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The Winter Economy Plan: The Key Points

On the 24th September 2020, Rishi Sunak announced several new schemes to support businesses and workers across the UK as part of his Winter Economy Plan

Over the course of this post, we’ll take a close look at the details of each of the new schemes, but we’ve also provided a brief rundown of the main highlights below.

If you’d like to discuss any aspect of the Winter Economy Plan and how it might affect your business, don’t hesitate to get in touch.

 

The highlights

  • As well as extending the Self Employment Income Support Scheme (SEISS) to January 2021, the Chancellor also unveiled his new Job Support Scheme.
  • Over one million businesses across the UK will be given flexible options to help them pay back loans they’ve taken out during the coronavirus pandemic.

 

Job Support Scheme

It was announced that the new Job Support Scheme will come into effect starting on the 1st November 2020. This updated scheme will provide support to workers who are working less than their normal hours as a result of reduced demand due to coronavirus.

Employers will continue to pay employees for the hours that they work; however, the government will help businesses to pay for any hours that their employees could not work by contributing a third of the wages (the business will also have to contribute a third).

The introduction of the Job Support Scheme will mean that employees will still receive two-thirds of their wages for any hours that they could not work due to coronavirus.

There are, however, some eligibility criteria that employees must meet:

  • Employees must be working at least 33% of their usual hours to qualify;
  • The grant received will be calculated using the employees usual salary, which will be capped at £697.92 a month;
  • The scheme will last for six months, ending in April 2021;
  • This scheme will be open to business across the UK even if they have not previously used the furlough scheme;
  • The scheme is designed to sit alongside the Job Retention Bonus

 

The extension of the Self Employment Income Support Scheme (SEISS)

This extension will provide two grants to cover a period of six months from November 2020 to April 2021 paid in two lump sums: the first grant will cover the period from November to January and the second from February to April.

The first period will cover 20% of average monthly trading profits, covering 3 months worth of profits up to a maximum amount of £1,875. The level of the second period is still in review and will be set in due course.

HMRC is expected to announce how to claim these grants over the coming weeks.

 

Tax cuts and deferrals 

The chancellor also announced that the government will be extending the 15% VAT cut across the tourism and hospitality sector up until the end of  March 2021.

Businesses that delayed their VAT Bills will be given more time to pay under the new payment scheme. This will see businesses being able to pay their VAT bills in smaller instalments if they wish: 11 smaller interest-free payments will be payable during the 2021-22 tax year (rather than one large amount in March 2021).

Self-Assessment taxpayers will also be able to benefit from a 12-month extension to pay their tax bill. This means payments deferred to January 2021 as well as payments due in July 2020 will now not need to be paid till January 2022.

 

Loan flexibility: Pay as You Grow and the Coronavirus Business Interruption Loan Scheme (CBILS)

Businesses that took out a bounce-back loan will have the ease of paying this off through the Pay as You Grow flexible repayment system, meaning that they now have more time to pay the loan back: the length of the loan has been extended from six to ten years, resulting in monthly repayments being cut by nearly half. Interest-only periods of up to six months and payment holidays will also be available to businesses.

The government is also extending applications for the Coronavirus Business Interruption Loan Scheme (CBILS), which was previously set to end in November. CBILS lenders will have the ability to extend the loan repayment from a maximum of 6 years to 10 years. You can apply for the scheme via the gov.uk site.

 

For any further information about the Winter Economy Plan and what it means for your business, contact us today.

Calculator and balance sheet

The Complete Guide to Director’s Loans

This WKM guide explains what director’s loans are and when you might want to consider making one. It goes on to outline how this type of loan works in practice, exploring the tax implications associated with a director’s loan as well as the repayment process. 

 

What is a director’s loan?

A director’s loan is a means of taking money out of your business separate from your usual salary, dividends, and expense repayments. 

As a director, it’s essential that you keep a director’s loan account or DLA (a record of all of the money that you borrow from and/or pay into the business). At the end of each financial year, you have to submit these details as part of the balance sheet in your company accounts.

When preparing the DLA ahead of submitting your accounts, make sure to include all of the following information:

  • Full details of all withdrawals and repayments you’ve made;
  • The amounts of any personal expenses that you’ve paid with company money or a company credit card;
  • Any interest that’s been charged on your director’s loan during the year.

 

How do director’s loans work?

As a director of a limited company, you’re entitled to borrow money from the business in the form of a director’s loan. There is no limit on the amount that you take out in this way, but the other directors must all be in agreement and you must pay tax on the loan (more on this below).

It’s important to note that director’s loans work both ways – that is to say, as well as temporarily taking money out of an organisation, a director can also put funds into an organisation via this type of loan to provide some initial investment.

 

What are director’s loans used for?

This kind of loan is used in situations where a director needs money to resolve a temporary issue with their personal finances; similarly, it’s common to use a director’s loan as a means to pay directors until a company has made enough profit to make paying out dividends a viable option.

In certain cases, they are even used as a source of funding for a director’s new business project.

 

Tax on director’s loans

As mentioned above, you and your company may have to pay tax on director’s loans. The tax implications differ depending on whether you borrowed or loaned money.

In a situation where you loaned the firm money, your company would not have to pay corporation tax on the loan and the process is relatively simple. However, if you charge any interest, then you must report this as a form of income on your Self-Assessment Tax Return

The rules get a bit more complicated if you borrowed money in the form of a director’s loan. In this case, the tax implications for your business depend on the amount and the timeframe in which you settled the loan:

  • If you repay your loan within 9 months of the end of your financial accounting year, then you won’t pay any tax on the loan.
  • If you do not repay the loan within 9 months of the end of your financial year, then your company will pay additional Corporation Tax at 32.5%, regardless of the amount (although this can still be claimed back).

If you owe more than £10,000 at any point in the year, this will be taxable to both company and personal tax. You must report the loan on your P11D. In addition to this, your company must:

 

Repayment of director’s loans

The best way to repay a director’s loan is to do so as quickly as possible (ideally within 9 months of the end of your firm’s financial account year). This is particularly important if the loan is more than £10,000 due to the hefty 32.5% Corporation Tax on the original amount – you can claim this back, but not the interest, so an early repayment is a more tax-efficient option overall.

Another top tip when it comes to repayment: never repay a director’s loan and then take it out again shortly afterwards. HMRC refers to this tax avoidance trick as “bed and breakfasting” and will come down heavily on you, taxing your business as though the loan was never repaid at all.

 

We hope this guide has given you all of the information you needed about the process of making director’s loans and the tax implications. If you’d like to chat about any of the topics raised here or discuss how WKM can help your business, don’t hesitate to get in touch.