UK COVID-19 Financial and Business Support Measures

Part 1 – Tax Updates

Part 2 – Liquidity Support Measures

UK Government Response to COVID-19 - Tax Updates

Coronavirus Job Retention Scheme (“CJRS”)
The CJRS has been further extended until 30 September 2021.

Until the end of June 2021 the CJRS provides grants to cover 80% of an employee’s usual wages, for hours that they do not work due to furlough. The maximum grant is £2,500 per employee per month (or the pro-rata equivalent for employees working less hours than usual). For July, August, and September 2021 the grant is reduced:

• for July 2021, the grant will cover 70% of employee wages for hours not worked (with the maximum grant being £2,187.50 per employee per month)
• for August and September 2021, the grant will cover 60% of employee wages for hours not worked (with the maximum grant being £1,875 per employee per month)

Even after the grant level is reduced, employers must continue to pay employees at least 80% of their usual wages to be eligible to claim.

Guidance specifically highlights that employees who are clinically extremely vulnerable or have caring responsibilities as a result of coronavirus which mean they are unable to work can be furloughed.

As previously, the scheme will be open to all employers with a UK bank account (but the government states they do not expect publicly funded organisations to use the scheme).

To be eligible, an employee must have been employed, and already paid via PAYE, on or before 30 October 2020. There is no requirement for employees to have been furloughed before, or for an employer to have previously accessed the scheme.

As under the previous scheme, employers will only be able to claim for employees who are furloughed (either fully or partially) and must not do any work for their employer during that period (although they may be able to undertake training).

Employers will, as before, need to ensure that employment law considerations are taken into account and that agreement for furlough is reached with employees and documented in writing.

Employers remain responsible for covering any employer costs in addition to the wages covered by the grant, such as wage top-ups, employer’s national insurance contributions and pension contributions.

Claims are made via an HMRC claims portal, with payments anticipated within 6 working days of making a claim. Claims for furlough days in each calendar month must be made by 14 of the following month (or the next working day if the 14 falls on a weekend).

FTI COMMENT:
No doubt many employers will welcome the extension of the CJRS, although some in particularly impacted sectors may be fearful that the reductions in the grant for July onwards and additional employer contributions required could have a negative impact on their ability to retain employees.

Together with the Chancellor’s announcement in the Budget of extra money to help combat fraud, and given previous media reports on the level of inaccuracies and fraud within CJRS claims it is imperative that employers who access the scheme ensure they have a robust process in place to meet all conditions and to ensure that employees do not undertake work whilst on employment.

It appears grants are continuing to be paid in a timely manner, meaning that employers can have quick access to necessary funds.

Job Support Scheme
Originally due to commence from 1 November 2020, the Job Support Scheme has now been postponed due to the extension of the Coronavirus Job Retention Scheme.

Self Employment Income Support Scheme Grant (SEISS)
The SEISS has been extended again, with (taxable) grants to those who are eligible for SEISS and who are continuing to trade, but face reduced demand due to COVID-19. The extension of the scheme means that additional grants will be available to cover the period from February to September 2021.

Similar to prior grants, the sum for the 4th grant (covering February to April 2021) will be calculated by reference to three months’ profits. The amount of the grant remains at 80% of average monthly profits, up to a total of £7,500 for February 2021 to April 2021.

The calculation now takes into account the 2019-20 tax year (following the deadline for submission of the relevant self-assessment tax returns) – this may mean that individuals receive different amount of grants to previously.

Importantly, self-employed individuals who traded during 2019-20 and submitted their tax return by 2 March 2021 should now be eligible for a grant.

HMRC’s online service to claim the next SEISS grant will be available from late April 2021, and claims must be made by 31 May 2021.

The 5th, and final, grant will cover May to September 2021. The calculation for this grant will depend on the amount by which turnover has fallen. For those with a 30% or higher reduction in turner the grant will continue to be calculated as above, but for those with a lower reduction in turnover, the grant will be 30% of the average monthly profts, capped at £2,850.

FTI COMMENT:
Many self employed people who were initially eligible for the SEISS will be pleased at the availability of further grants, especially with the recent confirmation of the continuance of the “80% grant”. Individuals who became self employed during 2019-20 will now also have the opportunity to claim. However, there will remain many individuals who feel that they have unfairly missed out for various reasons, due to the relatively harsh nature of the cut-off points (such as the £50,000 cut-off point).

Job Retention Bonus
The Job Retention Bonus, originally due to be paid between 15 February and 31 March 2021, has been withdrawn due to the extension of the Coronavirus Job Retention Scheme.

Other job support measures
In addition to the Job Retention Bonus the Chancellor announced further measures of particular interest to employers, all of which are subject to conditions:

• The “Kickstart Scheme” providing businesses with reimbursement for 100% of the national minimum wage and associated employer national insurance contributions and minimum automatic enrolment pension contributions for new jobs created for 16 to 24 year olds who are on Universal Credit and deemed at risk of long-term unemployment.
• Support for traineeships, providing employers with £1,000 per new trainee taken on.
• Support for new apprenticeships, providing employers with £2,000 per apprentice hired where aged under 25 (and £1,500 where aged 25 and over) from 1 August 2020 to 31 January 2021. This is in addition to the current £1,000 payment in certain circumstances.

