Updated COVID support and avoiding the Annual Investment Allowance trap

This article covers the following:

• Changes to the Job Support Scheme (JSS) and the Self-employment Income Support Scheme (SEISS) grants as well as details of additional business grants for businesses in high-alert areas announced yesterday by the Chancellor, Rishi Sunak.

• A reminder about the anticipated reduction in the annual investment allowance due to take effect from 1 January 2021 and a potential tax trap – this may be particularly relevant to farmers.

Job Support Scheme

The JSS starts on 1 November 2020. The Chancellor’s announcement means that the scheme for businesses that remain open will require less financial input from employers and employees will be eligible for support while working fewer hours than were originally announced on 24 September.

The key changes are:

• The employer contribution to the wage cost of unworked hours is reduced to 5% up to a cap of £125 per month, and

• The minimum number of hours the employee will have to work is reduced to 20%, rather than 33%, so those working just one day a week will now be eligible.

• The Government contribution is capped at the lower of 61.67% of hours not worked or £1,541.75 per month.

The original plan for the scheme would have meant employers paying one third of their employees’ wages for their hours not worked, as well as normal wages for the time actually worked, making the overall cost of retaining staff on part-time hours prohibitive for many businesses. The revised JSS does significantly reduce costs to employers for employees working fewer hours due to the coronavirus pandemic.

As advised in our previous article, neither the employee nor the employer needs to have previously used the Coronavirus Job Retention Scheme.

The ‘Job Support Scheme Closed’, for businesses legally required to close, remains unchanged with employees receiving two thirds of their normal pay, fully funded by the government, to a maximum of £2,083.33 per month.

Self-employment Income Support Scheme

The level of the third grant will be based on 40% of average trading profits, rather than the previously announced 20%, and will be capped at £3,750. The level of the fourth grant is to be kept under review and announced in due course.

Businesses temporarily unable to trade due to coronavirus were to be excluded from claiming the third and fourth grants but will now be eligible.

It remains the case that claimants must have been previously eligible for the first and second grant (although they do not have to have claimed the previous grants) and must declare that they intend to continue to trade and either:

• Are currently actively trading but are impacted by reduced demand due to coronavirus.

• Were previously trading but are temporarily unable to do so due to coronavirus.

The scheme has not been extended to businesses that were not eligible for the first and second grants and information from 2019/20 returns will not be taken into account.

Business Grants

The Chancellor has also announced approved additional funding to support cash grants of up to £2,100 per month primarily for businesses in the hospitality, accommodation and leisure sector who aren’t legally required to close but have been adversely affected by local restrictions in high-alert level areas (tier 2). These grants will be available retrospectively for areas who have already been subject to restrictions.

Beware the capital allowances trap

The limit for annual investment allowance (which is the maximum expenditure on plant and machinery that can qualify for 100% capital allowance in the year of purchase) is due to be reduced from £1m to £200,000 on 1 January 2021.

There is a dangerous trap whenever the AIA limit is reduced – and this could catch businesses with much smaller levels of plant and machinery expenditure: because of transitional rules, only a time-apportioned fraction of the new £200,000 headline allowance is available between 1 January 2021 and the end of your next accounts year. (Please see the table below).

For example, a farmer with a year end of 31 March 2021 is restricted to capital allowances of just £50,000 between 1 January and 31 March 2020. The purchase of say, a new tractor, made in the new year may receive minimal tax relief (especially where there is a significant trade in allowance), whereas a purchase in 2020 is likely to receive full tax relief. If you are planning investment and cannot get the machine on your farm by 31 December 2020, speak to us before you sign the finance agreement.

As always, if any have any questions please contact your local Simpkins Edwards office.

Job Support Scheme – Open

• The JSS starts to operate from 1 November and covers all Nations of the UK. For every hour not worked, the employee will be paid up to two-thirds of their usual salary.

