Wrongful Trading
Some directors will have big decisions to make, both immediately and in the coming weeks and months as the various government initiatives begin to unwind. Such decisions may include which creditors should be paid,
whether the losses currently being incurred are sustainable and if the company can continue to trade in its present format.
The current Coronavirus Job Retention Scheme comes to an end on 31 October which means for those businesses with 20-99 employees, any employers looking to make redundancies will hopefully have provided
the requisite 30 days’ notice to employees. On 30 September the Government lifted the temporary suspension on personal liability on directors for wrongful or insolvent trading.
In brief, wrongful trading occurs when directors have continued to trade when they knew, or ought to have known, there was no reasonable prospect of the business avoiding insolvency and the directors did not take
every step to minimise the potential loss to the company’s creditors. In the event that wrongful trading occurs and the company enters insolvency, the directors could be held liable for the company’s debts from the point
they knew or ought to have known the company was insolvent.
The above was an extract from a newsletter from RSM http://www.rsmuk.com
The Government will Support Viable Jobs
The Coronavirus Job Retention Scheme (CJRS) known as Furlough ends tomorrow 31st October 2020 and on the 1st November 2020 the Job Support Scheme (JSS) starts.
When JSS was announced in September, Rishi Sunak, said the scheme would directly support ‘VIABLE’ jobs.
The implication is that if the jobs aren’t viable and the business can’t continue that the business should not claim JSS.
JSS is complicated, take a look at this example from HMRC for an employee on fixed salary
Calculation example 1: fixed hours and fixed salary employee
An employee has worked full time, from Monday to Friday, for A Ltd since 2011, and is paid £2,250 gross at the end of every calendar month. The employee has always been contracted to work 37.5 hours per week. A Coronavirus Job Retention Scheme grant was not claimed for the employee.
A Ltd is a small employer and meets all the eligibility criteria to qualify for Job Support Scheme.
The employee enters into a JSS Open temporary working agreement with A Ltd on 2 November 2020 to work Mondays and Tuesdays (7.5 hours each day, equating to 15 hours per week) from 2 November 2020 to 31 December 2020, at which point the position will be reviewed. The employee’s pay for the working hours in November is £945.
A Ltd calculates the amount of the JSS Open grant for the pay period 1 November 2020 to 30 November 2020 (one calendar month).
The employee’s usual hours are calculated for the days on which the employee is on a JSS Open temporary working agreement within the pay period (2 November 2020 to 30 November 2020). The employee’s usual hours are calculated by A Ltd to be 155 hours:
The steps to calculate the fixed employee’s usual hours are:
- The greater of the number of hours contracted for at the end of the last pay period before 23 September 2020 (37.5) and the number of hours contracted for at the end of the last pay period before 19 March 2020 (37.5): 37.5
- Divide by the number of calendar days in the repeating working pattern, including non-working days: 7 37.5÷7=5.36
- Multiply by the number of days which the employee is eligible to be claimed for under JSS Open: 29 days x 5.36 = 155.44 rounded to 155 usual hours.
The employee did not take any time off in November, so the actual hours worked in November are 67.5 hours. A Ltd calculates that the employee didn’t work for 87.5 hours of their usual hours for November.
To calculate the percentage of hours worked: (67.5÷155) x 100 = 43.55%
A Ltd checks that the employee can be claimed for under Job Support Scheme. In November, the employee worked for 43.55% of their calculated 155 usual hours for November. Because the employee is working at least 20% of their calculated usual hours for November, providing other Job Support Scheme conditions are met, a claim can be made for the employee.
A Ltd calculates the employee’s Reference Salary as £2,250 for the pay period. The maximum Reference Salary that can be covered under the scheme is £3,125 per calendar month. The cap does not affect the calculation here because the Reference Salary is less than £3,125.
To work out the overall amount that A Ltd must pay the employee for their non-working hours in each pay period:
- Start with £2,250 (the reference salary for the pay period)
- Divide by 30 (the number of calendar days in the pay period)
- Multiply by 29 (the number of days subject to a Temporary Working Agreement in the pay period)
- Divide by 155 (the number of usual hours for the JSS Open days in the pay period
- Multiply by 87.5 (the number of non-working hours for the JSS Open days)
- Multiply by 66.67% = £818.59
This is made up of a 5% employer contribution, and a 61.67% government contribution which A Ltd can reclaim.
To work out the government contribution to the employee’s pay for the non-working hours: 1. Start with £818.59 (the total pay for the non-working hours) 2. Divide by 66.67 3. Multiply by 61.67 = £757.20
The employee’s total gross pay for November will be £1,763.59 (£945 + £818.59).
https://www.gov.uk/government/publications/the-job-support-scheme/the-job-support-scheme
Going Concern Accounting
If the business is about to go into liquidation or the directors plan to end the business then the accounts can’t prepared on a going concern basis.
The basis used for businesses which aren’t a going concern would generally be the break up value.
Directors may also include notes in the accounts to explain the status of the company.
In order to prove that business is not insolvent it will need need cashflow projections, budget and business plans, otherwise the directors risk being personally liable if the business fails.
We have lots of templates to help in preparing what is needed and can also assist in the preparing them. https://www.bicknells.net/client-resources
Government Recovery Grant of up to £5000
You can now apply for the amount of £1,000 – £3,000 or £5,000 in exceptional circumstances
Dorset LEP – The closing date for applications is the 31st January 2021 or when the total budget of £550,000 is allocated, whichever is first. We advise you to apply as soon as possible as we expect there to be a huge demand.
Dorset SME recovery grant can be used for eligible project costs, which may typically be:
# 1-2-1 specialist advice which SMEs could call on to address their immediate needs in response to the
impact of COVID-19 e.g. HR, accountants, legal, financial, H&S, IT / digital or sector specialists etc.
# For the visitor economy, this could also include productivity improvements such as enhanced use of digital
tools such as yield management software, mentoring, networking or other measures.
# It could also support to develop innovative delivery in a socially distanced economy – for example, new ways of delivering cultural events and festivals that are so critical to the visitor experience; and / or
# Purchase of minor equipment to adapt or adopt new technology in order to continue to deliver business activity or diversify in response to COVID-19.
https://www.dorsetgrowthhub.co.uk/recovery-grant
steve@bicknells.net
