What is it?
A new support mechanism for businesses who have suffered significant Covid 19 restrictions. The scheme is in addition to the Employer Wage Subsidy Scheme. It is available for all businesses who have suffered restrictions due to the country moving to level 3, 4 or 5 of the Plan for Living with Covid 19. It could also apply to other businesses at lower levels of restrictions however details of this are vague. The relief will operate as a weekly cash payment to the business.
A business, be it a company or sole trader whose business had to close or operate at significantly reduced levels, where the turnover for the period of restrictions has reduced by 80% compared to your average weekly turnover in 2019 for the same number of weeks.
For instance, if a company is closed from midnight on Wednesday the 21st to the 1st of December 2020 then their income for the period would be nil for each of the 6 weeks. In this instance, it is clear that the business would qualify. However, in the event that the business is partly open (i.e. a restaurant for take away), you compare your weekly income in this period to your average weekly income for 2019 and if the average weekly income has reduced by 80% then you qualify.
Example 1 – Company has take-away only for the next 6 weeks and turnover is €5,000 (i.e. €833 per week) for the period. Turnover for the whole of 2019 was €1m. Your average weekly turnover for 2019 was €19,230. The company’s turnover has decreased by over 80% and hence they qualify for the scheme.
How much can you get?
This is dependent on your 2019 turnover. You can claim up to 10% of your first 1 million turnover and 5% on everything above that subject to a maximum weekly payment of €5,000.
Example 2 – 2019 turnover is €3m. Your first €1m is at 10% which equals €100,000. This divided by 52 (the number of weeks in the year) is €1,923. Your next €2m is at 5% which equals €100,000. This divided by 52 equals €1,923. Therefore, the total weekly payment this business can receive is €3,846. They will receive this amount for each week that they qualify for the scheme.
Example 3 - 2019 turnover is €750k. Your first €750k is at 10% which equals €75,000. This divided by 52 (the number of weeks in the year) is €1,442. They will receive this amount for each week that they qualify for the scheme.
Example 4 - 2019 turnover is €10m. Your first €1m is at 10% which equals €100,000. This divided by 52 (the number of weeks in the year) is €1,923. Your next €9m is at 5% which equals €450,000. This divided by 52 equals €8,653. However, there is a limit of €5k per week that a business can receive. Therefore, the total weekly payment this business can receive is €5k. They will receive this amount for each week that they qualify for the scheme.
When is it coming in from?
It is coming in from Budget day, the 13th of October 2020. Any payments will be backdated to then if you qualified from this period. We are expecting businesses to either qualify from the 13th of October or from the 21st of October. The initial application will be until the 1st of December. Depending on the level of restrictions after this date will determine whether a company can stay on the scheme.
When can you apply?
Mixed messages on this. Today is the 20th of October. We had been assured applications would be open this week. However, Revenue issued a “general overview” of the scheme and they have indicated that the claims process will only be available from mid-November – I don’t know if this is a misprint or whether this is genuine. We were told cash would be issued within a couple of days of making a claim but we were also told that claims could be made this week. We need more guidance around this aspect.
Businesses will need to continue to file their returns on time and continue to hold a tax clearance certificate in order to qualify. Also, it must be the intention of the business to reopen when restrictions are lifted.
Is there guidance published?
Not yet – but expect there will be and once published we will set out the rules in more detail.
Will the EWSS be considered turnover for the purposes of qualifying?
This is unclear but the all the sound-bytes would indicate the EWSS will not be considered turnover.
Will the payment be taxable?
Kind of – the payment is known as an “Advanced Credit for Trading Expenses”. It will reduce your expenses when you are calculating your taxable profits. However, it will only result in additional tax if the company is profitable for the year in question.
When does the Scheme end?
31 March 2021 – but expect businesses to be jumping on and off the scheme depending on the level of restrictions in place.
How will it operate with Group companies?
If businesses are operating from separate business premises then they will be treated as separate activities for the purposes of the scheme. This is the case whether the businesses are in separate companies or out of the same company.
Our Initial Verdict on the Scheme?
Very positive so far. It may allow businesses to hang on in there that little bit longer. Hopefully the detail in the guidance won’t make it too complicated.
We will issue more information on this when Revenue issue the guidance.
Tax Partner - Quintas