• The government will provide up to 61.67% of wages for hours not worked, up to £1541.75 per month (more than doubling the maximum payment of £697.92 under the previous rules). The cap is set above median earnings for employees in August at a reference salary of £3,125 per month.

• Example: a typical full-time employee in the hospitality industry is paid an average of £1,100 per month. Under the Jobs Support Scheme for open businesses, they will still take home at least £807 a month. All the employer needs to pay is a total of £283 a month or just £70 a week; the government will pay the rest.

• Employers using the scheme will also be able to claim the Job Retention Bonus (JRB) for each employee that meets the eligibility criteria of the JRB. This is worth £1,000 per employee.

• Taking JSS-Open and JRB together, an employer could receive over 95% of the total wage costs of their employees if they are retained until February.

• Employees must be on an employer’s PAYE payroll between 6 April 2019 to 23:59 23 September 2020. This means a Real Time Information (RTI) submission notifying payment to that employee to HMRC must have been made on or before 23 September 2020.

• The employee must work at least 20% of their usual hours and they can undertake training in their working hours whilst being claimed for.

• Staff on any type of contract are eligible, including those on variable or zero hours and agency workers.

• Employees will be able to cycle on and off the scheme and do not have to be working the same pattern each month, but each short time working arrangement must cover a minimum period of seven consecutive days.

Employers who are legally required to close their premises (JSS Closed)

• Employers have been legally required to close their premises as a direct result of coronavirus restrictions set by one or more of the four governments of the UK. For these businesses, the Job Support Scheme, through JSS Closed, will help them through the period that they are directly affected by these restrictions by supporting the wage costs of employees who have been instructed to cease work in eligible (closed) premises.

• Each employee who cannot work due to these restrictions will receive two thirds of their normal pay, paid by their employer and fully funded by the government, to a maximum of £2,083.33 per month, although their employer has discretion to pay more than this if they wish . This will help protect employee incomes, limit unemployment and retain employer-employee matches so that these premises are able to reopen as quickly as possible when circumstances allow.

• Employees may also be entitled to additional financial support, including Universal Credit.

Self Employed

• The government will provide two taxable SEISS grants to support those experiencing reduced demand due to COVID-19 but are continuing to trade, or temporarily cannot trade.

• It will be available to anyone who was previously eligible for the SEISS grant one and grant two, and meets the eligibility criteria.

• Grants will be paid in two lump sum instalments each covering 3 months. The first grant will cover a three-month period from the start of November 2020 until the end of January 2021. The

• government will pay a taxable grant which is calculated based on 40% of three months’ average trading profits, paid out in a single instalment and capped at £3,750.

• The second grant will cover a three-month period from the start of February until the end of April 2021. The government will review the level of the second grant and set this in due course.

Business Grants

• Additional funding to allow Local Authorities (LAs) to support businesses in high-alert level areas (tier 2) which are not legally closed, but which are severely impacted by the restrictions on socialising. The funding LAs will receive will be based on the number of hospitality, hotel, B&B, and leisure businesses in their area.

• LAs will receive a funding amount that will be the equivalent of:

  • For properties with a rateable value of £15,000 or under, grants of £934 per month.

  • For properties with a rateable value over £15,000 and below £51,000, grants of £1,400 per month.

  • For properties with a rateable value of exactly £51,000 and over, grants of £2,100 per month.

  • This is equivalent to 70% of the grant amounts given to legally closed businesses (worth up to £3,000/month).

  • Local Authorities will also receive a 5% top up amount to these implied grant amounts to cover other businesses that might be affected by the local restrictions, but which do not neatly fit into these categories.

  • It will be up to Local Authorities to determine which businesses are eligible for grant funding in their local areas, and what precise funding to allocate to each business – the above levels are an approximate guide.

  • Businesses in Very High alert level areas (tier 3) will qualify for greater support whether closed (up to £3,000/month) or open. In the latter case support is being provided through business support packages provided to Local Authorities as they move into the alert level.