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Coronavirus: The clients who Rishi Sunak left behind

Four months on from the introduction of the government’s financial support schemes, Jennifer Adams considers which clients have benefited, which have not and which weren't allowed to benefit in the first place.

3rd Aug 2020
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The Chancellor Rishi Sunak
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Working life for all has changed not least for the general accounting practitioner who was always expected to be the font of all knowledge to their clients. But now the pandemic has meant an expansion of skills to include counsellor, technical expert and 'ideas man/woman'.

Giving a personal service means knowing your clients such that when lockdown was announced you could go down your list ticking off those you knew wouldn’t make it, those that would be safe just by the nature of their business and those who could survive if given a helping hand.

When you step back and look at the Chancellor's package as a whole it is impressive, imaginative and expensive. But note a warning quote from Julian Pitts of Begbies Traynor: "Although widely welcomed and extensively embraced, these schemes will – for many – equate to short-term sticking plasters on irrecoverable wounds”.

Nonetheless, HMRC must be congratulated on creating a system that actually works, is (relatively) simple to follow and deposited funds into bank accounts within a week.

Businesses left by the wayside

Even so, as many AccountingWEB members have commented, the measures were (necessarily) brought in too quickly such that planning and targeting were not possible and as a result, many businesses have been left by the wayside.

Included in this list are those who started trading on or after 6 April 2019 putting everything they had into their business in emotion, time and money but can't claim as they don't have a full year's accounts. This seems particularly harsh but allowing the newly self-employed to submit 2019/20 accounts, thereby qualifying for a SEISS grant would apparently “create an opportunity for an individual or an organised criminal gang to file fake or misleading returns”.

One such potential 'criminal' client had just set up a Fitness Studio and has already racked up thousands in debt. With no money coming in and a family, he is beside himself with worry. Credit card, mortgage payment holidays and the Bounce Back Loan have helped but this has only increased his debt pushing the problem further down the road.

Compare that with the subcontractor client, still picking up work and who used the grant to buy a garden hot tub.

The Chancellor is of the opinion that sole director companies also have the potential towards criminality stating that to allow such directors who take their wages in the form of dividends, to qualify for SEISS runs “a high risk that incorrect or fraudulent payments could not be recovered, ultimately at a cost to the taxpayer”.

The real answer can be found in a comment by HMRC that it has “no way of identifying which dividends people receive are in lieu of wages, and which are simply a return on capital, either in their own company or as a general investment”. Dividends are a return for the risk a shareholder takes in a company - an investment - so HMRC are of the opinion 'cake and eat'.

Those taxpayers whose PAYE earnings exceeded £50,000 and SME's with profit greater than the same are apparently financially secure enough to look after themselves. However, as MPs have pointed out, a household with two furloughed PAYE workers with a combined income of £100,000 a year and savings of £500,000 would have received £5,000 a month from the taxpayer.

Landlords

One section of the taxpaying community that has been completely ignored is landlords as they are not deemed to be self employed but investors. Tenants have been catered for and many have taken advantage of the measures legally available by either withholding or reducing their rental payments particularly those with commercial rents. No government grants are available as they say that there are other measures available such as deferment of mortgage payments (the same as for all other mortgagees) and deferment of tax payments (also the same as for others).

Meanwhile, landlords also have expenses to meet and some may be facing the same challenges as tenants of being furloughed, unemployed or on reduced work. However, according to the NRLA Data Observatory, although 54% of residential landlords have incurred reduced income, 90% of tenants (80% in London) have paid their rent as usual.

The rule that a Furnished Holiday Let (FHL) needs to be available commercially will still apply during the coronavirus pandemic. Some FHL landlords may be unaware of the implications that the lack of occupation rules due to the lockdown may have on whether or not they will be taxed as a FLH for the 2020/21 tax year.

