Steve Tanner No Comments

COVID-19: How to access Government funding in challenging times

Now that we’re a couple of months into the crisis that is COVID-19, even companies that previously had healthy cash reserves are starting to get anxious. Although it’s beginning to look like there may be an end in sight, the economy is still stagnating and small businesses are continuing to seek new sources of liquidity.

The UK government have taken unprecedented steps in trying to prop up the economy, and in doing so, support small businesses. So far, more than £15bn has been claimed by businesses using the Coronavirus Job Retention Scheme and with the program due to continue until at least October, this figure will only increase.

The government are further helping businesses by allowing any and all VAT payments due between 20th March and 30th June 2020 can be deferred until 31st March 2021, as well as implementing a number of smaller measures around sick leave and business rates relief.

However, they are well aware that this isn’t going to be enough. COVID-19 has had an unprecedented impact on a huge number of businesses with many seeing their entire revenue stream dry up almost overnight.

As a result, the government have taken action by offering liquidity in a number of different forms. Whilst immensely welcome, the different options available to small businesses can be unclear and confusing. Hopefully the information in this article will provide some clarity as we outline the different grants and loans available:

Government Grants

We’ll start with grants as receiving non-repayable funding is almost always preferable to a loan. There are two key grants available to small businesses;

Small Business Grant Fund

The Small Business Grant provides a £10,000 capital injection from the government that is non-repayable and free of restrictions. To be eligible, the business must be based in England (although parallel schemes are running in the rest of the UK), occupy a property and be eligible for small business rate relief.

But what is small business rate relief? Small business rate relief is an exemption from having to pay small business rates. Rates are similar to council tax but for businesses (although that comparison is very much simplified). Each commercial property is given a rateable value which is used to calculate the rates you pay. If the value of your property is below £15,000, you are eligible for the relief (or a tapered version of it), and as a result, are eligible for the grant.

Your local council should have contacted you via post with an application form for the grant. Considering most people aren’t currently accessing their office with any regularity, many of these are getting missed. If you haven’t received a form but think you should, the best option is to contact your local council who will be managing the grant process.

Retail, Hospitality and Leisure Grant Fund

The Retail, Hospitality and Leisure Grant provides small businesses with a grant of either £10,000 or £25,000 and operates in a similar way to the Small Business Grant Fund, but with a focus on businesses in the most-affected sectors. Once again, this is non-repayable and free of restrictions.

Eligibility requires the business to be based in England (although parallel schemes are running in the rest of the UK), be in the retail, hospitality or leisure sector, and have a rateable value under £51,000.

Businesses whose property has a rateable value below £15,000 will be eligible for a £10,000 grant (and would also be eligible for the £10k Small Business Grant) whilst those with a rateable value between £15,001 and £51,000 are eligible for a £25k grant (but wouldn’t be eligible for the Small Business Grant).

The application process is the same as the Small Business Grant in that you should receive a form through the post, but if not are advised to contact your local council.

Government-Backed Loans

Coronavirus Business Interruption Loan Scheme

The Coronavirus Business Interruption Loan Scheme is being offered by most high street banks and some other lenders, and provides businesses with a loan of up to £5 million.  Businesses must be based in the UK, have turnover below £45 million and show they were not in financial difficulty before the crisis to apply.

There are no defined terms or rates under this scheme so it’s worth speaking to your bank to see what they can offer.

As part of the application, banks will typically ask for some financial information, namely the prior year statutory accounts and current year management accounts. If you’re in the middle of an application and need some help pulling this together, feel free to get in touch.

The fact that businesses need to prove they weren’t in financial difficulty before the crisis means not everyone is able to access the scheme. This is exacerbated by the fact the government are only backing 80% of lending meaning the banks are still putting up some of their own money and thus applying their normal stringent lending criteria. A number of companies, particularly those not yet profitable, are being rejected.

Which leads us on to…

Coronavirus Bounce Back Loan

The Bounce Back Loan Scheme allows small businesses to borrow between £2,000 and £50,000 (restricted to 25% of their turnover). The scheme is 100% government backed which makes this scheme accessible to a wider range of businesses.

The terms of the scheme are very favourably as all interest payments will be paid by the government for the first year, after which interest will be charged at 2.5% for a maximum of five further years.

Once again, this is provided by all high street banks and a number of other lenders. Different lenders may have different application processes but they’re likely to ask for similar financial information as listed above. They’ll want to see that the eligibility criteria are met in that the business:

  • Is based in the UK
  • Was established before 1 March 2020
  • Has been adversely impacted by the coronavirus

We would suggest first speaking to whoever you currently bank with. They’ll have the best understanding of your business and in theory will therefore provide the smoothest application process.

