Every sector has seen major disruption and the legal sector is no different. This article addresses those changes which affect the accounts side of the business primarily.
This is one of the bigger changes. HM Revenue & Customs announced that VAT payments can now be deferred. https://www.gov.uk/guidance/de...
HMRC acknowledges that cashflow will be a serious problem for many businesses across the UK and it is not in the UK’s interest for businesses to collapse due to a cashflow crisis. They announced on 26/03/2020 that VAT payments which usually fall due between 20th March and 30th June 2020 can be deferred until “a later date”.
The later date for paying the VAT that has been deferred, is on or before 31/03/2021.
If you do decide to defer paying the VAT, there are a few things to be aware of:
• You DO NOT need to tell HMRC, you simply don’t pay it.
• You DO still need to submit your return.
• If you have a Direct Debit you DO need to cancel it.
• The VAT is still payable and must be paid by 31/03/2021 at the latest.
It is difficult to assess how things will change over the coming months, so if you are in any doubt about cashflow and do wish to defer, the recommendation is to place the amount due into a savings account and only use any of that fund if it is absolutely essential. If the firm can afford to run the practice without dipping into the deferred VAT fund, so much the better. It can be paid out to HMRC when things settle down.
Making Tax Digital (MTD)
• The second phase of Making Tax Digital for VAT, which would have included the requirement for digital links has been delayed until April 2021.
The notice with the updates can be found here: https://www.gov.uk/government/...
SELF ASSESSMENT (Income Tax)
The second largest change is a deferral of Self-Assessment Tax. In a similar way to VAT, HMRC have allowed income tax from self-assessment to be deferred. The details are found here: https://www.gov.uk/pay-self-as...
January 2020’s tax should have already been paid, meaning that the next tax payment for most businesses is 31/07/2020. If you choose to defer the payment of Self-Assessment Tax, then you will have until 31/01/2021 to pay it.
Please be aware that no changes have been announced to the payment cycle for corporation tax applicable to UK companies. This will be something that SME corporations must consider when cashflow planning for the next few months.
Other HMRC Support
Details of the following support for businesses can be found here: https://www.gov.uk/government/...
• Paying your employees
• Paying sick pay
• Paying tax
• Business rates relief
• Business support grant funds
• Support for the self employed
• Support for small and medium sized businesses
• Support for large businesses
• Business rate holidays lasting one year began on 01/04/2020 for qualifying businesses in England.
• To protect high-street businesses a temporary ban has been made on all statutory demands & winding-up proceedings.
• UK charities can now access a £750 million package
Coronavirus Job Retention Schemes
The scheme allows furloughed employees to claim 80% of their usual wages up to £2500.00 per month. This has now been extended until the end of June.
Support for the self-employed
The self-employed who have suffered losses in turnover due to COVID-19 can also apply for a grant worth 80% of their usual taxable profits, up to a maximum of £2500.00 per month. Payments are due to be made to those who are eligible by early June. Eligibility will be confirmed by HMRC in mid-May.
Coronavirus Business Interruption Loan Scheme (CBILS)
This scheme provides small and medium sized businesses access to up to £5 million if they have been affected by COVID-19.
The scheme is aimed to give businesses with an annual turnover of up to £45 million access to loans, overdrafts, invoice finance and asset finance to a maximum of £5 million for up to 6 years.
Lenders will be guaranteed 80% of each loan by the government and the scheme is backed by the government owned British Business Bank.
Eligibility for the scheme depends on:
• Business being UK based
• Business having a turnover of up to £45 million
• Business having a borrowing proposal which the lender would consider viable, if not for the coronavirus pandemic.
• Business self certifies that it has been adversely impacted by the coronavirus.
• Banks, insurers & re-insurers. Insurance brokers are eligible.
• Public sector organisations
• Colleges, universities, schools and other state funded educational bodies.
To apply, head here: https://www.gov.uk/guidance/ap...
Small Business Grants
Small businesses are eligible to receive small business rate relief and be paid £10,000.00 from the Government. Retail, hospitality and leisure companies can apply for £25,000.00.
Grants have already started being distributed by local councils and can certainly help with cashflow issues as a result of the pandemic.
This is a link which can determine eligibility: https://www.gov.uk/business-co...
SRA Accountants Reports
The SRA has taken the view that in some instances, they will take a “pragmatic and proportionate approach” to firms failing to meet the six-month deadline for their accountant’s report. However, they have not said that they will automatically issue an extension to the deadline across the sector.
They state: “If there are good reasons for a reporting accountant needing longer to prepare a report because of the impact of the coronavirus - which takes a firm outside of the six months window - we would not take any subsequent disciplinary action. If a firm has delayed getting their accountant's report because of the coronavirus, we would not view that as a serious breach that needs to be reported to us by the COFA. You should, however, clearly document the reasons for any delays and the approach you and your reporting accountants have taken.”
