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.
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.
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.