EIC0756
Written evidence submitted by Sapphire Business Services (Banbury) Ltd
Sapphire Business Services (Banbury) Ltd is a small bookkeeping practice on the Oxfordshire/Northamptonshire border, established in 2003, owned & managed by Lisa Phipps, fellow member of the ICB.
For our practice size we have a modest client base (around 125 clients) across many industries and therefore we have seen a large range of effects of the support schemes and how these impact on individual lives as well as businesses. This is the reason we have taken the opportunity to respond to the Committee’s call for evidence and we focus on these factors
Whilst the business support schemes are unprecedented and show a clear commitment by Government to support businesses, to protect employees and to enable otherwise solvent businesses to survive the Covid-19 crisis, there are clearly some gaps in this support.
Self-employed is defined as someone who works for themselves, Gov.uk defines working for yourself & also references limited companies within this definition: For those self-employed operating as Limited Companies, Close Companies, it is generally a trading style chosen for very valid and ethical reasons. For situations where this is not the case, it is the responsibility of government to change the rules to prevent such situations rather than penalising those who do follow the rules. These people support the economy in much the same way as sole traders and yet they are treated very differently by the provisions made within the Coronavirus Financial Support measures released to date and it is apparent that the exclusion of support for this style is intentional and this is creating divide and ill feeling
Many have small workforces and are working hard to be able to implement the Coronavirus Job Retention Scheme within their companies, saving jobs and providing support to their employees. Funding the cashflow to pay the employees until payment of the grants, which is reducing pressure on Government, however whilst doing this, these people have no support for themselves & their own families.
Many small, family operated businesses, trading as Limited Companies find themselves in a situation where, with both husband and wife reliant on their company for income, they are simply unable to support their own families, whilst being expected to operate the Coronavirus Job Retention Scheme to support staff out of their company reserves and cashflow.
In defence of the lack of support for those trading as limited companies, ministers have cited that the Coronavirus Job Retention Scheme is available, however unlike those accessing the SEISS, directors must furlough themselves, meaning that they are then unable to carry out any work. Whilst it is generally accepted that Government do not wish to restrict directors carrying out their statutory duties, it should also be considered that if these people are to be able to trade again after the crisis is over, they will be able to do so quicker and more successfully if they are able to carry on working in the respect of promotional activities and generally preparing for such times including responding to customer enquiries. This would also help to reduce the amount of time that support is required by these people.
Also cited, in defence of lack of support relating to dividend element of income received is the difficulty in distinguishing between dividends earned from the company and general shareholdings. Directors of Close Companies indicate as such on Close companies indicate and I have seen many suggestions of how this could be overcome with none seemingly considered. Whilst dividend vouchers are easily copied, dividends are reported with the annual accounts.
Limited companies are subject to more stringent rules, regulations and reporting requirements giving greater transparency of their trading, this should be welcomed by government, however the discrepancies in the level of support during the Covid-19 crisis is likely to impact the decision making process for those determining the trading structure that should be taken.
Government policy sets aside sole directors from employers in their exclusion from the Employers Allowance for National Insurance
The SEISS scheme is relatively simple, however the simplicity has caused some angst to those potentially eligible. Under the conditions of the grant, the applicant must have been adversely affected by Covid-19 and furthermore is allowed to continue trading. There is no option for someone to request a lower grant and although they are entitled to the grant available, this has resulted in some who are eligible and in need not to claim as they feel that the grant available is too generous in relation to the extent that they have been impacted. There is no indication as to what government deems to be adversely affected, to what extent the income is impacted
In relation to the application process for SEISS, not allowing the ability for agents to submit claims on behalf of clients added a huge additional burden to agents who at the same time were called upon by HMRC to support clients, as well as trying to identify which support schemes individual clients were eligible for. For those agents who offer a fully tailored and personal service, there was an expectation by clients that agents would be able to apply on behalf & this specifically undermined those relationships
It is noted that this year, tax payers are encouraged to obtain statements via their gateway account to reduce postage, many of those applying for SEISS have now set up Gateway ID, however they are unlikely to monitor and if this is intended to replace statements this will result in an increase of late payments
Many of those venturing into self-employment may take the opportunity to experiment with this whilst still employed if allowed, or to take a PAYE job to provide some stability whilst their business is established. This seems a sensible approach in the early days of self-employment and some industries may take time to build so this may even span across a year or two. Those who have built businesses over the last few years, now find themselves ineligible for support due to the PAYE income outweighing their self employment in the years in question.
