Government support for UK startups during coronavirus (COVID-19) pandemic

Shai Schechter • 2020

None of this constitutes financial advice or guidance. Just my personal take, written for myself, and I don't guarantee its accuracy. Take independent financial advice for any of your own decisions.

This is a rundown of my understanding of the UK’s coronavirus (COVID-19) support as it relates to startups and freelancers in the UK.

While I’ve spent a long time reading through the guidance and legislation so I can help as many people as possible, I’m not a lawyer—be sure to do your own research and/or speak with a lawyer for your specific situation.

Grant: Coronavirus Job Retention Scheme

This may be the most useful one for smaller UK startups who have been hit. It’s a grant (i.e. you don’t have to repay it) that the government will provide to keep your employees paid, at no cost to you, in a situation where you’d otherwise have to lay them off.

Crucially, they cannot do any work for or on behalf of your startup while the grant is in place. It’s designed to avoid them being laid off and losing all income (where your company’s operations “have been severely affected by coronavirus”), not to avoid you needing to pay them while they keep working for you!

Eligibility

✅ Applies to UK limited companies and other UK organisations paying employees through PAYE.

❌ Doesn’t apply if you’re self-employed (see “Self-employment Income Support Scheme” below instead).

❌ Doesn’t apply to contractors providing services to your company (though they may be eligible for one of the schemes themselves).

How it works

  • If you’re struggling to pay one or more (or all) employees, you “furlough” them
  • Meaning:
    • They stop doing any work for you
    • They stay on your payroll, you pay them in the normal way
    • You apply through a government portal to be reimbursed
  • The amount you’ll be reimbursed is the lower of £2,500 or 80% of the employee’s wage. Let’s call that the “subsidised amount”
    • You have to pay that subsidised amount to the employee; it’s up to you (and your employment contract!) whether to chip in the remaining 20%+ of their salary yourself or not
    • The grant will also pay your associated employer NI contributions & minimum automatic-enrolment pension contributions for the subsidised amount
  • Directors (including yourself) can be furloughed too if they’re on the payroll. Same caps apply (based on salary, not dividends) - you can’t do any work for the company aside from statutory director obligations like annual returns
  • Employees:
    • Can say no to being furloughed, but you can make them aware that the alternative might be redundancy
    • Will pay taxes, NI etc as normal through their paycheck
    • Can volunteer or work for others during the time they’re furloughed
      • Unless your employment contract says otherwise. Mutually agree to amend this if desired
  • Hopefully goes without saying, but standard anti-discrimination law applies around deciding who does and doesn’t get furloughed

Timescales

  • Employee must have been working for you since 28 February 2020 or earlier
  • The grant covers any 3+ week period that the employee is furloughed during March, April and May 2020; government may then extend it beyond these dates
  • If they used to work for you but you laid them off since 28 February 2020 you can rehire them and they’ll still be eligible for furlough
  • The portal isn’t live yet, but you can start furloughing already and reclaim the money once it is. Aiming for it to be live “within weeks”

Grant: Self-employed Income Support Scheme

✅ If you’re a sole-trader or partnership (most likely to be freelancers / small bootstrapped startups) you too may be eligible for a grant (i.e. you don’t need to repay it) from the government if you’ve lost profits as a result of coronavirus.

The amount of the grant is 80% of average monthly profits, capped at £2,500 per month, initially for 3 months (government may extend this). So currently a maximum of £7,500 that will be paid in one lump sum in June 2020.

Eligibility

You must:

  • Have lost profits as a result of coronavirus and its effects
  • Have been required to file a tax return for the 2018/19 tax year (and have filed it by 23 April 2020)
  • Have been trading in the 2019/20 tax year
  • Be planning to trade in the 2020/21 tax year
  • Be trading when you apply, unless coronavirus and its effects are stopping you
  • Make less than £50,000 per year from self-employment, and self-employment must make up the majority of your income (both of those together must be true for either 2018/19 or the average of 2016/17, 2017/18 and 2018/19)

HMRC will contact you if you’re potentially eligible, based on the information on your 2018/19 tax return.

When they do contact you, make sure it’s really them and not the many scams in circulation.

The only thing you need to do for now is make sure your 2018/19 return is filed by 23 April 2020, then sit tight.

Loan: Coronavirus Business Interruption Loan Scheme

If you need a loan to get through the crisis, the government will pay all interest and other fees on the loan for the first 12 months, so during that period you’re only having to pay back the original amount you borrow.

Loans can be up to £5 million and for up to 6 years. Overdrafts, invoice finance and asset finance are also eligible.

The government will also guarantee 80% of the loan, making it less risky for the lender to agree to lend to you.

Eligibility

  • Your business turnover is up to £45 million
  • Your business plan would be viable to lend to under normal circumstances (i.e. if not for coronavirus)
  • Full criteria on the British Business Bank website

Apply through your business bank or another accredited lender.

Tax deferrals

The government has postponed the deadlines for some tax payments to help ease the burden.

VAT

Any payment deadlines due 20 March 2020 to 30 June 2020 are automatically deferred.

You still need to submit the return, but you don’t need to pay what’s due until 31 March 2021 (or 5 April 2021, TBC). If you’re due a tax refund you’ll get it as normal.

If you pay by Direct Debit but want to take advantage of the deferral, cancel the Direct Debit.

Self-assessment payments on account

If you’ve got a payment on account due on 31 July 2020 you don’t need to pay it until the balancing payment deadline of 31 January 2021.

Struggling to pay any other taxes

Contact HMRC to discuss options on a case-by-case basis. To my knowledge they’re pretty accommodating—they’d rather come to an arrangement than see you go under and never get their taxes!

And finally…

Please stay home.

It’s so easy to think that one quick trip to grab something, or see someone, won’t make any difference, but it can.

Any non-essential trip has a non-zero chance of unnecessarily spreading the virus — and I know enough people who have died from coronavirus, and people who are putting themselves at risk saving lives in hospitals, to not be able to stay silent on this.

Avoid seeing people now, so they’ll still be around to see later. 🙏