FTI COMMENT:
These measures will be particularly welcomed by businesses which already have an established model for recruiting younger people and providing apprenticeships and may well be enough to help other businesses consider whether it will be appropriate for them for the first time. As ever, the devil is in the detail, and we will wait to see the exact conditions, and how onerous it may be for businesses to make and substantiate claims.

Temporary VAT Reduction to the Hospitality and Leisure Sector
The current reduction in the VAT rate on certain goods and services in the hospitality and leisure sectors from 20% to 5% has been extended to 30 September 2021. Following this an interim rate of 12.5% will apply until 31 March 2022 and thereafter is it expected to return to 20%. The reduction covers:

• Food and non-alcoholic drinks in restaurants, pubs, bars and cafés etc;
• Accommodation in hotels and other holiday premises; and
• Tickets for admission to attractions in the UK

FTI COMMENT:
The continued reduction in the VAT rate will be welcomed by the hospitality and leisure sector, as it looks to open up once more as the lockdown measures gradually ease. Businesses have the choice of passing on the benefit from the VAT reduction or discounting sales to encourage customers.

The additional 12.5% rate will also be welcome to ease the transition from the 5% back to the standard rate of 20%. However, business are bound to be disappointed that the full reduced rating was not extended beyond 30 September 2021 or even made permanent. Many EU Member States already impose a reduced rate of VAT for the hospitality and leisure industry, so a further longer-term extension was an opportunity to align the UK sector with its EU counterparts.

Stamp Duty Land Tax (SDLT) – Temporary reduction for purchasers of residential property
Reduced rates of Stamp Duty Land Tax (SDLT) will apply for residential properties purchased from 8 July 2020 until 31 March 2021 inclusive. For this period the nil rate band is increased from £125,000 to £500,000 for standard purchases.

Purchases up to £500,000 will not pay SDLT and those above that level will benefit from a £15,000 tax reduction. Purchases of second homes and corporate purchasers of residential property will continue to be subject to the additional 3% charge, but will benefit from the reduction of up to £15,000 (due to the reduction on the standard rates).

There is also a reduction in SDLT charged on grants of residential leases where the net present value of future rents would be charged.

FTI COMMENT:
This measure is intended to stimulate and build confidence in the housing market, in order to boost consumer spending and the economic recovery. The removal or reduction of a significant transaction cost is welcomed, as is the anticipated positive effect on the construction industry.

Other Tax Updates

Tool to find support for businesses
On 22 April 2020 the Government launch a new tool to help businesses navigate the various Coronavirus related support measures that may be available. The tool takes the form of a questionnaire and, depending on the responses, provides direction to the potentially applicable support for the business.

FTI COMMENT:
Given the huge range of support measures which have been made available to businesses the support tool will be invaluable in ensuring that businesses can more easily understand which measure are applicable for them, and to help ensure that no potentially important measures are inadvertently overlooked.

Deferring VAT payments
One of the COVID measures announced by the UK Government was the ability for businesses to defer their VAT liability for VAT periods ending February 20, March 20 or April 20 and, for those businesses on the VAT Payments on Account Scheme, those payments on account that were due on or before 30 June 2020. Over £28bn of VAT has been deferred by businesses and originally that deferred VAT would have been repayable by 31 March 2021. However, the UK Government has announced a new payment scheme which means that rather than repaying the deferred VAT in one lump sum, businesses can make up to 11 smaller monthly payments which will need to be paid by the end of January 2022. Those payments will be interest free, but businesses must opt into the scheme and businesses should be able to apply from 23 February 2021. In order to apply, all VAT returns in the last 4 years need to have been submitted and a Direct Debit will normally need to be entered into as part of the opt-in process.

FTI COMMENT:
This payment mechanism for the deferred VAT will be welcomed by businesses, as it removes the requirement for a potentially significant VAT payment becoming due while trading restrictions are still be in place. The ability to make smaller payments to January 2022 should ease cash-flow pressures for businesses as the economy hopefully opens up.

Businesses should note the requirement to opt in however, and those that do not will need to make the full payment of their deferred VAT by 31 March 2021. HMRC have extended the opt in period until 21 June 2021, so businesses do not need to opt in before 31 March 21 in order to use the scheme. However, opting in later reduces the maximum number of instalment payments that can be applied for. In addition, the first instalment payment will be due when a business joins the scheme. 

As announced in the Budget 2021, any business that has not either paid the deferred VAT by the 31 March 2021 or signed up for the new payment scheme by 21 June 2021 will suffer a 5% penalty on the amount of deferred VAT outstanding. Therefore, it is essential that businesses action the opt in process where desired.

Time to Pay arrangements for other taxes
The Government extended the scope of HMRC’s “Time to Pay” service – making a specific helpline (08000 159 559) available for all businesses (and self-employed individuals) who have outstanding tax liabilities that they are finding difficult to pay due to COVID-19.

These arrangements are agreed on a case-by-case basis.

FTI COMMENT:
Although partially dealt with by the VAT deferral, the extension of the Time to Pay service is crucial for the cashflow position of many businesses. Whilst some early indications suggest it is still difficult to reach a helpline operative in a timely manner, our experience is that those businesses who are dealt with by the Large Business Service are finding that they have been able to get swift agreement where needed once they have been able to speak to their Customer Care Manager (CCM) to discuss their situation.

