In response to the COVID-19 crisis, the government announced a number of measures to support businesses, which many contractors have already taken advantage of. If you have accessed much-needed government support to help your business navigate the coronavirus economic crisis, you may be unsure of what’s next. Many small business owners do not understand that the grants available under the coronavirus support schemes are taxable.
To help you make sense of what lies ahead during this period and what help is available, we’ve outlined some of the implications for you and your business for accessing different COVID-19 support schemes.
Coronavirus Job Retention Scheme (CJRS)
Many directors of Personal Service Companies have found their contracts cut short or put on hold. As a result of which they have been left with no choice but to put themselves on furlough and make a claim for 80% of their salary under the CJRS. The guidance issued by the government is clear that this is a taxable grant. This means that it will be regarded as income in your accounts and will be chargeable to corporation tax.
However, as your salary will also appear in your accounts as an expense, the impact on your corporation tax liability will be neutral if you reduce your salary to 80%. Your salary will be subject to National Insurance and Income Tax as usual.
Self Employed Income Support Scheme (SEISS)
Grants paid under SEISS are also taxable. As this scheme is only accessible to sole traders and partnerships, this means the grant is chargeable to Income Tax and the resulting tax will be calculated on your self-assessment tax return at the end of the year. It is vital therefore that you make provision for this and as with your other income you put to one side enough to make payment of your tax liabilities when they fall due.
Bounce Back Loan (BBL)
Due to the straightforward application process and the fact that banks are not required to complete affordability checks, the Bounce Back Loan scheme has been popular with small limited companies and Personal Service Companies. However, it is a business loan and cannot be used to pay personal living expenses or dividends. Care must be taken to ensure you don’t unintentionally create a director’s loan which will give rise to an S455 charge of 32.5% at your company year-end and potentially a benefit in kind charge if the amount of the director’s loan exceeds £10,000.
You can set up a larger salary from the business if necessary and as this is a business overhead this would be allowed. You will need to think carefully about this and consider the increased PAYE costs of Employer’s National Insurance, Income tax and Employee’s National Insurance. It is also worth reiterating that however favourable the interest rates are, this is a loan and the business will need to repay it.
Looking for more advice?
We understand that this period of uncertainty has left many self-employed workers wondering what help is available. If you’re looking for more information about what support you and your business could be entitled to during this period of uncertainty, our business support hub is here to help.
Visit our hub to find out what help you could be entitled to: