claim. If they are working reduced hours or on reduced pay but are still working they will not qualify.

Finally, in respect of employees on leave, the following scenarios should provide some insight into what can and cannot be claimed for:

• employees who were on unpaid leave on 28 February 2020 cannot be furloughed.
• employees on sick leave / self-isolation should see SSP apply. The scheme can apply after the employees returns from sick leave.
• employees on family leave should note that enhanced pay for employees on maternity, paternity, adoption or parental leave qualifies as wage costs and can be claimed for.

On 12 May 2020, the Chancellor announced that the scheme would be extended until October. While this will continue to be funded, there is a caveat that, employers will be asked to “start sharing” the cost of the scheme from August in order to allow for greater flexibility in supporting the transition back to work. Further details are expected in due course.

Self-employment Income Support Scheme

On 26 March 2020, the Chancellor announced that there will be a taxable grant for self-employed workers (including members of partnerships) that are facing financial difficulties from the current COVID-19 crisis. Similarly to the Coronavirus Job Retention Scheme, the grant will cover 80% of profits (an average taken from an individual’s profits made over the past 3 years) up to a limit of £2,500 per calendar month. This measure is intended to be introduced no later than the beginning of June and will last for at least 3 months (with the option for the government to extend, if necessary).

It is aimed at targeting those who are ‘genuinely’ self-employed and therefore will be available to those with annual trading profits of up to £50,000 per annum and those who derive the majority of their income from self-employed profits.

Further, it will only be available to those self-employed workers that:

• have an existing filed tax return for 2018-19;
• have traded in the tax year 2019-20;
• are trading when they apply, or would be except for COVID-19;
• intend to continue to trade in the tax year 2020-21; and
• have lost trading/partnership trading profits due to COVID-19.

To ensure those people that missed the deadline for filing this tax return, the Chancellor announced a 4-week extension for self-employed workers from 26 March 2020 to file their tax return to ensure they do not miss out on this scheme.

Those that are eligible will be contacted directly by HMRC and asked to complete an application form before the grant is paid. Until the system is up and running in June, self-employed workers are advised that they may still be able to access the CBILS and make use of the VAT payment holiday. Further information on the scheme can be found here.

IR35 reforms delay

In light of the growing pandemic, the UK government announced a delay to the introduction of the IR35 reforms for medium and large businesses in the private sector until 6 April 2021. Existing IR35 obligations for self-employed contractors will still have to be considered when undertaking work; however, there will be a delay on new obligations being placed on those engaging self-employed contractors to prevent any further disruption for the upcoming tax year.

While the delay may lead some businesses to think that consideration of these reforms can be left by the wayside; we would suggest this is not the case. It should be highlighted that this is simply a delay and not a cancellation. Therefore, businesses should be considering the impact of the incoming reforms so as to effectively manage any potential compliance risk. Initially, analysis should be conducted in respect of, if applicable, any non-payroll portfolio and use of personal service companies.

The Coronavirus Business Interruption Loan Scheme

This scheme, which will be available through the British Business Bank, will launch shortly and is intended to support primarily small and medium sized businesses to access bank loans, asset finance, invoice and overdrafts for up to 6 years. In summary, the UK government will provide lenders with a guarantee of 80% on each loan (subject to a per-lender cap on claims) to give lenders further confidence in continuing to provide finance to SMEs. There will no charge to businesses or banks for this guarantee, and the Scheme will support loans of up to £5 million in value. Businesses can access the first 12 months of that finance interest free, as the UK government will also make a Business Interruption Payment to cover the first 12 months of interest payments and any lender-levied fees.

The scheme has been available from the week commencing 23 March and there are 40 accredited lenders available to offer the scheme, including all the major banks. For more information, please see our article here.

Coronavirus Large Business Interruption Loan Scheme

What is it?

The new Coronavirus Large Business Interruption Loan Scheme (CLBILS) will provide a government guarantee of 80% to enable banks to make loans of up to £25m to firms with an annual turnover of between £45m and £500m. This will give banks the confidence to lend to many more businesses which are impacted by coronavirus. Facilities backed by a guarantee under CLBILS will be offered at commercial rates of interest.

The Government expects the scheme to be delivered through commercial lenders. The Government will provide lenders with an 80% guarantee on individual loans for businesses that would be otherwise unable to access the finance they need

Lenders will still be expected to conduct their usual credit risk checks, but this scheme allows them to specifically support business that were viable before the COVID-19 outbreak but are facing significant cash flow difficulties, that would otherwise make their business unviable in the short term.

The new scheme will launch later this month and will support a wide range of businesses to access finance products including short term loans, overdrafts, invoice finance and asset finance.

Businesses would remain responsible for repaying any facility they may takeout.

Am I eligible?

