Covid support schemes were a financial lifeline for some farm businesses, but as loan capital repayments kick in and HMRC claws back overpayments of self-employment grants, cashflow could come under pressure.
Becky Partridge, a rural accountant at Old Mill, says HMRC has started sending out “nudge” letters to people who they suspect received Covid-19 support they weren’t entitled to.
Those claims may have been made in good faith at the start of the pandemic because it created uncertainty for incomes, says Ms Partridge.
“In most cases, if an individual or business claimed Covid support payments they were not entitled to, they have 90 days within payment of the grant to notify HMRC to minimise penalties,” she says.
Letters from HMRC
HMRC is now also writing to taxpayers who made a claim for one of the first three Self-Employment Income Support Scheme (SEISS) grants between March 2020 and January 2021 and did not report the payments or submit a tax return for 2019-20.
The letter clarifies that claimants must submit or amend their 2019-20 tax return to include the relevant information within 30 days of receipt of the letter or repay the grants they received in full.
“Even if a claimant was trading during the 2020-21 tax year, if they were not trading in the 2019-20 tax year they will need to repay the grants that were received, and the letter explains how they should do this,” says Ms Partridge.
“Those who receive a letter will need to be able to justify why they claimed and provide evidence of loss of income due to Covid.”
This evidence might, for example, take the form of bank statements or monthly management accounts.
If a repayment isn’t made, the fines are hefty and include a late filing penalty if it involves submitting a late tax return.
Penalties can be as much as 100% of the tax due and will depend on HMRC’s view on the type of behaviour of the individual and whether the disclosure was prompted or unprompted.
The time period for repayment of overclaimed grants and potential fines is just 30 days.
Ms Partridge encourages self-employed workers and businesses to have tax investigation insurance in place.
“Check that the cover extends to anything related to compliance checks, including checks on Covid support,” she advises.
It is likely that HMRC will continue to check 2019-20, 2020-21 and 2021-22 tax returns for any indications that individuals were not entitled to make a claim, and open investigations where there is any doubt.
People who want to voluntarily pay back some or all of the grant they received can do this via the Government Gateway, with the user ID and password they used when the claim was made.
Covid-19 loan repayments
For many businesses that took out a Coronavirus Business Bounce Back Loan (BBL) it is now time to start repaying the capital.
Up to 50% of farm businesses are thought to have applied for this loan, because it was easily accessible and cheap, at 0% interest for the first 12 months, followed by a fixed rate of 2.5% – just below the average cost of farm borrowing.
It helped to support businesses that lost income due to the pandemic, especially those that weren’t entitled to apply for the SEISS.
“A number of our clients took advantage of the BBL, it was so straightforward and quick – in most cases the money was paid within 48 hours,” says Ms Partridge.
If businesses are now struggling with repayments due to other cashflow pressures, banks are offering flexibility.
Borrowers have the option to extend the length of the loan term from six years to 10, make interest-only payments for six months, with the option to use this up to three times throughout the life of the loan and, once six payments have been made, request a six-month repayment holiday.
Borrowers should be aware they will incur more interest overall if they choose one of these options, as the length of the loan will increase.
“Pick up the phone to your bank today if you agreed to a six-year term and are now experiencing pressure on cashflow,”
Ms Partridge recommends. She says most of her clients have made full use of the loan money, but for businesses that haven’t she suggests retaining the loan if they have projects planned for the next two or three years that will need financing.