Our experiences suggest that, once able to reach them, HMRC are currently able to quickly agree payment deferrals for quarterly corporation tax installments for a period 3 months, with limited information requirements (and without the need for detailed financial information). We understand that, on verbal agreement, HMRC will apply the deferrals automatically and that no formal confirmation will be received by the company. It is expected that further advice will be issued regard any potential longer deferrals, once this initial period has passed.

Corporation Tax - repayments for anticipated losses
HMRC has updated its Company Taxation Manual to clarify that they will consider claims for repayment of corporation tax for prior periods based on anticipated losses in the current period given the exceptional circumstances many companies are facing in the COVID-19 pandemic. Generally such claims must be made after the year end, when the quantum of the loss is certain.

Exceptional circumstances will be considered where the expected allowable tax losses will be so great in the current tax period that they are likely to comfortably exceed any relevant income in the current accounting period and the amount of taxable profits in the prior period that relate to the repayment claim. As part of the claim, companies will need to take into account how much of the accounting period has expired, any possible upturn in revenue and any other factors that may affect the ultimate loss position of the company in the current period.

As part of the claim, a company must specify the amount that it thinks is repayable and will be required to provide detailed evidence to support this. The level of evidence required will depend on the particular fact pattern of the company so each claim will be considered on a case-by-case basis. However, where a claim is made before the end of the current accounting period, in addition to management accounts and draft tax computations, HMRC will expect to see forward looking reports from the Board of Directors, any relevant public statements and external evidence which supports the fact that the relevant circumstances are unlikely to change in the short term.

HMRC have indicated that it will be extremely difficult for a company to provide enough evidence to support a repayment during the earlier parts of an accounting period as there will be more reliance on forecasts and there is a greater chance of an upturn or recovery of losses.

FTI COMMENT:
Given the scale of losses suffered by companies as a result of the pandemic, this clarification from HMRC regarding the ability to carry-back anticipated losses to generate cash tax repayments is very welcome, particularly for those companies that were cash paying in prior years and have been hit hardest by the pandemic such as the hospitality and travel industry.

Business rates holiday for retail, hospitality and leisure businesses and for nursery businesses
The Government will introduce a business rates holiday for retail, hospitality and leisure businesses as well as estate agents and letting agencies in England for the 2020/21 tax year.

All businesses in England that are in the retail, hospitality, or leisure sector or are estate agents or letting agencies will be eligible, no matter what their size. In order to benefit properties must be used (wholly or mainly) either:

• As shops, restaurants, cafes, drinking establishments (e.g. bars and pubs), cinemas and live music venues;
• for assembly and leisure;
• as hotels, guest premises and self-catering accommodation.
• as estate agents or letting agencies.

Nursery businesses in England also qualify where their properties are on Ofsted’s Early Years Register or are (wholly or mainly) used to provide Early Years Foundation Stage.

On the 25 March, the Government announced that the business rate holiday for next year would also be extended to estate agents, letting agencies and bingo halls that have closed as a result of the Covid-19 measures.

Eligible businesses do not need to take any action – the relief was applied automatically in their council tax bill in April 2020.

While business rates are devolved to the local Governments of Scotland, Wales and Northern Ireland, both Scotland and Wales have announced similar business rate holidays for retail, hospitality and leisure businesses.

FTI COMMENT:
This will be welcome news for eligible businesses, particularly given that the relief and that it will apply automatically. However, the overall value of this holiday is unlikely to be substantial for most, who will also need to determine what other measures may help with cashflow. The extension in England of the measure to estate agents, letting agencies and bingo halls will also be welcome news, although the additional restriction that they must have closed may not be helpful for some that have been able to remain open.

Deferring Income Tax payments
Self-employed individuals generally pay their income tax via “Payments on Account” – two installments based on their previous year’s tax bill, with 50% due on 31 January (prior to the relevant tax year) and the remaining 50% on 31 July. The 31 July 2020 due date for the second 2020-21 payment on account will be deferred until 31 January 2021.

The deferral is automatic and no penalties or interest for late payment will be charged in the deferral period.

FTI COMMENT:
Self-employed individuals will no doubt appreciate the automatic deferral of the July 2020 payment on account, which should help to ease cashflow issues. This move will also ensure that individuals do not have to make a payment based on their prior year’s tax liability, which may be too high for some.

It is, of course, possible that with the current downtime for many self-employed individuals, there may still be difficulties in making a tax payment in respect of last year’s tax income. Further help may be available via the extended Time to Pay scheme.

Coronavirus Job Retention Scheme and Administrations
The government has confirmed that the furlough scheme is available in respect of employees of companies in administration. However, the government has stated that “we would expect an administrator would only access the scheme if there is a reasonable likelihood of rehiring the workers”. There has been press criticism of administrators in certain cases because they have made staff redundant rather than placing those staff on furlough – this criticism may be unfair based on the government guidance.

Administrators have also sought input from the courts, notably in the Carluccio’s and Debenhams cases, in relation to the interaction between the furlough scheme and insolvency law. Administrators have 14 days at the commencement of an administration to decide which employee contracts to adopt – employees are then either retained (and their wages must be paid as a priority) or they are made redundant.