Coronavirus Future Fund

Although applicable to a narrower range of businesses, the Coronavirus Future Fund provides funding in the form of loans between £125,000 and £5 million. The eligibility requirements are more stringent in that any loan amount will have to be matched by a private investor. In addition to this, only businesses that have previously received £250,000 of equity investment in the last five years are eligible. As you can imagine, this is largely being aimed at start-ups that are unlikely to have made a historic profit and are therefore unlikely to be eligible for the other loan schemes.

The terms are far less favourable than the Bounce Back scheme as any amounts not repaid by the business ahead of its next funding round are automatically converted into equity, at a discount of 20%. In addition to this, interest is charged on the loan before conversion at a minimum of 8%.

Although there may be exceptions, businesses would be advised to only apply for such a loan in instances where the other options outlined above are unavailable.

Other Options

All of the traditional funding and liquidity options are still open to businesses i.e. non-government backed loans/external investment/etc…. However, considering grants pose no drawbacks and the loans have some of the most favourable terms we’ll ever see, if you’re cash balance is looking low, these should be your first port of call.

Hopefully this provides some clarity in the most uncertain of times. If we can be of any further assistance, please do not hesitate to contact us at info@leapaccounts.com.

The Team at Leap Accounts & Outsourcing

Steve Tanner No Comments

COVID-19: How the Chancellor’s announcements could impact your business

In the unprecedented times we currently find ourselves in, small business owners will be facing significant challenges in the upcoming weeks and months to keep their businesses afloat. As a result, we wanted to drop everyone a quick note to help summarise the announcements the government has currently made.

Unfortunately a lot of the detail around how such schemes and reliefs will operate is still unknown (due to the rapidity with which they’ve had to be announced) but hopefully this will provide some clarity.

The Coronavirus Job Retention Scheme

As this was announced less than 24 hours ago, there is still a lot of speculation about exactly how this will operate, but in our opinion, this is a huge step taken by the government that will hopefully help a lot of people. The government have committed to covering 80% of an employee’s wages (up to £2,500 a month) at the point their employer is no longer able to keep them on as a worker.

Employers will have to classify their employees as “furloughed workers” meaning they are temporarily no longer working for the business. This therefore offers businesses an alternative whereby rather than making their employees permanently redundant, they can temporarily halt employment and reclaim 80% of the employees’ salary from HMRC until they return to work.

Claims will be made via a dedicated online portal that will launch in the near future. Claims can be backdated to the 1st of March and any employee who’s been employed since 28th February 2020 is eligible. Exactly what businesses will have to demonstrate to prove their workers are “furloughed” remains to be seen.

HMRC have stated that “changing the status of employees remains subject to existing employment law and, depending on the employment contract, may be subject to negotiation” so please seek legal advice before making any decisions.

The Coronavirus Business Interruption Loan Scheme

This scheme is being backed by the British Business Bank, the launch of which has been pushed forward to the week commencing the 23rd March. The British Business Bank will provide lenders with a guarantee of 80% of each loan issued to small businesses (under £45m turnover) thus making cash far more accessible to those who need it.

All major banks will be taking advantage of this scheme upon launch and thus the best option is to speak with whoever you currently bank with once the scheme is live.

Loans will be issued up to a maximum of £5m and will be interest free for the first 12 months (as the government will be covering any interest for this period).

Deferral of VAT Payments

Fairly straightforward, any businesses with a VAT payment due between the 20th March and 30th June can defer this payment until the end of the 20/21 tax year. No application is required and thus this relief will be applied automatically. Although not specifically addressed, one can assume VAT returns still need to be submitted as normal.

If you are in a repayable VAT position, there are no changes so you can expect to receive repayments as normal.

Deferral of Self-Assessment Payments

A small concession for the self-employed who have so-far been left largely unaddressed, for anyone with a payment on account due on the 31st July 2020, this will be automatically deferred until the 31st January 2021.

Support for Payment of Statutory Sick Pay

The government will repay businesses up to two weeks of statutory sick pay (£94.25 a week) paid to employees who have been off work due to the virus. This is eligible to all businesses with fewer than 250 employees and no doctor’s note is required. Those with symptoms can obtain an isolation note from NHS 111 online.

Please note the repayment mechanism for this is not currently In place. Until an announcement is made, all employers need to do is ensure their payroll reporting is reflective of the fact they’ve been paying statutory sick pay to those off work with COVID-19.

Business Rates Exemption and Cash Grants

This is an area that appears to have caused some confusion and thus first and foremost, please note this is only applicable to businesses in the hospitality, retail and leisure sector, and specifically those either paying business rates or not paying business rates due to their eligibility for small business rate relief (SBBR) and rural rate relief (RRR).

