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Things You Can Do when your Business is Quiet

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Things you can do when your business is quiet (wide). Photo credit © L Rowe 2020
Things you can do when your business is quiet (wide). Photo credit © L Rowe 2020

At the moment many businesses are in a state of hibernation.

This means that you might have extra time on your hands like never before.

(If you’re a furloughed director, you can only carry out statutory duties but if you are self-employed you can continue to work.)

So…

Make sure you have enough to survive:

Keep in touch with your customers/clients

  • Stay in touch with your existing customers & clients

Work on your marketing strategy

  • Think about your ideal customer, where they hang out and the kinds of products/services they would like
  • Come up with some promotion ideas
  • Write a newsletter
  • Design new marketing collateral
  • Write new copy for print or online media

Catch up on your accounts

  • Gather together all your receipts, invoices and paperwork
  • Catch up on your bookkeeping
  • Do your year end accounts
  • Get your personal tax affairs in order
  • Do your 2020/21 personal tax return

Work on product development

  • Come up with new ideas or designs
  • Make new samples or prototypes
  • Ask for feedback online
  • Think about products or designs for the months and seasons ahead

Make for stock

  • If it is possible, make products for stock so that you have some stock on hand for the future

Overhaul your website

  • Imrove your search engine optimisation (SEO)
  • Redesign your website
  • Refresh your website copy
  • Refresh your photographs and graphics
  • Add new pages or content
  • Start a blog

Be active on social media

  • Set up or refresh your social media profiles
  • Restart or begin being active on your chosen social media platforms

Admin

  • Write up or refresh policies such as: GDPR, complaints & customer service policy
  • Update your contracts
  • Look into improving or upgrading any inefficient systems that you have

OR, since it is a very strange time and you wouldn’t normally be literally locked in your own home, unable to go out apart from essential shopping, give yourself and break and go read a book.

Things you can do when your business is quiet (pin). Photo credit © L Rowe 2020
Things you can do when your business is quiet (image). Photo credit © L Rowe 2020

Director’s Salary and Dividends 2020-21

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Director's Salary and Dividends 2020/21 (wide). Photo credit © L Rowe 2020
Director’s Salary and Dividends 2020/21 (wide). Photo credit © L Rowe 2020

As we start a new tax year, the question of what directors of their own limited company should pay themselves arises.

Since the coronavirus/covid-19 crisis, this has taken on new significance, as directors who are able to furlough themselves can only claim 80% of their PAYE salary through the coronavirus job retention scheme.

This is relevant for sole directors of their own limited company, where the director is the only shareholder and the director’s only source of income comes from the company and the director is not in the additional rate tax band for personal tax.

Where the director is the only shareholder, it is necessary to look at the overall tax burden of personal tax, corporation tax and national insurance (both employees and employers)

Scenario 1

Pay a salary at the National Insurance Primary Threshold £9,504

This gives the lowest overall tax burden but does mean that around £100 of National Insurance would be payable in April 2021, which is nine months earlier than the corporation tax would be due.

Scenario 2

Pay a salary at the National Insurance Secondary Threshold £8,784

This results in around £57 more tax being paid (even after taking the addtional £100 of national insurance). This is because employers national insurance is payable at 13.8% and is tax deductible against corporation tax, whereas the corporation tax rate is 19%

Scenario 3

Pay a salary at the personal tax allowance of £12,500. This results in around £125 more tax being paid, compared to the first scenario.

Scenario 4

Paying any salary above the personal allowance will result in more tax and national insurance being paid.

Dividends

The tax free dividend allowance remains at £2,000 for 2020/21. This means that any dividends over £2k will be taxed at:

  • 7.5% if you are in the basic rate tax band
  • 32.5% if you are in the higher rate tax band and
  • 38.1% if you are in the additional rate tax band

Traditionally, dividends are used to extract income from a limited company without paying national insurance.

From the above, we can see that Scenario 1 would be the optimal for tax purposes.

But as we’ve seen from the recent government support for Coronavirus, tax isn’t the only consideration. For example, a furloughed director on £9.5k would only receive £633 from a future coronavirus job retention scheme, if one were launched on the same basis as the current scheme.