FTI COMMENT:
In the Carluccio’s case the court has confirmed that contracts are not adopted until either a furlough application is made or wages are paid to the employees. This provides the administrators with additional time to determine whether to adopt employee contracts. During this time the administrators can seek a solution for the business without the risk that employee wages (including amounts above the 80% / £2,500 caps) will be a priority expense in the administration.

The Debenhams situation differs from Carluccio’s: the staff were already furloughed prior to the administration; consents were not sought from staff to the furlough and given over 15,000 retail staff obtaining consent would be challenging. The Debenhams administrators also wished to continue to make payments to the staff (subject to the furlough scheme limits) but were concerned that should they do so that contracts would be adopted and the amounts above the furlough scheme caps would become a priority expense. The Debenhams administrators’ application to court was heard on 15 April 2020 seeking clarity on whether employee contracts would be adopted where employees remained furloughed. The judge was not prepared to give directions and an appeal is anticipated.

Administrators and their legal advisors will need to carefully assess the position of furloughed employees for each new administration case, and determine whether any court applications or other actions are required in the initial 14 day period before contracts are adopted. The position remains uncertain pending the outcome of any appeal of the Debenhams judgment.

Self-Employed Income Support Scheme
Similar to the Coronavirus Job Retention Scheme, eligible self-employed individuals will be able to apply for a taxable grant worth 80% of their profits, up to £2,500 per month, covering the 3 months from March to May 2020. The new “Self-Employed Income Support Scheme” is open to self-employed individuals with a trading profit of less than £50,000 in 2018-19 or an average trading profit of less than £50,000 from 2016-17, 2017-18 and 2018-19. To ensure that only genuine self-employed individuals can claim, more than half of an individual’s income in these periods must come from self-employment. Individuals who use a personal service company (as is the case for many contractors) will not be covered by the scheme – they are not self employed – but where they pay themselves a salary through their company some help may be available via the Job Retention Scheme, assuming they are operating PAYE schemes.

HMRC will use existing information to check potential eligibility and will notify eligible taxpayers directly with guidance on how they can apply through an online portal. From 4 May 2020, HMRC has started contacting those self-employed individuals it believes are eligible for the scheme. HMRC will also use the existing information to calculate the grant, so at no stage will the taxpayer have to provide any further financial information. The claims service opened on 13 May and the Government have confirmed that the grants will be paid in a single lump sum instalment within six working days of completing a claim. Those claiming have to confirm that they meet the eligibility criteria, in particular that their business has been adversely affected by coronavirus because the taxpayer is shielding, self-isolating or is on sick leave or has care responsibilities because of coronavirus, or has been scaled down or temporarily stopped trading because the supply chain has been interrupted, the business has fewer or no customers or staff are unable to work.

On 29 May the scheme was extended, meaning eligible self-employed individuals will be able to claim a second and final grant in August, covering the 3 months from June to August 2020. While the Government have confirmed that the eligibility criteria for the second grant will be the same as for the first grant, taxpayers do not need to have made a claim (or have been eligible) for the first grant to be eligible for the second grant, i.e. their business may have only been adversely affected by COVID-19 more recently. The second taxable grant will be worth 70% of their average monthly trading profits for three months, which will be paid out in a single instalment and capped at £6,570 in total. It is expected that HMRC will publish further guidance on 12 June.

Ahead of the Government opening the claim service for the second grant, it is important that eligible individuals that have not yet claimed for the first grant but wish to do so, apply for the first grant no later than 13 July.

FTI COMMENT:
For those self-employed workers who are covered this should provide welcome news given the continuing uncertainty as to when businesses may return to more normal levels of trading. Eligible individuals may be able to receive a business interruption loan in the interim to provide some additional help.

The government was keen to highlight that the scheme will cover 95% of self-employed workers. That being said, it will still be disheartening for those whose trading profit is slightly over £50,000, or for those who have only become self-employed since 6 April 2019 who will not receive any support under this scheme. It should also be noted that although there is no requirement to have made a claim or have been eligible for the first grant, there has been no change to the requirement to have been self-employed as at 6 April 2019 to be eligible to make a claim for a second grant.

During the original announcement the Chancellor also alluded to a potential equalisation of National Insurance contribution rates for self-employed and employed people in the future – something the Government previously tried to implement, but abandoned due to negative reaction.

For individuals who are uncertain whether they will be eligible for the scheme, HMRC have provided an eligibility checker, available here.

Coronavirus Statutory Sick Pay Rebate Scheme (“CSSPRS”)
The Government will refund eligible SSP costs in respect of employees who cannot work due to coronavirus (or self-isolation) for periods of sickness up to 2 weeks, starting on or after 13 March 2020, to all employers with fewer than 250 employees (measured as at 28 February 2020).

Eligible SSP costs will include two weeks of SSP per employee who has not been able to work due to COVID-19.

Employers will need to maintain records of absences and related SSP payments.

As the scheme is being operated under the EU’s Temporary State Aid Framework, as part of their claim employers must declare that it will not result in the amount of state aid received by the employer exceeding their maximum temporary aid available. HMRC’s guidance during the claim process highlights the maximum level of state aid that a business may receive (normally €800,000) and reminds businesses that they should not claim amounts that take them above this limit, in combination with any other aid received.

FTI COMMENT:
This measure should help employers to cover the cost of sick pay for staff. However, many employers offer contractual sick pay which is in excess of SSP and, therefore, may not receive full reimbursement for their costs.

