Undoing Lockdown – levels of business support

There is a novel analogy describing people’s experiences of the Coronavirus crisis that has been doing the rounds in the not-so-holy realms of social media. It states that we are in the same storm, but not in the same boat.

So. For some of us, we are glad that we can stretch our legs next to the ocean (if only on the pavement!). ‘Real Runners’ are, of course, concerned about the sudden interest in their sport of choice, questioning the intentions of those who are suddenly out and about after having last run in primary school … Many complain that three hours of freedom is not enough and impractical for essential workers who often work early shifts.

Some feel cheated. We were told ‘this lockdown thing’ will come to an end, and yes, we knew it would not quite mean business to usual, but THIS unusual? And for how long, THIS time? Anger and frustration, fueled by denied addictions and proclivities, are rising. Scathing memes and poisonous comments are setting Facebook and social media on fire. There are growing accusations of class and race prejudice from all sides.

As mentioned last week, unfortunately, for far too many, it is the fact that they and theirs are hungry that eats at them. Balancing how to keep people alive by avoiding the spread of the Coronavirus whilst at the same time avoiding adverse health outcomes and death by starvation (a real threat in this country) is serious business. For now, preserving as many lives as possible take precedence over our comfort. But people must eat.

And the government sent over 1.5 million people back to work this week.

The worker is worthy of his/her/their wages

It isn’t just personal survival that has been on some people’s minds. For many, it has been how to keep their businesses afloat so that they can pay their workers. The Government and other institutions have publically pledged their support.

But this is where it gets tricky. At first it sounds so easy! However, some Ministers do not seem to have ever actually run businesses. They never seem to get to the part where they explain HOW we should go about accessing the funds. And regulations keep changing. Rules keep changing. Who is eligible keeps changing. Dates for submission keeps changing.

The only certainty there seems to be is that there are considerable bottlenecks because so many businesses need help. In fact, the business community has been given another 30 days to apply for April benefits. In other words, the logjam is more than 30 days.

The most important rule in the book

Involve a Tax Practitioner! Speak to your Financial Advisor! Remember, these blogs serve to inform you about what is available. However, a Tax Practitioner has intimate knowledge of the latest developments and can guide you through the myriad of rules.

Who is offering what?

Government offers four broad categories of help that we will discuss below:

1. Tax relief measures

As part of the Employment Tax Incentive (ETI) programme, companies can now claim back up to R1 500 a month per employee who earns less than R6 500 (for those younger than 30), and R750 for those 30 and older. These amounts will be paid back to the company every month by the SA Revenue Service (SARS).

For companies with an annual turnover of less than R100 million, there is an additional tax relief option to consider. Instead of paying 50% of their expected tax bill six months into the tax year (and then settling the full amount at the end of the tax year) companies are now allowed to make a payment of only 15% of its expected tax bill after six months, and another payment of 50% by the end of the tax year. Thereafter, by the 30th of September, 2021 (or six months after the end of the company’s financial year), the outstanding balance needs to be paid. Do you now see why we say involve your Tax Practitioner?

There has been significant increases in margins for this tax relief measure.  Businesses with an annual turnover of less that R100 million (up from R50 million previously) can hold back on paying 35% (up from 20% before) of the pay-as-you-earn (PAYE) payments due to the SA Revenue Service (SARS). This will bring relief for the next four months. However, these amounts will have to be paid back in equal instalments, with the first payment expected on the 7th of September, 2020. 

  • Fast-tracking of VAT refunds

Smaller VAT vendors can claim VAT on a monthly basis, instead of submitting claims only once every two months.

Alcohol and cigarette companies have received an additional 90 days to pay excise duties that were due in May and June.

  • No tax penalties for some companies

Companies that can show that, due to the impact of the corona virus on their business, they are in no position to make tax payments, can apply to SARS to defer tax payments without incurring penalties.

  • Skills development levy holiday

From the 1st of May, 2020, companies will be given a four-month holiday for skills development levy contributions (1% of total salaries).