This scheme will provide government guarantees of 80% to enable banks to make loans of up to £25m, offered to firms with a turnover of between £45m and £500m per annum that have been impacted by COVID-19 who are unable to secure regular commercial financing.

To be eligible, your business must:

• be UK-based in its business activity;
• have an annual turnover between £45 million and £500 million;
• be unable to secure regular commercial financing; and
• have a borrowing proposal which the lender:
  • would consider viable, were it not for the COVID-19 pandemic; and
  • believes will enable you to trade out of any short-term to medium-term difficulty.

Businesses from any sector can apply, except for the following:

• banks and building societies;
• insurers and reinsurers (but not insurance brokers); or
• public-sector organisations, including state-funded primary and secondary schools.

Further detail on eligibility will be confirmed later this month.

How do I access it?

The new scheme will launch later this month; the Government anticipates it will be available through a range of accredited lenders. Once the scheme has launched, there is likely to be a big demand for facilities – businesses should consider applying via the lender’s website in the first instance. Telephone lines are likely to be busy and branches may have limited capacity to handle enquiries due to social distancing.

When can I access it?

Further details of the scheme will be announced later this month. Further information can be found here.

Bounce Back Loan scheme

On 27 April 2020, the Chancellor announced the introduction of the Bounce Back Loan scheme in response to small and medium-sized businesses raising concerns about the slow access to existing rescue schemes. The scheme will help small and medium-sized businesses to borrow between £2,000 and £50,000. The government will guarantee 100% of the loan and there won’t be any fees or interest to pay for the first 12 months.

Loan terms will be up to 6 years. No repayments will be due during the first 12 months. The government will work with lenders to agree a low rate of interest for the remaining period of the loan. The scheme will be delivered through a network of accredited lenders.

Eligibility

You can apply for a loan if your business:

• is based in the UK;
• has been negatively affected by coronavirus; or
• was not an ‘undertaking in difficulty’ on 31 December 2019.

Who cannot apply

The following businesses are not eligible to apply:

• banks, insurers and reinsurers (but not insurance brokers);
• public-sector bodies;
• further-education establishments, if they are grant-funded; or
• state-funded primary and secondary schools.

You cannot apply if you’re already claiming under the Coronavirus Business Interruption Loan Scheme (CBILS). However, if you’ve already received a loan of up to £50,000 under CBILS and would like to transfer it into the Bounce Back Loan scheme, you can arrange this with your lender until 4 November 2020.

How to apply

The Bounce Back Loan scheme will launch on 4 May 2020.

More information about the scheme will be published shortly and can be found here.

£1.25 billion support package for innovative firms

On 20 April 2020, the Chancellor announced that UK businesses driving innovation and development will be helped through the coronavirus outbreak with a £1.25 billion government support package.

The Chancellor said the targeted and tailored help would ensure firms in some of the most dynamic sectors of the UK economy – ranging from tech to life sciences – are protected through the crisis so they can continue to develop innovative new products and help power UK growth.

The comprehensive package includes a new £500 million loan scheme for high-growth firms, called the Future Fund, and £750 million of targeted support for small and medium sized businesses focusing on research and development.

Future Fund

The Future Fund will provide government loans to innovative UK-based companies facing financial difficulties due to the coronavirus ranging from £125,000 to £5 million, subject to at least equal match funding from private investors. These convertible loans may be a suitable option for businesses that rely on equity investment and are unable to access the Coronavirus Business Interruption Loan Scheme.

The scheme will be delivered in partnership with the British Business Bank and the government is committing an initial £250 million in funding towards the scheme, which will initially be open until the end of September. The scale of the fund will be kept under review.

Eligibility

You’re eligible If:

• your business is based in the UK;
• your business can attract the equivalent match funding from third party private investors and institutions; and
• your business has previously raised at least £250,000 in equity investment from third party investors in the last 5 years.

Full eligibility criteria will be published in due course.

How to apply

The Future Fund will launch in May 2020. Further details about this scheme will be published in due course.

The Future Fund headline terms can be found here.

SME Research & Development Fund

The £750 million of targeted support for the most R&D intensive small and medium size firms will be available through Innovate UK’s grants and loan scheme.

Innovate UK, the national innovation agency, will accelerate up to £200 million of grant and loan payments for its 2,500 existing Innovate UK customers on an opt-in basis. An extra £550 million will also be made available to increase support for existing customers and £175,000 of support will be offered to around 1,200 firms not currently in receipt of Innovate UK funding. The first payments will be made by mid-May.

This package builds on the government’s existing support for innovative, high-growth firms including the £2.5 billion British Patient Capital fund, the upcoming £200 million Life Sciences Investment Programme, internationally competitive R&D tax reliefs and our major commitments to increase public R&D spending to £22 billion by 2024-25.