A new online service for employers to make their CSSPRS claims was launched on 26 May 2020 and can be accessed here. We hope that, given the success in quick payments from HMRC with the Job Retention Scheme, payments will flow quickly to businesses who need to make a claim.

As with other claims that interact with State Aid, it can be difficult for businesses to ensure they fully comply with state aid rules and it is somewhat disappointing, therefore, that HMRC do not provide additional assistance or guidance.

An overview of other tax and fiscal measures introduced in other global jurisdictions can be found here: https://wts.com/global/insights/covid19

Stamp Duty on transfers of unlisted UK shares
HMRC Stamp Office has announced temporary processes to deal with Stamp Duty for the duration of this emergency period. While transfers of listed shares are carried out electronically, ordinarily the stock transfer forms used to transfer ownership of unlisted UK shares have to be physically presented to the Stamp Office for stamping. The emergency processes mean that the documents may be scanned and emailed (with payments of duty also being made electronically). Electronic receipts will allow company registrars to update registers of members.

New guidance can be found on Gov.UK, at Completing a Stock Transfer Form and Paying Stamp Duty. More detailed guidance will be added shortly.

Postal applications relating to stamp duty should no longer be made.

FTI COMMENT:
This is a practical and welcomed change that both enables more HMRC staff to work from home, and also removes the difficulties about sending and receiving correspondence. Further guidance will be issued in relation to group relief and claiming other exemptions. Challenges to be anticipated will be around file size limitations, and turnaround times, but HMRC are looking to work together with the taxpayers to ensure any issues are minimised.

Making Tax Digital – Delay to the Requirement for Digital Links
The Making tax Digital for VAT regulations require businesses to ensure that VAT returns are submitted digitally, and for there to be digital links between the various pieces of software that are used so that there is no manual intervention in the “digital journey” of the data from it being inputted to the submission of the VAT return.

While most business will have already signed up and submitted their first VAT returns under these new regulations, HMRC allowed a “soft-landing” period of 12 months for the digital link requirement. This meant that businesses were not required to have the digital links in place before VAT return periods starting on or after 1 April 2020 (or 1 October 2020 for some businesses where MTD was deferred by six months). Now, as a result of the Covid-19 crisis, HMRC have announced that the digital link requirement will be delayed further by twelve months to VAT return periods starting on or after 1 April 2021. This new timeline will affect all businesses, even those who only required the digital links to be effective from 1 October 2020.

FTI COMMENT:
For some SME’s, whose only piece of relevant software is their financial package, this announcement will not be relevant as they will already be fully compliant with Making Tax Digital. However, for larger businesses and those with multiple systems which may have required remediating actions and improvements, this delay will be welcomed.

Carrying Over Annual Leave
Workers (including agency workers and those on zero-hours contracts) who have not taken all of their statutory annual leave entitlement due to COVID-19 will now be able to carry up to 4 weeks of unused holiday over into the next 2 leave years.

FTI COMMENT:
The changes will help to ease the requirements on businesses to ensure that workers take their statutory amount of annual leave in the year. This will ensure that employers in key industries heavily affected by COVID-19 will remain well-staffed by allowing key workers to carry over annual leave at a time when granting annual leave could leave them short-staffed.

What is not yet clear is whether these changes force employers affected by COVID-19 to allow employees to carry over leave or rather no longer requires them to ensure that the employee takes the full 28 days leave in one year. The new regulations state that workers have the right to carry over where it is not reasonably practicable for a worker to take some, or all, of the holiday to which they are entitled to due to COVID-19. To the extent an employee cannot reasonably take leave due to commitments arising from COVID-19 then the employer will be forced to allow the employee to carry over leave. However, it remains to be seen whether if an employer provides the employee a reasonable opportunity to take leave then they cannot be forced to allow a carry-over under these changes.

No Import Duty and VAT on Vital Medical Supplies
The Chancellor has removed import duties and VAT on vital medical supplies and equipment (including protective garments and eye protection, cleaning solutions and disinfectants, diagnostic reagents and certain medical consumables) brought into the UK from non-EU countries during the COVID-19 outbreak.

The relief can be claimed immediately by:

• State organisations, including state bodies, public bodies and other bodies governed by public law
• Other authorised non-state bodies. Organisations can request authorisation by contacting the National Import Relief Unit (NIRU) by emailing niru@hmrc.gov.uk

These organisations can claim for relief on certain imported goods that are for distribution, free of charge, to those affected by, at risk from or involved in combating COVID-19, regardless of whether they remain the property of the organisation importing them. Additionally, medical supplies imported for donation or onward sale to the NHS are also eligible for this relief. However, only imported goods will be affected by this relief, VAT on domestic supplies will continue to be charged at the normal rate.

This measure will continue until 31 July 2020. However, if the goods cease to be used by those affected by the coronavirus HMRC must be notified of that change of use and import duties and VAT are likely to apply.

FTI COMMENT:
While relief for import duty and VAT can already apply in certain circumstances, this measure will be welcome by those organisations involved in the testing and caring for COVID-19 patients. However, further guidance on which non-state bodies can be authorised and whether there will be any restrictions have not yet been provided. Therefore is it possible that certain bodies may not be eligible for this relief. Furthermore organisations may be concerned that a retrospective clawback of the relieved duty and VAT may arise once the crisis is over. Therefore this is an area which should be kept under review.