The excluded employed

It is not only some of the self employed who have fallen by the wayside – there are a number of employed who by no fault of their own have also been excluded. Take the example quoted by AccountingWEB member Helen H whose client employed "staff [members] on 2nd or 9th March but as the employees are all paid monthly, they were not put onto the payroll until the end of March and then RTI submitted on say, 31st March. But the RTI submission states the date the employees started (ie 2/3/20), I cannot put these employees onto the CJRS as they were not notified on an RTI until after 19/3/20".

Employees could have been re-employed by their old employer if they had resigned since 28 February and their new job offer had been withdrawn but how many employer's would have been generous enough to allow reinstatement especially if the employee left under a cloud.

No claim clients

Some clients have made money out of the lockdown and have not needed to make any claims. The director of a drainage company told me that everyone being at home meant that his services were increasingly being sought. Conservatory installers and kitchen installers have survived (just) and have enough work to keep themselves, their CIS workers and suppliers up to the New Year as apparently customers have been sitting at home looking at their lack of space/'old' kitchen and decided on a change.

It is also good to see that some clients have rediscovered their entrepreneurial spirit such that instead of living from day to day, the lockdown has given them the chance to review their lives and futures of themselves, their staff and their clients and to change or amend practices or direction.

Things could get worse

Depending on your point of view, the worse could yet come. Many are predicting that without the CJRS support after October, companies may decide not to keep their furloughed workers. Job losses could start in the next few weeks as companies intending to make more than 20 employees redundant may have already started the consultation process – the trigger being that as from August companies will be required to pay employees’ NIC and pension costs. Come October, the full scale of the Covid-19 jobs crisis could be revealed.

Finally, accountants should be advising their clients that HMRC has already arrested someone in connection with allegations of a £495,000 fraud of CJRS and fully intends to use their 'Connect' system to search out others.

Replies (34)

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By EnglishRose
03rd Aug 2020 19:31

Sole traders like I am honest enough to declare profits before tax over £50k, honest enough not to incorporate so no PAYE furlough and stupid enough to have savings so no universal credit.

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Replying to EnglishRose:
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By dmmarler
04th Aug 2020 11:08

What may I enquire is dishonest about incorporating? I would deem it is very sensible as the individual is no longer personally liable for anything. With no win no fee lawyers about, this can be life saving.

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Replying to EnglishRose:
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By AWeb72
04th Aug 2020 16:21

If you advise all your clients not to incorporate with those level of profits too, I hope you will accept the fallout when they find out they have been paying over the odds due to poor tax planning advice.

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blue sheep
By NH
03rd Aug 2020 19:54

two of the most bizarre things have been the flat rate 10k/25k grant whether you wanted/needed it or not, if ever there was a knee jerk reaction that was it, and the other one is the £1000 furlough bonus, again serves no purpose whatsoever.
Of course if MTD had been introduced when it was supposed to be the state aid could have been targeted much more effectively, amazing how things can be done quickly and effectively when there is the right motivation (CJRS/SEISS).
It is hard to be too critical of gov given the extraordinary circumstances but it does feel like it was hell for leather whatever it takes in the early days (apart from those nasty landlords and evil small company directors) and then someone said to Rishi I think we may have gone a bit too far here to which he replied, yes you are right lets cut back a bit, but then couldn't help himself and had to give away one last present of £1000 bonuses just to show that underneath that cool exterior there is streak of madness.

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By memyself-eye
03rd Aug 2020 21:05

The 7%+ tax on dividends came in some years ago - surely company directors realised then (yeah right) that earnings under paye were deductible against CT (so cost their company less), and switched to PAYE and dividends and not just Dividends.

I did... and hello furlough.

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By Ned Ludd
04th Aug 2020 09:48

Couple of quirks I’ve found. Anyone who filed a provisional 2019 tax return had those profits locked in for SEISS purposes whereas people who filed late had until 23/4 to file a figure.

I’ve also a guy that only has the 2019 year as self employment but he cashed out a pension in that year thus taking his total earnings over £50k; seems harsh when it’s not recurring income and I’m sure the legislation wasn’t intended to preclude him but it has.

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Replying to Ned Ludd:
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By Matrix
04th Aug 2020 13:31

I thought the £50k limit was just trading profits. He must have been refused on a different basis such as the 50% rule.