Statutory sick pay relief for SMEs

The UK government has announced that it will introduce legislation to allow small- and medium-sized businesses and employers to reclaim Statutory Sick Pay (SSP) paid for sickness absence due to COVID-19.

The eligibility criteria for the scheme will be as follows:

• it will cover up to 2 weeks’ SSP per eligible employee who has been off work because of COVID-19;
• employers with fewer than 250 employees (as at 28 February 2020) will be eligible;
• employers will be able to reclaim expenditure for any employee who has claimed SSP (according to the new eligibility criteria) as a result of COVID-19;
• employers should maintain records of staff absences and payments of SSP, but employees will not need to provide a GP fit note;
• the eligibility period for the scheme will commence the day after the relevant regulations comes into force.

Importantly, SSP will apply from day 1 of sick leave rather than day 4 as well as being retrospective to 13 March 2020. It will also apply to employees that are self-isolating and receive an “isolation note” from their local GP or NHS 111. The usual ability to self-assess for the first 7 days of sick leave without a medical note still applies. There is a slightly different process for any self-employed contractors or those not eligible for SSP who may work for the business which can include claiming either Universal Credit or the new Employment and Support Allowance.

Self-employed contractors on Universal Credit who are required to stay at home or are ill as a result of COVID-19 will not have a Minimum Income Floor (an assumed level of income) applied for a period of time while affected. This is effective from 13 March 2020. Self-employed contractors will also be able to claim the new style Employment and Support Allowance from day 1 sick leave rather than day 8 if they have COVID-19 or are self-isolating. Further information can be found on Universal Credit and the Employment and Support Allowance.

There is also a local authority £500m Hardship Fund in place that self-employed contractors may be able to take advantage of if they meet the criteria. Further information on the criteria can be found here.

Besides SMEs being able to claim up to 2 weeks’ SSP from the government, these points are primarily focused towards what individuals can do. Even if this does not directly affect your business or put any obligation on you, as a business, to do anything, we trust this information will allow you to field any questions raised by individuals.

Business rate relief

The UK government will introduce a business rates retail holiday for retail, hospitality and leisure businesses in England for the 2020 to 2021 tax year. Businesses that received the retail discount in the 2019 to 2020 tax year will be rebilled by their local authority as soon as possible.

A £25,000 grant will be provided to retail, hospitality and leisure businesses operating from smaller premises, with a rateable value between £15,000 and £51,000.

Guidance for local authorities on the business rates holiday has been published and can be found here.

Support for businesses that pay little or no business rates

The UK government will provide additional funding for local authorities to support small businesses that already pay little or no business rates because of small business rate relief (SBBR).

This will provide a one-off grant of £10,000 to businesses currently eligible for SBRR or rural rate relief to help meet their ongoing business costs. If a business eligible for SBRR or rural rate relief, it will be contacted by its local authority without the need for application. Further guidance for local authorities on the scheme will follow.

Commercial lease forfeiture moratorium

The government has announced a moratorium on lease forfeiture to protect commercial tenants who, because of coronavirus, cannot pay rent falling due within the next three months.

The measures, included in the emergency Coronavirus Bill, provide that a landlord may not exercise a right of re-entry for non-payment of rent until 30 June 2020, with an option for the government to extend the period if needed. The measures apply to all commercial tenants in England, Wales and Northern Ireland.

For the purposes of the legislation, “rent” includes any sum payable under a commercial lease, e.g. service charge. The measures are aimed at supporting the many discussions that are already taking place between landlords and tenants about rent deferrals and other voluntary arrangements, and at giving comfort to businesses that are concerned about eviction while they experience cashflow issues.

Tenants will still be liable for the rent after the end of the moratorium – nothing other than an express waiver in writing will be regarded as waiving the landlord’s right to forfeit for non-payment of rent after the end of the period – but the government is nonetheless looking at the impact on commercial landlords’ cash flow in the meantime.

Coronavirus tax implications

While this is not strictly a government measure introduced to support UK businesses, the knock-on effects from COVID-19 mean that businesses, especially large global businesses, will have to consider the potential tax implications that will subsequently arise as a result.

There are a number of different potential issues that could arise – from employment tax issues such as personal residency to corporate residency and permanent establishment concerns. Consideration should also be given to issues such as aborted transactions, transfer pricing and general tax administration. For further information, please see our article Coronavirus – impact on tax.

It is our understanding that some of the above measures are more likely to be relevant to your business needs than others. For example, some are targeted at small- and medium-sized businesses only. However, if there are any particular support mechanisms that you would like further information on (whether directly or indirectly applicable) or would like to discuss then we would be happy to do so. We will also continue to update this note with further guidance as and when it becomes available.