Zero-rating of PPE
For the period from 1 May 2020 to 31 July 2020 a temporary zero-rate will be applied to the supply of Personal Protective Equipment which have been recommended for use by Public Health England. This covers disposable gloves, plastic aprons, surgical masks etc. The zero-rating will apply to all providers of such equipment and is not affected by the nature of the recipient.

FTI COMMENT:
While certain organisations have been able to benefit from the zero-rating of this equipment since the outbreak, many organisations have been excluded from this. Therefore, this measure will be very welcomed, especially for the privately owned care homes and medical service providers and hospitals who have not only been suffering with the difficulty in the procurement of these items, but also have been incurring irrecoverable VAT, resulting in increased cost.

Zero-rating of E-Publications
In the Budget 2020, the Chancellor announced a change in the VAT law, such that the zero-rate would apply to e-publications, bringing them in line with paper publications. This measure was to take effect from 1 December 2020, however, it has been announced that this measure will be brought forward to 1 May 2020.

FTI COMMENT:
This is a welcomed announcement, especially for those parents purchasing e-books to assist with home schooling or those people who have found themselves unemployed or furloughed and looking to develop new skills.

A tax case is still progressing through the courts which could affect the previous VAT treatment of e-publications and while HMRC have re-confirmed that VAT applies any supplies pre-1 May 2020, it is possible that this zero-rating may be extended to the last four years depending on the resolution of this case.

UK Government Response to COVID-19: Liquidity Support Measures

As part of the financial measures announced by the UK Government to support UK workers and businesses through COVID-19, access to emergency liquidity has been provided through a number of mechanisms, including:

• The joint HM Treasury and Bank of England COVID-19 Corporate Financing Facility (“CCFF”) for larger businesses through accelerated access to low cost commercial paper.
• The UK government backed Coronavirus Business Interruption Loan Scheme (“CBILS”) to provide SME with UK Government guarantees support on loans of up to £5m via participating lenders.
• The UK government backed Coronavirus Large Business Interruption Loan Scheme ("CLBILS") is to provide larger UK business with a turnover of £45m- £500m with UK government support on loans of up to £25m via commercial banks at commercial rates of interest.
• The UK government backed Bounce Back Loan Scheme (“BBLS”) to provide small and medium businesses the ability to borrow between £2,000 and £50,000.

In addition, companies may benefit from other liquidity support measures including the Coronavirus Job Retention Scheme (“CJRS”) to cover up to 80% of the wages of workers not currently working but retained on payroll as well as various business rates and taxation incentives and payment deferrals.

Overview of CCFF
The CCFF scheme has been designed to provide liquidity to larger businesses where the Bank of England will purchase directly qualifying companies’ commercial paper on behalf of HM Treasury. The scheme will be open for purposes of commercial paper until, and including, 22 March 2021. In order to qualify, counterparties and issuers must have applied by 31 December 2020.

Eligibility will be based on companies’ credit ratings prior to COVID-19 i.e. facility will look through the current impacts of COVID-19 on balance sheet and cash flows and look at the rating as at 1 March 2020.

Up to £1bn may be issued by entities with a rating of A1/P1/F1/R1 (or equivalent), £600m by those with a rating of A2/P2/F2/R2, and £300m by those with a rating of A3/P3/F3/R3.

Financial applications are to be requested directly from the Bank of England under confidential arrangements.

What are the eligibility criteria for applying for CCFF?
The Bank of England will purchase commercial paper directly from companies making a material contribution to the UK economy and purchase on the secondary market for other large eligible institutions.

The Bank of England expects that companies making a material contribution to the UK economy will normally be UK incorporated companies with genuine interests in the UK, companies with significant headcount, head quartered in the UK, significant UK revenue, significant UK customers or with UK operating sites.

The facility is open to non-financial companies that meet the eligibility criteria. Banks, building societies, insurance companies and other entities in the financial sector regulated by the Bank of England or the Financial Conduct Authority are not eligible.

Issues who participate in the scheme may be required to commit to conditions surrounding capital distributions (such as dividends) and senior pay.

In order to qualify the commercial paper must be GBP denominated and meet the following criteria:

• Hold an investment grade short-term rating of A3/P3/F3/R3 or above, or a long-term rating of BBB-/Baa3/BBB low or above from at least one of Standard & Poor’s, Moddy’s, Fitch, or DBRS Morningstar as at 1 March 2020;
• If an entity does not have a public investment grade rating it may still be possible to apply based on banks’ internal ratings or obtaining a new assessment from one of the major credit rating agencies;
• Maturity of 1 week to 12 months if issued to the Bank of England via a dealer with option to roll subject to CCFF remaining open and ongoing eligibility;
• Issued directly into Euroclear and/ or Clearstream; and
• If an issuer is downgraded after 1 March 2020 below the minimum credit ratings as above, the issuer will remain eligible for primary and secondary market purchase in the CCFF, subject to HM Treasury approval.

What are the costs and timelines involved?
Once accepted onto the scheme, the commercial paper for sale will need to be submitted to the Bank of England’s Sterling Dealing Desk and purchases made with a minimum nominal value of £1m with £0.1m increments with settlement on a T+2 basis.