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By johnjenkins
04th Aug 2020 09:52

From what I gather at the outset there was £330b set aside for the covid scenario. It was also stated that there would be some losers. Boris also said that many "loved ones" would die before their time. So, yes, there have been mistakes but overall I think the Government have done a good job. This is not a UK problem, this is a world problem and I'm pretty sure that we haven't been told the entire truth. Since when does the whole world "lock down"? This is a classic conspiracy theorists dream.

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Replying to johnjenkins:
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By flightdeck
04th Aug 2020 10:48

I think the government were just not man (or woman) enough to make a better decision and risk the wrath of karen* but preserve millions of livelihoods. Time will tell how the will judged.
* other social media halfwits are available

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Replying to flightdeck:
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By johnjenkins
04th Aug 2020 14:03

As I said, mistakes were made but at least certain areas were earmarked for help. In the time available all involved have done and continue to d a remarkable job. Part of Boris manifesto is to increase spending in those areas that were highlighted short in the pandemic. As you say, time will tell.

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By sugar
04th Aug 2020 10:15

Hi
Jennifer you have forgotten private dental practice - they have been given NO GRANT of any sort
whereas all NHS dental practice got full payment meaning their practice owener and associates recd
in excess of so called limit of £2500 - i know few nhs practice owner they are better of sitting home with surgery closed and make more profit
why did Rishi give Council tax grant to optician and nhs dental practice and NOTHING to private dental practice to pay their associates

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By SXGuy
04th Aug 2020 11:04

"Finally, accountants should be advising their clients that HMRC has already arrested someone in connection with allegations of a £495,000 fraud of CJRS and fully intends to use their 'Connect' system to search out others."

Yes because the fraudster has committed various other types of tax fraud, and it was discovered they they had also claimed furlough. It wasn't a direct result of a fraudulent furlough claim.

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By dmmarler
04th Aug 2020 11:11

Interesting to see Furnished Holiday Let landlords are still supposed to meet the occupancy tests when people were specifically told not to travel away from their homes, and in Wales there was a maximum of 5 miles travel allowed for a considerable period. I can see a host of appeals in the pipeline already.

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Replying to dmmarler:
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By flightdeck
06th Aug 2020 00:45

Yes, good point. But here must be a hundred edge cases, not all of which would be possible to identify with such short decision making timeframes. Hopefully they will be sensible and flexible when valid edge cases such as these are highlighted.

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By cathygrimmer
04th Aug 2020 12:27

Furlough wasn't an option for many of us who have incorporated businesses. If I had furloughed myself, I wouldn't have been able to work for any of my clients. I had very little work for almost 3 months but I needed to be available to do the bit of work that did come in or my clients would have found someone else to provide tax advisory services. If I had not been incorporated (mainly for limited liability purposes), I could have claimed the payment and worked. Contrast that with a neighbour who has a very small business, got the rates grant (despite her premises being too small to pay rates) and the self-employed payment and is quids in. I've spent lockdown watching all the deliveries and workmen coming to her house while she spends her windfall! The complete failure to tie in the grant/self-employed payment to any actual loss was, in my opinion, a big mistake. The self-employed who got the payment will be filling in tax returns, the payment could easily have been refundable to the extent that there was no loss compared to the previous year/an average of 2 years etc. The government have no issues clawing back benefits for people whose income has increased and this would be no different.

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Replying to cathygrimmer:
Glenn Martin
By Glenn Martin
04th Aug 2020 13:04

So you didn't do much tax work through lock down?, surely the returns will still need to be done.

I cannot see how you could not provide tax advisory services through lockdown, we have never been busier and have won significant clients throughout, our clients needed us more than ever. We changed to adapt and make the best hand of it and didn't wait on Gov handouts.

CJRS, SEISS are all tax led services cannot see how you had less work.

Your comments seem more that your upset that your neighbour got some free stuff you didn't, that is not a failing in the government.

I didn't get any support but also didn't feel I needed any, just because Dave the plumber got some.