The same situation arises for those who now draw pension that is insufficient for them to live on, continuing to work, supporting themselves rather than reliant on government are now penalised by not being given access to support is their self-employed income is under 50% of total income.
Eligibility for the Self-employment Income Support Scheme requires trading profits of less than £50,000, either for the 2018/19 tax year or for the average 3 years 2016/17 2017/18 and 2018/19. The scheme however already places a cap on the available grant of £2500 per month. Meaning that a self-employed person with profits of £37,500 or £50,000 will receive the same level of grant, however someone with profits of £50,001 will receive no support under the scheme.
In defence of the £50,000 threshold, ministers have cited reference to turnover for businesses generating profits of over £50,000. The turnover however is completely irrelevant as the difference between the turnover and the profit are operating costs of the business, costs that must be paid in order for the business to generate the profit
The Chancellor himself declared that there must be a cut-off point, this of course is true, however there is already a cap that gives that cut off point
The threshold means that small businesses, operating as sole traders, generating profits of even a small amount over the threshold receive no support under the scheme, even though some of these employ staff and are working hard to retain their jobs to support the Coronavirus Job Retention Scheme whilst receiving no support for themselves.
The way that Self-Assessment works for sole traders & partners means that they are taxed on all profit of the business for the period and this is referenced as their income, regardless of whether this is taken from the business for personal use or retained in the business reserves. It is good business practice to build reserves and yet people are being penalised for doing so, even though they have paid tax, at higher rate, on profits they have left in reserves of their businesses
Much as employers are considered the delivery source for CJRS administration and distribution of funds to those employees in need, LA were the delivery source for the grant funding. We don’t have any knowledge on the impact on LA’s, however from the outside, the response from LAs locally was good & well received. It would appear that the guidance to LAs from government was very limited and delayed, seeing LAs across the country taking a different approaches, particularly with the Discretionary Funds with different interpretations and lots of confusion meaning that some potentially eligible businesses have not applied or that they have been declined due to applying for the incorrect Grant with no reason meaning that they may not submit an application for the Grant they may be entitled to
The scheme was unprecedented and showed a clear commitment by Government to support businesses and reduce job losses
The issue of those changing employers was not resolved and this in some cases will have a counterproductive effect on reducing job losses. Whilst it is clear that a pre-determined cut-off date is necessary to prevent fraud, not allowing the right to furlough to be transferred from a previous to new employer with the P45 means that many employers were forced into a situation where they have had to let go employees who they wanted to retain, those employees were then furloughed by employers who are simply helping the current environment and will not retain them once the scheme ends, likely they will not retain them once they are having to contribute to the scheme for their prior employees
It would also seem that having previous employers claim for ex-employees is an increased fraud risk as the ex-employee is now distanced from the company and what is happening
Whilst the CJRS in itself is a straightforward scheme, the guidance has, by nature of the pace of introduction, evolved quickly. Many employers have found this confusing and in a situation where there are no precedents to refer to, it leaves them having to act on trust, trust in the government that if employers have acted in good faith and the guidance at the time of action, they will not be penalised for errors. More could have been done to reassure employers within the guidance not just during the announcements. As time has gone on and many employers find themselves as individuals not eligible for support, or see the disparities growing, this in turn erodes trust. In turn this means that employers chose caution in situations where judgement is required and this can leave employees without support. This in some situations leads to ill feeling between employer and employee which is counterproductive when trying to save jobs.
The introduction of flexible furlough is welcomed; however, the complex calculations are unnecessary and are only likely to lead to errors in claims