Additionally, some people opt to trade via a limited company because of the “limited liability” it provides, protecting and separating personal assets from their business. Others find that it is a requirement of working with their clients.

If you are a contractor within IR35, other restrictions will apply to you which will mean that the above scenarios are not going to applicable to you.

Director's Salary and Dividends 2020/21 (pin). Photo credit © L Rowe 2020
Director’s Salary and Dividends 2020/21 (pin). Photo credit © L Rowe 2020

Government Support for Company Directors affected by the Coronavirus

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Government Support for Company Directors Coronavirus (wide). Photo credit © L Rowe 2020
Government Support for Company Directors Coronavirus (wide). Photo credit © L Rowe

[Updated 16 April 2020]

There have been various announcements for government help for business generally, the employed and the self-employed (which includes partnerships)

Company directors do NOT qualify as “self employed” as they are office holders (unless they also have a separate self-employed trade, of course)

Directors may be able to access the Coronavirus Job Retention Scheme for themselves, if:

  • There is a verbal or written contract of employment AND were on the company’s payroll (PAYE scheme) on 28 February 2020.
  • The director is able to furlough themselves for at least 3 weeks because their services as an employee are not required due to the current coronavirus crisis.
  • They only do statutory work for your company (such as filing your confirmation statement or your accounts), as covered by a service contract (separate to an employment contract).
  • The decision to furlough a director must be formally agreed by the Board.
  • The PAYE scheme must have been in existence on or before 19 March; the director must have been in the PAYE scheme at that date and an RTI submission regarding that director must have been made prior to 19 March.

Directors may then claim up to 80% of your salary (that element of their remuneration that goes through the company’s PAYE scheme). Since most directors pay themselves at the primary threshold for national insurance (£8,632 in 2019/20), this equates to £575 per month on average.

(This also includes directors of their own Personal Services Company or PSC)

Directors’ dividend income is NOT covered. This is arguably harsh because dividends are paid from taxed income (the company can only pay dividends from the profits after paying corporation tax) and directors then pay a further 7.5% of personal tax on dividends over £2,000.

Furthermore, many company directors cannot cease working in the company if they want their business to be in any way viable after the coronavirus lockdown, so it does seem somewhat inequitable that directors are prevented from working when the self-employed sole-traders and partners can continue to work and receive 80% of their average trading profit. Whether the government will remedy this remains to be seen.

However, for those who are able to effectively put their company into the freezer for a few weeks, this might help.

The government suggestions for plugging the gap include:

  • Claiming Universal Credit
  • Taking out a Business interruption loan (which are interest free for the first 12 months)

Disclaimer

Since things are changing on a daily, if not hourly, basis, some of the above may change, be superseded or clarified in the future.

Please double-check any of the above before acting on them.

Links to Government and Other Guidance

Government Support for Company Directors Coronavirus (pin). Photo credit © L Rowe 2020
Government Support for Company Directors Coronavirus (pin). Photo credit © L Rowe 2020

Government Help for Self-Employed People affected by Coronavirus

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Government Support for Self-Employed Coronavirus (wide). Photo credit © L Rowe 2020
Government Support for Self-Employed Coronavirus (wide). Photo credit © L Rowe

The government has announced further help, this time for self-employed people (sole traders and partnerships)

The government will make a taxable grant of 80% of your average trading profits, up to £2,500.

This will be calculated on the average of your trading profits over the following tax years.

  • 2016/17
  • 2017/18
  • 2018/19

You do not have to have traded for all three years, your average would simply be calculated on the lesser number of years.

If eligible (and you applied) then you would be paid the grant in one instalment in June by bank transfer.

Eligibility Criteria

  • Your trading profits are under £50,000
  • Over half your income must be from self-employment (or your partnership)
  • You were trading in 2019/20
  • You intend to continue trading in 2020/21
  • You are currently trading or would expect to be if it were not for Covid-19
  • You have lost trading profits due to Covid-19
  • You have filed your 2018/19 tax return (if you have not, you have a 4 week period from now to get it filed)
  • If you are eligible then HMRC will invite you to apply online.