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Replying to Glennzy:
blue sheep
By NH
04th Aug 2020 13:13

precisely why the rates grant was so ludicrous - we have been busier than ever and yet one day 10k magically appeared in our bank account!

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Replying to Glennzy:
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By cathygrimmer
04th Aug 2020 14:24

You appear to be accusing me of lying despite having no knowledge of me and my business which, to be honest, I find a bit offensive. I shouldn’t need to explain myself as you have no good reason to doubt my veracity but, as you clearly do doubt it, I will explain what you are unable to comprehend. I provide specialist tax advisory services to accountants and other professionals (IFAs and solicitors). I don’t do any tax returns or PAYE. My accountant clients were, indeed, very busy during lockdown – dealing with the government handout schemes mainly. My work dropped off a cliff at the beginning of lockdown while many of them were working out how to move everything so they and their staff could work from home (and their clients were getting to grips with more important things than tax). Then, apart from the odd question about whether a grant was taxable, stuff about the new CGT reporting requirement and a few minor ongoing issues, they weren’t doing anything that they needed my help with. My income plummeted but I couldn’t furlough myself as I needed to be available if my clients needed me. Work has now picked up and is probably near normal for this time of year. Who knows, maybe some of the work I would have done will still need to be done but later in the year and I will lose less money that currently appears to be the case. But then I would have happily refunded any payment that it transpired I didn’t need.
I am not upset that my neighbour got support – but I take issue with a scheme which resulted in her being better off when many who needed it got no support. I have a friend with a long-established dance/yoga class self-employment who took her pension early to fund a house move on divorce in 2018/19. It meant she had a few pounds more non self-employed income than self-employed income and she got nothing despite being able to earn not a single penny during lockdown. Frankly it’s a rubbish scheme if it takes no account of the actual loss of income and makes payments to people who haven’t lost any money while refusing to compensate someone who can’t work because of the government’s imposed restrictions. That is, indeed, a government failing.

An apology for suggesting that I am lying wouldn’t go amiss.

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Replying to cathygrimmer:
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By Rammstein1
04th Aug 2020 16:52

I don't think anyone is saying that you're lying, I just think that they didn't understand your business and thought you were a 'normal' accountant. The SEISS certainly isn't perfect but it was the best that the Government could come up with at short notice that is difficult to abuse.

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Replying to cathygrimmer:
Glenn Martin
By Glenn Martin
04th Aug 2020 17:02

I would be keen to see the part of my comment which accuses you of lying, but from your aggressive response it is clear I have hit the nail on the head.

"Government Hand out schemes" no bitterness there then.

The key to being self employed, is the "self" part you need to self preserve. Whilst your ideal business is specific tax advice, surely you could have pivoted that to more generic use or supported your accountant pals who were as you said busy.

Instead you chose to sit back and complain about others were getting. That is the mindset of an employee not a business owner, you need a glass half full perspective.

I changed my business model and won a lot of work, I also had no support but did something about it to make sure I survived.

All of my clients are small companies non of whom were really supported they accepted that, they have had a decent run and got on with it.

I will apologise when I have something to apologise for.

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Replying to Glennzy:
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By cathygrimmer
04th Aug 2020 18:19

How about 'CJRS, SEISS are all tax led services cannot see how you had less work.' and 'So you didn't do much tax work through lock down?, surely the returns will still need to be done.' and 'I cannot see how you could not provide tax advisory services through lockdown'. These all say pretty clearly that you didn’t believe I was telling the truth and, not surprisingly, I was rather irritated by the suggestion that what I was saying couldn’t possibly be true because it wasn’t your personal experience. However, I am prepared to accept that you made your mistaken comments because you made an incorrect assumption as Rammstein1 says and not because you genuinely didn’t believe me. Though, to be honest, I’m not sure what you have found aggressive about my response – I think that may be more in your reading than in my writing. Actually, I thought I was rather restrained!