CCFF is designed to offer comparable terms to those prevailing in the markets prior to COVID-19 and purchases are made at a spread over the sterling overnight index swap curve. The Bank of England last provided spreads on 19 May 2020 which range between 20bps for A1/P1/F1/R1 (or equivalent) ratings and 60bps for A3/P3/F3/R3 (or equivalent) ratings.

Further details are included on the Bank of England’s website here.

Overview of the CBILS
The CBILS has been designed to provide SME businesses with access to credit during the COVID-19 outbreak via UK Government guarantee of loans, which issued under the CBILS scheme, equate to up to £5m per borrower for up to six years for term loans and asset finance facilities and for up to three years for overdrafts and invoice finance facilities.

The scheme is intended to cover a wide range of funding instruments extending to term facilities, revolving facilities (overdrafts) and asset financing (including invoice financing).

The scheme is provided by the British Business Bank via participating lenders (over 100 lenders, some of which may be restricted to the type of funding instruments they can support).

A key point to note is that companies will remain liable for the capital amount of any loan provided under CBILS, but the UK Government will provide guarantees to the lenders for the capital amount of the loan and will cover the first 12 months of interest as well as lender-levied fees.

Personal guarantees will not be required to secure borrowings below £250,000, above this amount personal guarantees may be required, but will be capped at 20% of the outstanding loan with the guarantee for the remaining 80% provided by UK government.

The UK government has announced that that the scheme has been extended until 31 January 2021.

What are the eligibility criteria for applying for CBILS?
Companies will apply to participating lenders, where lenders consider the borrowing proposal to be sound. When originally announced, there was a requirement that businesses had insufficient security, but this is no longer a condition.

In order to be eligible companies will need to be a UK based business activity, generate an annual turnover of no more than £45m and show that it has been adversely impacted by COVID-19 but would otherwise be viable. have a borrowing proposal would consider viable were it not for COVID-19 and believe that the loan would enable the company (borrower) to trade out of any short to medium term difficulty.

Companies from any sector banks other than building societies, insurers, reinsurers and state funded public-sector organizations (including state-funded primary and secondary schools) can apply.

Further details including names of participating banks are published here.

Overview of the CLBILS
The CBILS has been designed to provide large UK businesses (with turnover of more than £45m) facing difficulty as a result of the COVID-19 outbreak with access to additional loans (credit) from commercial banks.

Business may be able to obtain up to 25% of turnover in finance (capped at £200m) through business loans, overdrafts, invoices finance and asset financing with repayment terms of up to three years. Businesses who borrow more than £50 million through the scheme will be subject to certain restrictions, including the inability to make any dividend payments (other than those that have already been declared), the inability to perform any share buybacks, and the inability to pay cash bonuses or award pay rises to senior management (subject to certain conditions).

Banks are being encouraged extend these loans to businesses facing significant cash flow difficulties and ordinarily would not have access to financing through the provision of a UK government guarantee of loans issued under the CLBILS scheme.

These guarantees extend to 80% of loans provided by commercial banks.

The scheme is provided by commercial banks and a key point to note is that companies will remain liable for the capital amount of any loan provided under CLBILS and lenders will still be expected to conduct their usual credit risks, but the UK government will provide the 80% guarantees to the lenders for the loan.

The UK government has confirmed the scheme has been extended to 31 January 2021.

What are the eligibility criteria for applying for CLBILS?
Companies will need to be a UK based business, generate an annual turnover over £45m, and not received funding from the CCFF. Companies will need to show that the business would be viable were it not for the effect of coronavirus, that they have been negatively impacted and that the finance will enable them to trade out of any short to medium-term difficulties arising from coronavirus.

Companies from any sector other than banks, building societies, insurers, reinsurers and state funded public-sector organisations (including state-funded primary and secondary schools) can apply.

Companies will apply to accredited commercial lenders. Further details are available here.

Overview of the BBLS
The BBLS has been designed to help small and medium businesses borrow between £2,000 and £50,000 (or 25% of their turnover, if less) and is fully guaranteed by the government.

Borrowers will not have to pay any fees or interest for the first 12 months of any finance arrangements under the scheme and will be subject to a fixed interest rate of 2.5% per annum after the first 12 months.

Loans last for six years (although they can be repaid early without any early repayment charges) and repayments only start after 12 months. It is also possible to extend the term to ten years, make interest-only repayments for six months up to three times or pause repayments for six months (if at least six repayments have already been made).

New applications can be made until 31 January 2021 and current borrowers who did not borrow their full entitlement can “top up” their loan between 10 November 2020 and 31 January 2021.

What are the eligibility criteria for applying for BBLS?
Companies will need to be a UK based business, established before 1 March 2020, and have been adversely impacted by coronavirus.

Companies from any sector other than banks, building societies, insurers, reinsurers and state funded public-sector organisations (including state-funded primary and secondary schools) can apply.

Companies who are already claiming under CBILS, CLBILS, or CCFF cannot also apply under BBLS, although if the total loan under another scheme is up to £50,000 it can be transferred to BBLS by 31 January 2021.

Companies will apply to accredited commercial lenders. Further details are available here.