You cannot apply for this yourself initially. HMRC will contact you if you are eligible. You would then complete a form on the gov.uk website.
If you are asked to apply through any other website, it is a scam.

The grant is taxable. You can continue to trade. You must also include it in any relevant tax credits claim.

Who it won’t help

  • Company directors (the government suggestion is, if directors are on PAYE, that they may be eligible for the Corona Job Retention Scheme that is open to employees)
  • Self-employed people with profits over £50k in 2018-19 or over an average of £50k profits in the three qualifying years, 2016/17, 2017/18 and 2018/19
  • Newly self-employed people who don’t have a 2018-19 tax return for self-employment

It unfortunately won’t cover any business fixed costs that cannot be cancelled or curtailed or otherwise reduced.

The self-employed can access Universal Credit between now and when the grants are paid in June as well as the Business Interruption Loan Scheme which are interest-free for the first 12 months.

Links to Government Guidance

Government Support for Self-Employed Coronavirus (pin). Photo credit © L Rowe 2020
Government Support for Self-Employed Coronavirus (pin). Photo credit © L Rowe 2020

Information for Employees Affected by Coronavirus

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Information for Employees Coronavirus (wide). Photo credit © L Rowe 2020
Information for Employees Coronavirus (wide). Photo credit © L Rowe 2020

[Last Updated 26 June 2020]

Coronavirus Job Retention Scheme

The Coronavirus Job Retention Scheme is an initiative to try and prevent businesses from terminating employees by meeting 80% of the wage cost up to a cap of £2,500 per month.

The employee must be on the payroll on 28 February 2020.

If you were not on the payroll on 28 February, your employer may still opt to pay you but they will not be able to claim the government funding. Some businesses may not be able to continue paying its employees without the government support.

The employee does not claim the 80% themselves. The employer has to furlough the employee, pay them and reclaim the 80% back.

Furloughed employees are temporarily not working but remain on the company’s payroll.

The minimum furlough period is 3 weeks.

The current HMRC systems are not set up for this but it is expected to be operational by the end of April and can be backdated to 1 March.

(If you are a business with employees and are wondering how this will affect you, please visit here)

It is the company that designates whether an employee is furloughed, rather than the other way around.

With that said, the employment law to do with changing people’s employment status has not changed, so it might be that there is a negotiation to be had between employer and employee.

Additionally, the company must opt to access the Coronavirus Job Retention Scheme and furlough the employee(s) rather than terminate them.  The employee cannot make this decision.

The business does NOT have to close in order for employees to be furloughed.

In fact, the business needs to remain open to a degree in order for them to do the necessary payroll administration.

Changes to the Coronavirus Job Retention Scheme from 1 July 2020

From 1 July, furloughed employees can return to work while the employer can still claim the CJRS grant for the hours not worked. (Previously, the furloughed employee could not work at all)

From 1 August 2020, the level of grant will be tapered down.

The employer will still need to pay 80% of the furloughed hours but the amount that government will reimburse the business will gradually decrease.

At the end of the furlough period

When the Coronavirus Job Retention scheme ends, on 31 October 2020, the employer must decide if the employees can return to their jobs. If the employee(s) cannot return because the business is no longer viable or is operating on a smaller scale then termination or redundancy may be necessary.

The Coronavirus Job Retention Scheme (which is how the government will pay 80% of a furloughed employee’s pay costs up to a maximum of £2,500 per month) is NOT the same as sick pay.

Don’t confuse inability to work through sickness (therefore, sick pay) with inability to work because there is no work (80% pay for furloughed employees.

Sick Pay

Sick pay comes into play when you cannot work due to being having covid-19, having covid-19 symptoms, being in self-isolation or someone in your household is in self-isolation or you have been told to self-isolate by a doctor or NHS 111.

The government is changing the legislation to enable people to claim Statutory Sick Pay (SSP) from day 1 (as opposed to day 4).  This will apply from 13 March once the legislation has been passed.