Indeed, you will be pleased to hear that I didn’t sit back and complain about what others were getting – though I have commented on the disparity in appropriate discussions on AWeb (as, indeed, you have). In fact, I have been saying to concerned friends, relatives and clients how glad I am that I have some money in the bank that I have saved very sensibly over the years, how lucky I am that I already work from home and how so many people are worse off than I am so I consider myself fortunate. I quite enjoyed lockdown when I didn’t have much work and would happily not be given any money under the government schemes if what I didn’t get went to those that actually needed it. But as you don’t know me, you wouldn’t know that and seem to have made assumptions based on me making a comment here on an article specifically about the people who, like me, haven’t had help from the government schemes (btw I referred to ‘government hand out’ schemes because that’s how you referred to them!). I do find your latest response rather strange as you have no idea what sort of person I am but I guess maybe you were a bit embarrassed about how wrong your original comments were so resorted to a bit of bluster.

The point I was trying (and clearly failing!) to make was that there are many who have missed out while others got money they didn’t need and that for one-man band directors like me, furloughing myself wasn’t an option as it was important to me to be available to my clients. I didn’t try to market more services to them because they were drowning in (mainly unpaid) work so that would not have been appropriate. I’m not one to try to make money out of people’s difficulties - I just made sure I was here whenever they needed me.

I hope that you are now able to understand how inappropriate and incorrect your comments were.

I’ve never been on the receiving end of the nasty remarks I often see on AWeb – it’s a novel experience!

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Replying to cathygrimmer:
Glenn Martin
By Glenn Martin
04th Aug 2020 13:06

Duplicated

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By AndrewV12
04th Aug 2020 12:39

I am surprised some businesses missed out it was a very generous scheme. I suppose it just depends how lucky or unlucky you find yourself.

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Replying to AndrewV12:
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By cathygrimmer
04th Aug 2020 12:54

There's a lot of us! It was overly generous to some and completely excluded others.
https://www.excludeduk.org/excluded-uk-an-inclusive-alliance-for-the-exc...

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Glenn Martin
By Glenn Martin
04th Aug 2020 12:56

A few things I noted were that owners of single FHL got the £10k small rate grant which is typically more than they make over a few years as most of mine breakeven from year to year.

I also have issue with the 3m who claim are unsupported. I am a director of my company so have not been supported, so will be included in the 3m but don't feel I needed support as was fortunate to work right through. Also things like the BBL and tax defferals is still support. If loans on the same terms as the BBL were made to me when I started I would have grown far more quickly.

When I asked the question "who are the 3m" apparently it includes 1.2m people who have self employed income less than 50% of their total earnings, so do not qualify for support but no data on if they needed it? What is there main income though ? employed or investment these may been maintained was that maintained. Remember the measures were to provide a rice and beans diet for as many people to stop job losses and avoid people losing their homes, it wasnt to maintain the income of everyone at 100% pre Covid levels.

Whilst I understand the Ltd Co director cause most of the comments I have seen to relate to "they didnt get what sole traders got", as oppose to having an actual need for help. There is a certain amount of risk in being self employed and some people seem to think the government should de risk it but allow all the benefits in the good times.

When the brown stuff hit the fan my initial discussions with clients were how long can we run before cash runs out. Since the support came in none of my clients have touched reserves. worse case they broke even through lock down and now trading at similar levels to before. No one has gone bust and most are upbeat they will get through it.

When you look back at previous financial crashes the level of support this time around is off the scale and whilst some people might not be happy somebody got more free stuff than them, overall for me the government have kept everyone on the dance floor to fight another day. Those that have gone down need to allow the insolvency process to play its part and then those sites will be re born as something else debt free.

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Replying to Glennzy:
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By Caber Feidh
04th Aug 2020 22:39

"the government have kept everyone on the dance floor to fight another day" is a fascinating mixed metaphor that makes me wonder what dances you go to.

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Replying to Caber Feidh:
Glenn Martin
By Glenn Martin
05th Aug 2020 16:29

10 years as nightclub FD in Newcastle, you can imagine the stories.

