Ascentis TV Episode One


Welcome to the first episode of Ascentis-TV! This is our replacement for the monthly newsletter that was sent to you in the past, just giving you a richer and more engaging format, for us to convey all sorts of topical issues.

I’m going to jump straight into it right now with the chatter that’s going on around the job retention scheme and the errors or even fraud that HMRC believes has been committed. They’ve paid out about 35 billion so far in JRS claims and they estimate that 10 percent of that has been done incorrectly or even fraudulently and they want the money back.

Mark, what’s the process for any employer that’s made an incorrect claim and wants to pay that money back, how do they go about it in practical terms?

Well, there are two ways that you can report the error to HMRC. The first one if you’re continuing to make claims under the JRS scheme you can submit what’s called an over claim with your next claim, so if you’re making your claim now for September and you’ve accidentally included somebody you shouldn’t or accidentally put too many hours down for them you can simply tick the box as you go through the October claim and make the declaration that you’ve done an over claim and it will just reduce the amount that you get paid this month. If you’re no longer making claims or the error is sizable and therefore it actually outweighs the amount that you’ll be claiming this month then you need to contact HMRC directly to deal with that. You’ve got until the 20th of October to do that or 90 days from the point at which you made the erroneous claim.

It’s something that while we’re in this amnesty period where HMRC are not going to throw the book at you for making these errors, they accept that we’re all under pressure and it was difficult to get these things right, that if you hold your hand up now and say look I made this error then they’re not going to take any action, they’re just going to happily take the money back and let everything carry on.

After the 20th October, I think things will be different, I think HMRC will take a much stronger approach, certainly if they find the error that you haven’t reported to them then we’re going to be in a position where there are penalties, and if it’s a serious enough offence they’re talking about
police action in terms of fraud and anti-money laundering actions that they might take against 
people, so certainly something that if you haven’t already done so review your claims that 
you’ve made and just make sure that they are all correct and that you’re not going to face 
any issues in the future.

I’ve actually already made a couple of those over claim declarations with HMRC and they’ve been quite amenable over the phone, the process is relatively straightforward, the hardest part of it is getting hold of HMRC so a lot of the times you’ve had to ring up and ask for a call back but throughout the process, they don’t seem to be too judgmental at this point they just give you a 10-digit reference I think, which you then use to pay across using the normal bank details for HMRC.

Not just in terms of job support scheme but there was a raft of extensions to all of the government support announced on the 22nd, Lee you were going to talk to us about the VAT?

Yeah, I think one of the welcome changes that was made was the deferral of the VAT bubble liability that we had.  We had this situation where coronavirus kicked in and there was all that uncertainty, so they deferred that VAT quarters whether it was March April or May the payment due in that quarter could have been deferred until 2021 at that point. But all that debt needed repaying by the 31st of March 2021, which we’re not too far away from now, and what we were seeing with businesses was just building up this balance sheet of VAT debt that is going to have this consequence when we get to the repayment terms, that we’re going to have a double VAT liability. People in all good hope have started to trade again, so the March quarter VAT return would have been hopefully back to normal, they’ll have had the March 2020 VAT return which again was a normal trading VAT return so that would have been a real double hit in terms of VAT liability that they’ve had to pay, so what they’ve done now is they’ve extended this VAT that’s been deferred another 11 months from there that’s interest-free and so it just helps really smooth over that cash flow of this initial kind of liability that we’d built up in terms of VAT debt and obviously, there’s other debt that’s been picked up as well such as January 2021 we had this big self-assessment liability that was due.

So there’s the July deferment and then there was going to be the January payment on account 
as well but that’s been deferred as well I believe, I don’t know if you’ve got any more details?  

Yes, so whether you’ve deferred your 31st of July payments on account or not, any payments that were falling due 31st of January 2021 where you owe less than £30,000 whether that’s a combination of a deferred 31st of July payment or just your 31st of January payment there’s now an automatic 12 month time to pay arrangement, where you can pay that 31st of January payment over the next 12 months from the 31st of January. If you owe more than £30,000 that isn’t necessarily closed to you as an avenue, it’s simply that you must speak to HMRC about agreeing what they will accept in terms of a time to pay arrangement. I think the likelihood is they’ll want some sort of upfront payment and then allow you to defer the rest over 12 months. One of the key things about this VAT deferment is there are no finer details on this yet, but it is an opt-in scheme so every business is going to be eligible but you will have to opt-in to HMRC in order to take advantage of that 11-month period, but I mean that was just one part of the financing that they made available, they’ve extended all the other borrowings as well, I think John you had some more details on those?