2. Unemployment Insurance Fund relief      

As part of the special Temporary Employee/Employer Relief Scheme (TERS), administered by the Unemployment Insurance Fund (UIF), companies can apply for financial assistance to help them pay their workers. The payment will constitute a percentage of an employee’s salary, according to a legislated sliding scale from 38% (for the highest earners) to 60% (for the lowest earners). The maximum benefit is R6 730 a month. Companies struggling to pay the salaries of their employees due to the Covid-19 crisis can visit  https://uifecc.labour.gov.za/covid19/

3. Business stimuli funds

This scheme will assist small companies who are in distress with funding.

This relief measure is aimed at small companies that are able to take advantage of supply opportunities resulting from the coronavirus pandemic or can produce goods for which there is a shortage in the local market.

To access both of the above, companies must first register at https://smmesa.gov.za/. Further details will be made public soon.

4. Sector specific funds

Smaller companies operating in sectors like fishery and tourism, as well as concerns, such as Spaza shops, can apply for governmental support through the respective government departments.

The private sector provides the following:

  • Debt payment relief and extension of credit

Individual providers differ slightly in approach, in terms of the type of relief offered, the criteria for such relief and whether the relief is offered automatically or need to be applied for. Most banks offer a three-month payment holiday on loans and credit cards. Interest is still charged, but will not be demanded during the payment holiday. Some service providers may extend credit to assist clients with shortfalls. These extensions are generally negotiated on a case-by-case basis.

  • Credit insurance

You may not be aware of it, but you may have insurance on your home loan, credit card, or short-term loan. This could cover your repayments if you lost your income during the coronavirus crisis. However, it is important to check, as it isn’t always mandatory.

Credit insurance used to ensure that your outstanding debts would be paid if you were to die or become permanently disabled. However, legislation changed in 2017. The new law now says that repayments need to be covered for up to 12 months, or for the remaining period of the loan, or until you can earn an income again, whichever is the shorter period. Cover payments are not limited to death or disability. In most cases, should you lose only part of your salary – say 40% – credit insurance will cover 40% of the instalments.

In this instance, Capitec stands out – they do not provide payment holidays, because they offer automatic credit insurance. This leaves their clients in a much better position, as they are not charged mounting interest.

Unfortunately, credit insurance does not extend to people who are self-employed. Persons who are at the ‘normal’ retirement age of 65 already may be excluded. Some credit companies won’t pay out for every type of lost income. The loss of income should generally stem from an unexpected or unforeseen event. This means you will not qualify if you are faced with a fixed-term, finite contract which is drawing to a close.

  • State-backed loans

If your business has an annual turnover of up to R300 million, you will shortly be able to apply for government-backed Covid-19 loans. These will be offered by South Africa’s commercial banks and the interest rates of these loans will be linked to the repo rate. It is the repayment timelines that makes these so attractive. The borrower only needs to start making repayments after six months. Thereafter, the repayment period can be negotiated to stretch up to five years. In essence, this means you have five-and-a-half years in total to repay the loan.

  • Industry specific relief measures

The Industrial Development Corporation (IDC) has allocated billions in emergency funding to help manufacturers with working capital, as well as for companies in agriculture, tourism, energy, and vehicle components manufacturing.

The performing arts have various initiatives to keep creatives going. Examples would be the National Film and Video Foundation (NFVF) that has invited the industry to submit funding applications earlier than usual and who has provided a once-off cash injection to the companies currently working under commission to the foundation. The South African Music Performance Rights Association (SAMPRA) has changed the dates on which royalties is scheduled for distribution from August 2020 to April 2020.

Industries supporting essential services operators are also offering a number of support measures. SA Taxi, which finances more than 32,000 minibus taxis, has announced a repayment holiday of a month (from April 1) for its clients. Some larger insurers have allocated money to assist their suppliers who are often independent contractors. These include plumbers and panel-beaters.

Final Words – for now

Remember, we are all in the same storm, but not in the same boat. This means this Corona-driven crisis is new to all of us. Some of us have weathered other storms, but our boats may be old. Some have the latest technology, but this has never been tested. Some have the advantage of size, but are heavy, so if they go under, many are affected. Some have the advantage of lighter weight, but lose stability because of it. Whether you are a captain of an ocean liner or a skipper on a fishing trawler or the operator of a lighthouse, one thing is for certain – to preserve life, cargo and vessels, we have to work together. Avail yourself of the services of a seasoned Tax Practitioner in this choppy seas of finance.

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