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Replying to Glennzy:
Hallerud at Easter
By DJKL
05th Aug 2020 14:09

The nobody gone bust is quite surprising to me, a fair number of business entities appear to have already ceased trading/ gone into administration or at least given up premises- we ourselves are starting to pick up commercial property voids within our portfolio and the commercial agency I am involved with has taken a lot of new property instructions as tenants have given up leases or walked away from leases.

I do take slight issue with the article re no support for landlords,whilst we have received no direct support, furlough not possible, no rates reliefs or grant as we are too big, we have actually indirectly been supported as our tenants have been supported, our rents have , subject to agreeing some deferrals etc, to date reasonably maintained themselves and that, in large part, is due to the support given to these other business entities- I think we are currently only adrift something like £60- £80k but I also think some of the worst is still to come.

Given HMG support we are still in a pretend position re business failures, and smaller entities do tend to try to hold on to the bitter end, so once the taps switch off I expect a steady drip of business failures.

I am certainly not as sanguine as you are, my industry within its newletters, from its commentators and researchers is not relaxed , we can clearly see the writing on the wall re high street retail and leisure, plus softening of the office market, the stockmarket singularly reflecting this re share prices for particular REITs etc- I would not be surprised ,if the money taps do get switched off, to see 20% void rates in high streets by December 2021.

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Replying to DJKL:
Glenn Martin
By Glenn Martin
05th Aug 2020 16:34

Hi DJKL,

Yes I have a fairly diverse or decent cross section of clients and so far no one is feeling any pain. Most furloughed staff, grants covered overheads when closed and all just geared up ready to go again. Whilst the Directors have had to live on their wits most have handled things very well.

The higher profile collapse of some of the big restaurant chains that were in trouble prior to lockdown has actually removed the over supply and my indy clients have picked up really well so touch wood we are ok this far.

Without the furlough scheme I would have no clients left though.

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Replying to Glennzy:
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By flightdeck
06th Aug 2020 00:58

"the government have kept everyone on the dance floor". Fantastic turn of phrase :-))

They did indeed attempt to keep everyone on the dance floor with a very unexpected "and to hell with the expense and other consequences". Oh to be able to wind forward 20 years to see how it all ended up. Feels like this could go in ANY direction!

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Replying to flightdeck:
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By johnjenkins
06th Aug 2020 08:43

Why would you want to wind forward? Be part of the new beginning, make a difference. We have an opportunity at the end of this year to take the world by storm. Let's do it.

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By AndyC555
05th Aug 2020 10:00

“no way of identifying which dividends people receive are in lieu of wages"

A bit of sophistry on HMRC's part there. We are in an era of 'self assessment' and claims under the furlough scheme were accepted at face value that the employee was actually being furloughed, with the prospect of a subsequent investigation by HMRC.

It would not have been that hard to set up a system under which claims could have been made where directors claimed and confirmed as part of the claim that dividends were being received in lieu of wages, with the prospect of a subsequent investigation by HMRC.

If the director's wages were £8,632 and they had a dividend of £30,000 in 2019-20 even the most bone-headed HMRC officer ought to be able to work out what had been happening.

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By AS44NG
06th Aug 2020 21:46

I agree with some on here who say it was (arguably) the best plan the government could come up with at short notice. However, 3 months in there should have been a review to identify those who missed out altogether (and still do).

Even if after 3 months the government had given anyone who didn't qualify for the first "batch" of grants (say) £1,000pm I think it would have been fairer. I have some clients how have been "adversely affected" less than others, but if they tick that box then they get the 3 months grant, regardless of how affected they have been. Whereas another client of mine who averaged 56k per annum for the last 3 years gets absolutely nothing for 6 months. I suspect that the latter will have his taxes increased as much if not more than the former in future years to pay for all of this.

I also think the 2.5k pm grant was a little excessive.

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Replying to AS44NG:
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By johnjenkins
07th Aug 2020 12:11

This was a short term measure to protect the NHS and help business. That, I feel was achieved. You can go on and on looking for where things could've been done better and if it was deemed long term, then I'm sure other measures would have been put in.

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