Update for Coronavirus Affected Business

As at 25 March 2020

Every business in New Zealand has been affected by the move to Level 3 or Level 4. This information is correct at the time of writing, but as we are all coming to realise, things in New Zealand are changing rapidly. Please refer to the links at the end of this Update and news media for regular updates.

Level 4 Lockdown is coming

From 11:59pm tonight (Wednesday) New Zealand will be locked down. Everyone will have to stay except to exercise and visit essential services. Only essential businesses will be allowed to open, for instance: supermarkets; pharmacies; health services; primary industry; and essential fast, moving consumer goods supply and distribution. Please check this weblink if unsure: https://covid19.govt.nz/government-actions/covid-19-alert-level/essential-businesses

If you have an online store, it may be possible for you to work from home depending on the products you sell, as courier services are still operating. If you are a service business it may be possible for you to work from home using phone, internet and video. Think creatively to see what you can do to help your customers.

 

Wage Subsidy and Leave Subsidy

The $150,000 cap on wage subsidies has been lifted and it is also available for high growth businesses. If you're an employer, contractor, sole trader or self-employed, you may qualify to get the COVID-19 wage subsidy. You must have experienced a minimum 30% decline in actual or predicted revenue over the month compared to the same month last year and taken active steps to mitigate the effects.

If you have been operating less than a year, then you can use a recent month for a comparison. Similarly, if you have had high growth in the past year, you can compare against a more recent month of trading which is reflective of the expected pre-coronavirus trading results. Keep your workings for claiming the subsidies.

If you cannot show a 30% decline and you have employees (or yourselves as self-employed / contractors) who cannot work from home, it is our opinion that you can claim the self-isolation leave subsidy for those affected.

Work and Income is prioritising the making of payments right now, and we expect that checks on employers records will follow later.

Some applicants are experiencing delays in lodging the applications, so you may prefer to do this out of normal business hours. Have your employee data saved in a Word or Excel file first, so you can copy and paste into the online form quicker.

Don't apply for the contractors in your labour force, as they are self-employed. Instead, encourage them to apply for themselves.

Both subsidies pay $585.80/week for employees working 20 hours or more a week or $350/week for people working less than 20 hours per week.

For the wage subsidy, you must make best efforts to retain employees and pay them a minimum of 80% of their normal income for the subsidised period. If you cannot give them their usual hours of paid work, you will need to come to an agreement with your employees whether to use leave or pay them an allowance. You cannot force your employees to take annual leave, so you may need to top-up the subsidy as an allowance to push the dollar amount up to the 80%. Payroll software providers will have information on how to do this.

For the isolation leave subsidy, the whole amount of the subsidy must be passed onto the employee minus the usual taxes. Again, you will need to come to an agreement about whether leave is used.

See below for tax treatment of subsidies.

If you have employees, or more than one shareholder salary earner:

https://services.workandincome.govt.nz/ess/employer_applications/new

If you have no employees:

https://services.workandincome.govt.nz/ess/trader_applications/new

If you have more than 100 employees:

https://workandincome.govt.nz/products/a-z-benefits/covid-19-large-employers.html

Tax Treatment of Subsidies and Payments to Employees

We have copied below a Q&A that IR has released so far.

Q         Is the wage subsidy payment subject to GST?

A           No – An Order in Council is being drafted to treat it as exempt (Section 5(6E)(B)(iii GST Act)

Q         Is the wage subsidy paid to the employer taxable?

A          No- It is excluded income (Section CX 47 ITA).

Q         Is the wage subsidy deductible when paid by employer as part of wages to employee?

A          No – it is not deductible  

Q         Is the wage subsidy taxable to employee?

A          Yes – As it is included as part of their normal wages it is subject to the usual PAYE, Student Loan, Kiwisaver deductions, etc.

Q         Is the leave payment for self-isolation subject to GST?

A          No – An Order in Council is being drafted to treat it as exempt (Section 5(6E)(B)(iii GST Act)  

Q         Is the leave payment for self-isolation paid to employees or self-employed persons subject to tax?

A            Yes – It is paid to replace taxable income so is subject to tax.         

Q1 - is the payment taxable? The helpline said yes, but the facts/info online don't say anything in terms of tax/PAYE etc. It just says that the $585.80 'must be passed onto employees in full'. Do I process it through the payroll?

As the wage subsidy is a subsidy to the employer to help them fund an employee's wages it is included as part of the employees normal wages and all deductions of PAYE, Kiwisaver, Student Loans, etc are made as normal. If the employees are paid the same wages as previously their pay and deductions on their payslip should be the same.     

Q2 - is there a limit to top up the payment? The helpline had no idea, and I can't find anything about it in the facts/info online either. Eg an employee may normally get $1000 gross each week...so are they able to use annual leave to top up the $585.80 so they're receiving close to their normal weekly wage?

As MSD are making the payment this enquiry should be made to them, however whether you top it up with cash payments or annual leave is probably between you and your employee. Although to qualify for the subsidy the MSD information states the employer must make the best efforts to pay an employee a minimum of 80% of their normal income for the subsidised period.  

Q3 - if they are an NZ based employee but overseas and are having to self-isolate and cannot work, can the employer access the support for this type of employee?

This is also an enquiry for MSD. Note however that the information on their website states that to be eligible, the employee was legally working for their employer at the time they decide to self-isolate, and they were expected to work for the period of self-isolation.

Banks weighing in to support businesses

Grant Robertson's announcement yesterday should allow banks to be more flexible with lending. The package will include a six month principal and interest payment holiday for mortgage holders and SME customers whose incomes have been affected by the economic disruption from COVID-19. More details will be announced by the banks in the next few days.

Core funding ratios for banks have been reduced and the Government will cover 80% of the credit risk. The scheme will include a limit of $500,000 per loan and will apply to firms with a turnover of between $250,000 and $80 million per annum. The loans will be for a maximum of three years and expected to be provided by the banks at competitive, transparent rates.

If you haven't spoken with the bank this week, we suggest that you contact them again if you need business loans. We have heard from a mortgage broker that bank phone lines are overloaded at times, so the easiest way to contact them is via email or through your broker.

Remember that a six-month mortgage holiday just gets added onto the principal, so if you can keep up with interest payments once the business is operational again, you should.

We're still open, remotely

Please contact us by email or phone as usual. Our direct dial numbers are diverted to our cellphones, so that is the quickest way to call us. We are working hard to support you and your businesses. So please let us know if you need help to set up instalment arrangements, pay staff, prepare cashflow budgets or any other business matters.

-          Serena Irving, JDW Chartered Accountants

 Download a PDF copy here, or contact the author by email.

 

Serena Irving is a director in JDW Chartered Accountants Limited, Ellerslie, Auckland. JDW is a professional team of qualified accountants, auditors, business consultants, tax advisors, trust and business valuation specialists.

 

 

Useful links:

Message from Spice HR

https://workandincome.govt.nz/documents/eligibility/emergencies/covid-19/wage-subsidy-and-leave-payment-employer-support-factsheet.pdf

https://covid19.govt.nz/government-actions/covid-19-alert-level/essential-businesses/

https://www.health.govt.nz/our-work/diseases-and-conditions/covid-19-novel-coronavirus