For all businesses in these industries currently paying business rates, an exemption for the entire 20/21 tax year will be automatically introduced through your council tax bill. Such businesses will also be eligible for a cash grant up to £25,000, the exact amount dependent on their rateable value. If you are eligible for the scheme, your local authority will contact you directly and automatically and thus no further action is required.

For those currently receiving small business rate relief (SBBR) or rural rate relief (RRR), you’ll be eligible for a £10,000 cash grant and per the above will be contact by your local authority.

Hopefully this provides some clarity in the most uncertain of times. If we can be of any further assistance, please do not hesitate to contact us at info@leapaccounts.com.

The Team at Leap Accounts & Outsourcing

Steve Tanner No Comments

EIS and SEIS: What you need to know

If you’re new to the world of start-ups and small businesses, you’ve probably heard the terms EIS and SEIS thrown around amongst the multitude of jargon used all too regularly in the industry. Well don’t dismiss these tax reliefs as another pointless acronyms just yet; SEIS and EIS can be invaluable to both a small business and someone looking to invest in one.

EIS and SEIS stand for Enterprise Investment Scheme and Seed Enterprise Investment Scheme respectively. They’re essentially government incentives whereby an individual can obtain tax relief for investing money in a small business. They were introduced to facilitate and promote investment into growing companies that might otherwise be deemed too risky to invest in.

We’ll take a look at both schemes below from the perspective of both the investor and the business.

The Investor

Each year, an individual can invest a maximum of £1 million in registered EIS companies and in return, HMRC will provide a repayment of 30% in the form of tax-relief assuming sufficient income tax has been paid to cover this.

For example, if an individual invests £100k into an EIS-eligible company, they can obtain tax relief of £30k as long as at least this much has been paid in income tax in the current and/or previous tax year.

SEIS is catered to smaller, and therefore it’s assumed, riskier companies. For this reason, investors get greater relief for their investment, receiving a tax repayment at 50% rather than 30%. However, the maximum amount one can invest is restricted to £100k a year, and thus relief is limited to £50k.

Although immediate tax-relief on investment is the headline-grabbing benefit, there are a few others that can prove to be quite valuable:

  • Loss relief: If things go south and in years to come the business doesn’t turn out to be the next Facebook, the future loss made on the investment can be offset against your future income, reducing the income tax you’ll pay in that year (for example on your salary).
  • Capital Gains: When the time comes to sell your shares, any gain on their value will be out of reach of the taxman.
  • Inheritance Tax: Once you’ve held your shares for at least two years, they’ll be exempt of any inheritance tax. Not much use to you but great for the loved ones.

The Business         

Now you might be thinking this is all great for the investor, but what’s in it for the business? The simple answer is, it makes it easier to get investment. With so many start-ups bootstrapping (a term we could easily add to the list of jargon mentioned above), funding is often priority number one for a founder. If that’s you, ask yourself what’s going to be more attractive to an investor? The opportunity that provides nothing but horrendously illiquid shares or the one that returns up to 50% of their investment in cold hard cash within twelve months?

To be eligible for either scheme, the company must be trading (or intending to begin soon) and have a permanent establishment in the UK. Across both schemes (as well as VCTs (there’s some annoying jargon to Google)) a company can typically raise a maximum of £5m of investment a year, up to a lifetime limit of £12m.

To qualify for EIS, a company must have fewer than 250 employees and gross assets of less than £15m (prior to investment).

An SEIS-eligible company must have a maximum of 25 employees and gross assets not exceeding £200,000. As you can see, investing in an SEIS business is far from a safe bet but you can be rewarded handsomely for doing so.

Applying for the scheme

Although not necessary, a number of businesses like to apply for advance assurance from HMRC that they will qualify for the scheme prior to obtaining investment. This used to be a relatively straightforward process, but to reduce every start-up with lofty ambitions applying, HMRC now require that you have a named potential investor on your application.

Once you’re confident the business will qualify for (S)EIS, the next step is to issue shares to your investors. A few short forms later and some box-ticking on their tax returns, your investors will be ready to receive their tax relief.

Considering HMRC are involved, it’s not too complicated!

Unfortunately, like all good things, there are a few restrictions. Below are the main ones likely to be a stumbling block for eligibility:

  • Firstly, there are a number of disqualifying trades including but not limited to property development and providing legal and accountancy services.
  • The company must spend the money within three years of the share issue, and must be spent on a qualifying business activity (no spending it on Christmas parties…)
  • The investor must not be “connected” to the company two years before or three years after the shares are issued. You’re connected if you’re an employee of the company (or directly related to one), or hold more than 30% of the company’s shares/voting rights.
  • The investor must hold their shares for a minimum of three years. Otherwise HMRC will clawback any relief obtained.

Need a hand?

Hopefully this article has provided a brief outline of both schemes and the benefits they provide. However, it by no means covers the finer points of either scheme so we strongly suggest speaking to an expert before moving forward either as an investor or a business.