You may need to go through the process for obtaining an isolation note online, which replaces the GP’s “fit note” (also called a “sick note”).  This involves answering some questions and then, if eligible, an isolation note is emailed to you which you then provide to your employer.

Statutory Sick Pay (SSP) is £94.25 per week and is paid through your normal payroll.  You should talk to your employer if you need to claim SSP.

Your employer may pay more than the statutory sick pay amount if it is in your employment contract.

Not everyone is entitled to Statutory Sick Pay – for example, if you earn less than the “lower earnings limit” are self-employed.  If this applies to you, then you may be able to claim for Universal Credit (UC) or the new style “Employment and Support Allowance”

Many employers will arrange working from home, where possible. On the other hand, if you do not wish to go into work because you or your family are high risk (but are not eligible for sick pay, as above), your employer may agree for you to take annual leave or unpaid leave but is not obliged to agree to either.

It is completely unchartered territory and the mechanisms for all these changes are not in place (current payroll & reporting systems are not set up to handle them), there may be some delays and hitches.

Renegotiating Financial Obligations

Do not be afraid to contact your mortgage lenders and ask for a payment holiday and renegotiate any other payments that can (although do be aware – mortgage and other interest is not necessarily cancelled and it might be that it is added to later payments), if necessary.

Disclaimer

Since things are changing on a daily, if not hourly, basis, some of the above may change, be superseded or clarified in the future.

Please double-check any of the above before acting on them.

Links to Government and other Guidance:

Information for Employees Coronavirus (pin). Photo credit © L Rowe 2020
Information for Employees Coronavirus (pin). Photo credit © L Rowe 2020

Information for Employers Affected by Coronavirus

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Information for Employers Coronavirus (wide). Photo credit © L Rowe 2020
Information for Employers Coronavirus (wide). Photo credit © L Rowe 2020

[Last Updated 26 June 2020]

Coronavirus Job Retention Scheme

The Government has announced the Coronavirus Job Retention Scheme.  Under this scheme, HMRC will reimburse your business 80% of furloughed employees wages up to a maximum of £2,500 per month.

This is a temporary scheme that is currently in place from 1 March to 30 June 2020.

Furloughed means that your employees are temporarily laid off but remain on your payroll and what you pay them is subsidised by the government through HMRC.

This measure is designed to help you retain your employees rather than terminating them.

The government has extended the eligibility date.

Employees must be on the payroll on 19 March 2020.

This means an RTI submission notifying payment in respect of that employee to HMRC must have been made on or before 19 March 2020.

Employers may opt to continue paying employees who are not eligible for the government support at the business’s own expense.

Employers may also top up an employees pay up to their usual 100%.

Employers may re-employ previous employees that were made redundant or left after 1 March and 19 March, provided that they were on their payroll on 28 February and subject to an RTI submission on or before 28 February 2020.

Critically, the employees must be paid the full amount that was claimed from HMRC.

The minimum period of time that an employee can be furloughed for is 3 weeks.

You will need to designate employees as furloughed and you need to inform the employees themselves.  However, normal employment law is still in place and you must check their employment contract as to what you need to do to change their employment status.  It might be that you need to talk with your employee to change them to being furloughed, which hopefully you would be doing anyway.

Furloughed employees must NOT be carrying out work for you.

You will also need to inform HMRC which of your employees are furloughed and make a claim for the government’s reimbursement and you will only be able to do this every 3 weeks.

The normal PAYE systems and reporting methods were obviously not set up for this situation, so further guidance will be released on how you will need to go about doing this.

Claims may be backdated to 1 March 2020

Making a claim through the Coronavirus Job Retention Scheme

The online HMRC portal went live on 20 April 2020. You can claim via your own Government Gateway login (you can add PAYE to your services if you hadn’t already) or your accountant/agent can do it on your behalf if there is an online authorisation in place.