Yes, Q1 and Q2 of 2021 was going to be the real pinch point this is when not only VAT as you mentioned was due to be repaid but also people that took out the bounce back, the BBILS 
loan or the CBILS loans back in sort of March, April, May time, their repayments are going to 
start in that period. In addition to that, there is the deferment of income tax payments that were due on the 31st of July, they were due to be prepared in that period as well and businesses that perhaps have got arrangements with their landlords to defer rent even with other suppliers so there’s going to be this real squeezing point of cash flow between January and June time next year, hence that’s why on the last COVID video report that I did to you guys we were saying how important it was to really now focus on your cash flow forecasting, using whatever tools you’ve got, if you’ve got cloud accounting like all of our clients have, then you’ve got Fluidly professional version. It’s a plug and play cash flow forecasting tool and I was just emphasising how important it was to look at Q1 and Q2 and whether you needed additional finance.

There have been some more announcements that are going to make people’s lives a lot easier, so this is a brief recap on the CBILS which was the bigger loan of the two, which was the £50,000 to £5 million loans full credit application that you had to go through so business plan cash flow forecasts and what have you and then the junior version of this came out shortly afterwards, the bounce back and literally anybody with a pulse could get one of these, three-minute application form that you fill in online just ticking loads of boxes and for the majority of people 24 hours later you could have up to £50,000 in your bank account.

Just to recap on some of the subtle differences as well the BBILS which is the 50  grand one that was fully guaranteed, is fully guaranteed by the government, interest-free for the first 12 months, two and a half percent interest payable over the term of six years, you could repay the whole lot at any point in time, so loads of people just got them speculatively anyway and have got the 50 grand still sat in their bank accounts. The CBILS after BBILS was introduced went up to £50,000 or £50,000 and a pound I think up to 5 million pounds that one is 80 percent guaranteed by the government, the interest rates are variable though we’re seeing some startling interest rates of 15-20% by some of the lenders in the early days, same six year repayment terms and a lot of them also had capital repayment holidays for the first 12 months.

So what if you’d like with the bounce back loan if you’ve taken out not the full £50,000 if you’d only taken out £10,000 pounds at that point in time that’s what you thought you only needed in terms of working capital and you want to borrow more on top of that bounce back loan, I don’t think you can take out a second bounce back can you? 

Well the announcements that were made have now synchronised the application deadline that you can make for a CBILS or a BBILS are now all the 30th of November, in addition to that the loan repayment terms have gone from six years to 10 years, you can opt to take a 10 year version that’s going to halve the repayments that people make under these loans. The announcements have made a lot of people sit up and think, actually did I get enough and also reflected on the fact that we’ve just gone down into a second, although lighter measure of restrictions, which we weren’t anticipating back in March, April time so a lot of people have borrowed too little to get them through these lean times, and with the announcements now saying that you can make an application until 30th November a lot of people are looking at what they actually borrowed so if you took out a BBILS loan you can’t apply for another one unlike CBILS where you can make multiple applications. Let’s say that you borrowed ten thousand pounds under a BBILS loan, but you thought that was going to be enough, you look at that now thinking, actually I could have done with a lot more, you can’t borrow any more under BBILS what you could do, is you could borrow money under a CBILS, so you could borrow £51,000 pounds if you wanted the whole amount then all you’ve got to do is repay your BBILS of £10,000 because you can’t have a BBILS and a CBILS together. So, if you get a CBILS to top up you’ve got to pay the BBILS off and then if £50,000 is too much after 12 months you could always make a lump repayment so you could pay 20 grand off and you’ve got a 30 grand loan instead. Just to reflect back on that point about using Fluidly the CBILS applications are a lot more complicated and you do really need cash flow forecasts and projections for that. It’s a full credit application so you’ll need a business plan, you will need at least 12 months and ideally 36 months cash flow forecast and projected financial statements so yeah the application process is a lot lengthier and up to 250 grand there is no pgs on it at all, they can ask for pgs over 250 grand but I think what we’re talking about here is people that are wanting to go from a BBILS to a CBILS and therefore the amounts that they’re going to want to increase to are going to be quite modest, no one’s going to go from a 10 grand BBILS to a 500 grand CBILS are they so you could just borrow slightly over the 50 to get into the CBILS regime and then just pay off your BBILS.