Start-up support: New Future Fund and Innovate Loans

The Government is offering a new unsecured convertible loan facility for amounts from £125,000 up to £5,000,000 for a maximum 36 month term. The scheme launched on 20 May and is currently open for applications until 31 January 2021. To qualify a company must have raised at least £250,000 in equity investment from third party investors in the last 5 years and have a substantive presence in the UK. The Government loan funding must be matched by third party investment and be used for working capital. The interest rate will be at least 8% but higher if agreed between the company and the matched investors. The loan will convert at a discount of 20% to the next funding round provided that round is at least equal to the bridge funding. On a sale or IPO, no discount would be applied. Limited warranties and covenants would be needed and the Government’s corporate governance rights will be minimal. Further details will be published in due course.

The Government is also committing £750m of support for R&D intensive small and medium size firms. This will be administered through Innovate UK’s existing grants and loan scheme which will accelerate up to £210m of grant and loan payments for the 2,500 existing customers on an opt-in basis. These loans will be available to businesses who face a sudden shortage or unavailable of funds as a direct result of COVID-19 and may provide a loan of between £250,000 and £1.6m. An extra £550m will also be made available to increase support for existing customers and £175m of support will be offered to around 1,200 companies not currently in receipt of Innovate UK funding. The first of these Innovate UK payments will be made by mid-May.

FTI COMMENT:
A different mechanism has been needed to support early stage business in technology and life sciences with similar initiatives recently being launched in France and Germany. The package does look like it will help a number of businesses but there are many limitations which may preclude many companies from accessing the funding. One key aspect of the success of the Future Fund will be the appetite of VCs and other investors to commit funding in this short period while there is still significant economic uncertainty although matched Government funding should help follow on investment decisions for good businesses that are approaching a new funding round. The additional funding from Innovate UK will be very welcome although further details around how this will be applied are awaited.

Protection Against Eviction of Commercial Tenants
The Government announced additional protections for commercial tenants who have difficulties paying their rent due to COVID-19. Whilst all commercial tenants remain liable for rent they will now be protected from eviction if they are not able to pay.

Commercial tenants will not automatically forfeit their lease and cannot be forced out of their premises due to missed payments up to 31 December 2020.

This will apply for all commercial tenants in England, Wales, and Northern Ireland.

Many commercial tenants will already be engaged in active discussion with their landlords in the current climate, especially where they are cashflow difficulties. This new is likely to be welcomed by commercial tenants who are struggling to pay their rent, but may receive a mixed response from landlords suffering their own cashflow issues. In this regard the Government has confirmed it will actively monitor the impact on landlords’.

Suspension of Wrongful Trading Provisions
The UK business secretary has announced that the Government will temporarily suspend the wrongful trading provision of Section 214 Insolvency Act 1986, retrospectively, for 3 months from 1 March 2020. This will enable company directors to continue to operate their businesses without the threat of personal liability, should they fall into insolvency.

The suspension will allow directors of companies to continue to trade, and pay staff and suppliers even if the they believe the company could become insolvent. Without this suspension, directors facing liquidity issues would have to file for insolvency to avoid the personal liability of continuing to trade.

Existing fraudulent trading laws and the threat of director disqualification should continue to act as a deterrent against director misconduct.

FTI COMMENT:
The suspension of wrongful trading provisions should assist in allowing directors to focus on their employees and their businesses without a concern of falling foul of a technical breach of the wrongful trading provisions, given the back-drop of unprecedented uncertainty. Maintaining the fraudulent trading laws also provides some appropriate protection for creditors. The proposed measures are silent on any potential steps to not prevent creditors seeking winding-up petitions. In response to the current situation, restrictions to hostile winding-up petitions have been implemented in Germany and Australia.

Changes to the UK's Insolvency Framework
In addition to the suspension of the wrongful trading provisions, the Government have proposed changes to the UK’s Insolvency Framework to prevent businesses unable to meet debts due to COVID-19 from being forced to file for insolvency.

The changes will include:

• a moratorium for companies giving them breathing space from creditors enforcing their debts for a period of time whilst they seek a rescue or restructure;
• protection of their supplies to enable them to continue trading during the moratorium; and
• a new restructuring plan, binding creditors to that plan

Whilst the proposals are not yet finalized the Government have ensured that the changes will include key safeguards for creditors and suppliers to ensure they are paid while a solution is sought.

FTI COMMENT:
There has been extensive consultation on the proposed changes to the UK’s Insolvency Framework in 2016 and 2018 and it appears that there is now an increased government emphasis on these reforms. The details of the updated proposals are yet to be confirmed, and the timing remains uncertain. During consultation, the proposed reforms were generally welcomed (subject to clarification of detail) and would add to the existing restructuring and insolvency toolkit without taking any of our existing tools off the table.

The moratorium was previously proposed as an initial 28 days and up to 3 months in duration. It will be important to understand the moratorium eligibility criteria and scope in due course. The protection of supplies was previously anticipated to be in relation essential services (e.g. IT software and connectivity) – again further clarity will be needed on how this is proposed to operate in practice. The key additional benefit of the proposed new restructuring plan is likely to be cross-class cram down which is not available in a Scheme of Arrangement.

Pending these proposals being implemented, where an insolvency process is required the existing administration process does provide for the option to achieve the rescue of the company. A rescue of the company (rather than the business) is often not achievable, however, for companies with genuine short-term challenges this could be an option in the current circumstances.

Last updated 24/03/2021 at 15.55