Information you’ll need to have at hand before you begin:

  • Your Employer PAYE reference number
  • Your Employer Accounts Office reference number
  • Corporation Tax UTR (if the employer is a company)
  • Number of employees being furloughed.
  • Dates of furlough
  • For each employee, the amount of gross, employERs NICs and employERs auto-enrolment pension contributions (you will need to give the 80% figures that you are actually claiming) for the period you’re claiming for.
    (This may involve you working out pro-rated amounts.)
    This is so that you can give the total 80% amount that you are claiming for and have a breakdown available, should HMRC check your claim at a later date.
  • Bank account details
  • Address (the one that is on the bank statements)
  • Contact details

From 1 July, there is a separate template for claims involving 100 or more employees.

The service times out if you take too long and then you will have to start again. Your information is not saved. If you have to make corrections, you may also have to start again.
(There are roughly 20 screens to go through but most of the screens only have one question on them. )

There is a declaration that you agree to by submitting your claim. Expect HMRC to check claims against previous RTI submissions and to inspect some claims in more detail. Dishonest claims are fraudulent and will need to be repaid to HMRC.

Time limit

You will have until 31 July 2020 to make claims for periods up to 30 June 2020. Claims for July onwards can be made to HMRC from 1 July.

Changes to the Coronavirus Job Retention Scheme from 1 July 2020

From 1 July, employers can bring back furloughed employees and still claim the CJRS grant for the hours not worked. Previously, furloughed employees could not work at all.

From 1 August 2020, the level of grant will be tapered down.

  • For August, 80% of the wages will be paid (up to a £2,500 cap) for the hours that employee is furloughed for. The employer will have to pay employERs NICs and pension contributions for the furloughed hours)
  • For September, 70% of the wages will be paid (up to a £2,187.50 cap) for the hours that employee is furloughed for. The employer will have to pay employERs NICs and pension contributions for the furloughed hours) and top up the wages to ensure employees still receive 80% of their wages (up to a £2,500 cap) for the time they are furloughed.
  • For October, 60% of the wages will be paid (up to a £1,875 cap) for the hours that employee is furloughed for. The employer will have to pay employERs NICs and pension contributions for the furloughed hours) and top up the wages to ensure employees still receive 80% of their wages (up to a £2,500 cap) for the time they are furloughed.

Employers can still top up to 100% of the employees wages for the hours not worked.

The wage cap is proportional to the hours not worked.

At the end of the Coronavirus Job Retention Scheme

When the Coronavirus Job Retention scheme ends on 31 October 2020, employers must decide if the employees can return to their jobs. It might be that the business is no longer viable or needs to operate on a smaller scale. If the employee(s) cannot return, then termination or redundancy may be necessary.

The Coronavirus Job Retention Scheme is not to be confused with Statutory Sick Pay. Although employees who become sick or are on long-term sick leave or who are shielding may be furloughed. You cannot claim furlough and the SSP rebate for the same employee for the same period of time (but claiming for different time periods for the same employee is allowed).

Statutory Sick Pay

Medical evidence is not legally required for the first 7 days of sickness.  Do use your discretion regarding the need for evidence for a period of sickness where your employee is advised to self-isolate.

Beyond 7 days of sickness, you may request an isolation note from your employee.  This may be emailed to you.

SSP will be payable from day 1, as opposed to day 4.  When the government passes the necessary legislation, it will apply retrospectively from 13 March.

SSP should be paid to eligible employees through payroll as usual.  The statutory sick pay is £94.25 per week but their contractual sick pay may be more, so you should also check to their employment contract.

Employees are entitled to time off work to look after dependants.  This may apply to coronavirus. There is no statutory entitlement to pay for this but some employers may offer this.

You may an employee who is in a “high risk” category, and therefore does not want to go into the workplace because they are afraid of catching coronavirus.  You may be able to implement further measures in your workplace to address their concerns.  However, it may not be possible or the employee still does not want to go in and although you do not have to, you may agree some holiday time or unpaid leave.

Where at all possible, it is sensible to agree a working from home arrangement.

Disclaimer

Since things are changing on a daily, if not hourly, basis, some of the above may change, be superseded or clarified in the future.

Please double-check any of the above before acting on them.

Links to Government and other Guidance:

Information for Employers Coronavirus (pin). Photo credit © L Rowe 2020
Information for Employers Coronavirus (pin). Photo credit © L Rowe 2020