There have been some announcements on behalf of the self-employed taxpayers in
the country, Mark there’s a couple of announcements, one around the self-employed income support scheme and I think there’s some additional time to pay arrangements as well, can you take us through those?

Yeah, so the self-employed income support scheme has been extended again in line with all the other support, so there’ll be two further grant payments to cover the period November through to April 2021. They’ve announced the amount of the first grant payment, that’s going to be 20 percent of your monthly average earnings, they haven’t announced the amount of the second grant yet we’ve got to wait to find out how much that’s going to be. The way the pattern’s going it’s just going to reduce every time, I don’t think it’s going to be a great deal, the grant that’s about to be paid next is 20 percent of your average earnings but it’s capped at £1,875 so it’s not huge. I won’t be expecting too much from that last one.

The chancellor also announced the pay as you grow scheme, which is basically an extension of the six-year loan term to ten years. Interestingly enough it’s either six or ten years to make your loan repayments under CBILS or BBILS. I guess if the repayment profile of eight years was more suitable to you then you’d opt for the 10-year repayment, you would make your normal loan repayments, make some payments into reserve accounts and then at year eight make a big lump sum payment.

One of the things they talked about as well, Mark I want to drag you back to the job retention scheme, was the changes that are coming into place from the first of November?

Well as we all know the furlough scheme as it exists is coming to an end 31st of October with the recent announcement about the extension to lockdown the chancellor was under pressure to produce something that allowed an extension of the furlough scheme, he hasn’t extended the existing furlough scheme that still ends on the 31st of October what he’s done is he’s brought a new job support scheme to the table, now the new scheme is a lot less generous in the way that it works and probably going to be a lot less used to be honest with you, the new scheme first of all, needs any employee who’s going to be brought into the scheme to work a third of their usual hours in order to qualify for the scheme, and where they work for a third of their usual hours the government will then support paying a top-up of their pay as long as the employer agrees to top it up as well, so of the two-thirds pay that the employee is not receiving because they’re not working the employer will pay a third of those wages and the government will pay a third.  The requirement is that the employer will pay the whole of the employer contribution and the government contribution upfront and then reclaim the government contribution back so there’s a first of all the negative cash flow connotation there and the second part really of that is that for an employee working a third of the time they’re going to receive 77 percent of their wages and 55 percent roughly of that will be funded by the employer. The employers I’ve spoken to already about this are not overly enthusiastic about that as a scheme for obvious reasons so I’m not entirely sure how many people are going to be interested in using this scheme and how much take-up there is going to be of it.

So john we’ve talked about all the enhanced borrowing opportunities for our clients with the CBILS and BBILS extensions, have there been any changes to what they can actually spend that money on?

Yes, I mean there’s going to be a lot of clients that are looking at the extended period thinking well I’m going to increase my borrowing, the purpose remains the same it must be for business purposes, effectively spending on working capital management so that’s the payment of all of the ordinary overheads on a day-to-day basis in the business, and that includes dividends for owner-managers because they’re effectively the payment of wages. I think that in the same way, they’ve seen a review now by HMRC over the abuses to the JRS scheme there will come a day of reckoning for any abuses under the BBILS and CBILS scheme. I think they’ll only probably be unearthed and pursued for those businesses that fail I’m reliably informed by our associates in the insolvency world that there have been no instructions given to them yet as to how to deal with this, whether they should specifically look into a business that’s failed, had a BBILS or a CBILS and not made any repayments against it but I can see that coming down the tracks. For anybody that has taken out a loan and it sat there in the bank account they’re wondering what to spend it on just a reminder it must be spent on things that for business purposes that could be investment and growth in the future and all the rest of it’s not a personal withdrawal of 40 or 50 grand and spent on a holiday or a car or something like that so it must be for business purposes, I suspect there’s going to be some announcements probably next year about the consequences for those people who have abused those two loan schemes so watch this space I guess.

Okay, so I hope you’ve enjoyed the first episode of Ascentis-TV, if you’ve got any questions around the topics that we’ve raised and you want to have a one-to-one one of the partners, just get in touch in the usual way if there are any topics that you want us to cover in future episodes then again just put those to us, but until next time, bye.