The approach therefore should be to do everything possible to get end of year reports and queries sent to the reporting accountants so that they can do what is necessary. If, however, due to the lockdown this is impossible, a letter detailing why must be provided and actions taken for the COFA to notify the SRA. So do not assume that the SRA will ignore a late report with no correspondence due to Covid-19.
More emphasis is now placed on the reporting accountant’s judgement regarding completing their report. The new SRA Accounts Rules generally give the accountants more leeway and this recent update bolsters that principle. This means it is imperative that the firm work with the accountants as closely as possible to get them the details they require. Most reporting accountants can perform their audits using digital documentation rather than sifting through files and boxes. Make the most of this and ask your accountant how best to get the data they require to them electronically.
SRA General Compliance
The SRA still want the formal reconciliations for client account to be undertaken at least every 5 weeks so despite the lock-down firms need to ensure that they have processes in place for safeguarding client monies. The SRA does state however “If your contingency plans fail because of the impact of coronavirus, then we would recommend that you take all necessary steps to assure yourself that client money is being dealt with by your firm properly. You should document your approach and all your decisions.”
The SRA require client monies to be banked promptly. This can cause issues if you have received cheques. The recommendation is to ask the client to cancel the cheque and pay electronically where possible. If the cheque cannot be banked and the client cannot pay electronically, then you are to keep the client updated regularly as to what is happening with the cheque itself so that there are no surprises when it finally is cashed.
A helpful link to SRA Compliance Queries surrounding Covid-19 can be found here: https://www.sra.org.uk/sra/new...
SRA Approach to Compliance
The SRA has taken when it calls a “proportionate approach” where it remains “pragmatic” about difficulties during the COVID-19 pandemic and they have stated that they will take mitigating circumstances into account during any enforcement strategy. Essentially firms must do everything that they can to remain within the rules and comply with them. If however a firm is facing compliance difficulties, it must contact the professional ethics team here: https://www.sra.org.uk/home/co...
The Bounce Back Loan Scheme
On 27th April 2020, the UK Government announced a new loan scheme for small to medium sized businesses who need cash injections to keep operating. The funds can be available in a matter of days. This scheme launched on Monday 4th May 2020.
The loans themselves will be backed by the Government 100% rather than UK banks. This means that not only are the banks not liable for losses, normal credit checks which take a long time will not have to be undertaken.
The values that can be borrowed are between £2,000.00 and a maximum of one quarter of the firm’s previous year’s turnover to a maximum cap of £50,000.00.
The following are the basic loan details:
• Government finances 100% of the loan
• No fees or interest for the first 12 months
• Maximum loan length is 6 years
• The interest accruable is to be determined and the government will work with ledgers to determine. The Government is aiming for a rate as low as possible.
• Firm must be UK based
• Must have been negatively affected by the coronavirus pandemic
• Must not be “undertaking in difficulty” (running a negative balance sheet) as at 31/12/19.
• Firm must have existed on 01/03/2020
Those who are in-eligible
• Banks, insurers and re-insurers. Insurance brokers are however eligible.
• Public sector organisations
• Colleges, universities and schools
Firms cannot apply for the Bounce Back Loan Scheme if they are already claiming under the Coronavirus Business Interruption Loan Scheme (CBILS). If, however, a firm has already received a loan up to £50,000.00 under CBILS, it can be transferred into the Bounce Back Loan Scheme and can be arranged with the ledger until 04/11/2020.
Only basic information will be required to apply for the loan and the details for applying will be published shortly.
More information about the Bounce Back Loan Scheme can be found here: https://www.gov.uk/guidance/ap...
Accountants and Cashiers:
Talk to your accountants and cashiers and discuss all the options available to you to help your business through this difficult time. This document details some of the main areas, but there may be other options depending on your work types.
Many software companies are providing guidance on how to maximise the use of your case management package. These webinars are usually free of charge and are very insightful. Software companies are open for business, so set up support calls to see how the provide can advise to aid the firm’s staff moving forward. The extra training may also benefit the company for the long term.
Organisations like the ILFM and others are holding regular meetings to go through the affects of the pandemic and discuss what the members are doing to make life easier for the individuals at the firm but also the firm as a whole. Sharing ideas and theories can be very useful and is where innovation is born.
Keeping an eye on social media such as Twitter and LinkedIn can also be very useful for firms. Many helpful articles are shared on these platforms and the odds are high that some will be highly relevant to the firm.
The above details some of the main ways in which the country is changing to help businesses during this unsettled time. Our recommendation is to make the most of what is available to you and do what you can to stay up to date with changes that will affect your firm.
The Law Factory LLP is an outsourced legal cashiering company which is built around remote working. If we can be of assistance to you during this time, please contact us via email: [email protected]
Alex Simons ILFM MAAT
New Business & Legal Accounts Manager
The Law Factory LLP