At Leap Accounts, we’re available to help with any EIS/SEIS issues your business is facing. We’re also happy to help with any other accounting or taxation queries you might have so please get in touch.

Contact us on 0203 290 7302 or info@leapaccounts.com.

Steve Tanner No Comments

Making Tax Digital – What you need to know

“Making Tax Digital”, or “MTD” as it’s more commonly referred to, is a term most small business owners will probably be familiar with. However, they may not fully understand how it will work, when it’s being introduced or what impact it will have on their business. Hopefully this article will answer those questions.

“Making Tax Digital”, for the unfamiliarised, is a government driven initiative to digitalise all things tax. HMRC will be asking for information in “real time” through portal-type software, so when the time comes, passing your accountant a stack of receipts and invoices once a year isn’t going to cut it.

This has been met by many business owners with a wave of doubt, fear and hysteria and with good reason; if you’re systems aren’t set up for it, things are going to get tough. For those of us running our businesses on the cloud, there are murmurs of quiet optimism. HMRC may not be known for their efficient implementation of big projects but if they can nail this it could make the task of submitting tax returns a breeze.

First announced in the 2015 Autumn statement, the initiative is a huge undertaking aimed at simplifying and modifying the way Her Majesty collects her revenue. However, this modernisation comes at a price; the ICAEW estimates the total cost to SME’s could reach up to £7 billion. With frightening numbers like that being thrown around, you may be asking yourself why I’m approaching the initiative with an air of positivity.

The answer is simple; the software that will be required to streamline the new MTD reporting requirements will also help to streamline your internal business processes so why not embrace it. The world is digitalising and MTD might give reluctant business owners the push they need to get onboard.

When is it being introduced?

Initially, MTD was due to hit all business’s that were VAT registered and had turnover above £85,000 from April 2018 with the rest of us coming into the fold in the two years that followed. However, with strong opposition to this timeline from just about everyone outside the government, the initiative has now been delayed to April 2019 and will initially only apply to VAT reporting. There is no set date for when income tax, national insurance or corporation tax will utilise the system or when businesses with turnover below £85,000 will be included but April 2020 is the earliest date being considered. You still have plenty of time but now is the time to be pro-active.

How will MTD reporting work?

In the current environment, taxpayers update HMRC annually (with some notable exceptions) at the end of the accounting period. MTD will shake things up requiring returns to be made on a quarterly basis or for those that wish, even more frequently.

Although this may sound like more admin, MTD should actually reduce the burden on SME’s. The number of returns may be greater but the information required will be simplified. The government will draw information from other sources such as bank feeds and information already provided through PAYE to help populate returns. It remains to be seen exactly how this will work but to be honest this should have been happening years ago.

As MTD will bring in an era of quarterly returns we should see the end of year end returns as we know them for unincorporated entities, namely sole traders and partnerships. Limited companies and LLP’s are still going to have to submit an annual corporation tax return but it’s quite possible these will be partially populated by information submitted during the year.

What are the drawbacks?

Although the government are yet to confirm this, MTD is a push to get taxpayers to pay their tax earlier. Declaring how much tax you owe in real-time is pretty much guaranteed to be a precursor to paying tax in real time. For some business’s, this could have a big impact on cash flow so although it’s a way off, it needs some consideration.

Many will view the cost and time of implementing a new accounting system as a major drawback. However, as I alluded to earlier, modernising the accounting system that drives your business will provide synergies and who doesn’t love synergy. It really is an example of short term pain for long term gain.

What to do

Put simply, you need to be prepared. If you wait until MTD goes live to implement a strategy, you are going to face some major issues. If you’re already using a cloud-based solution that’s a good start. HMRC have stated your accounting software will have to be capable of “talking” to HMRC’s system so spreadsheets probably won’t suffice. If you’re still using excel, now might be a good time to start looking at a cloud-based solution.

MTD is coming so don’t bury your head in the sand. Start planning today for how Making Tax Digital can benefit your business rather than hinder it with these tips:

– Get a cloud-based accounting solution and use this to streamline the processes at the core of your finance function.

– Contact a professional – there are a number of solutions all of which have benefits and drawbacks. Speak to someone to see which package is the best fit for your business.

– Keep up to date – Further announcements could drastically alter the landscape described above. Know what’s happening and when.

Need a hand?

We love talking about all things tax. If you’re interested in implementing software and processes to be best prepared for Making Tax Digital or want to discuss anything else please get in touch.

At Leap Accounts, we’re available to help with any accounting or taxation issues your business is facing. Join the new-age of business advisory services; with cloud-based systems as standard and a forward-looking attitude you’ll get the value you deserve from your accountant.

Book a free consultation today.

Alternatively, contact us on 0203 290 7302 or info@leapaccounts.com.