A Week in Review

Covid-19 Wage Subsidy – a recap 

With the multitude of questions I have been receiving over the past couple of weeks, mostly in regard to ‘whether I have an entitlement to claim the subsidy’, and the apparent level of confusion that still exists, I thought it would be worthwhile to provide a brief recap.

The Government’s support package when first introduced, contained both a Covid-19 wage subsidy payment and a Covid-19 leave payment, the latter targeted to those who had to stay at home (and could not work from home) due to either adhering to MOH quarantine guidelines, being sick themselves with Covid-19, or having to stay home to look after someone else who was sick with Covid-19.

Once NZ moved to Level 4 and everyone bar essential workers went into a 4-week lock down however, the Covid-19 leave payment was surplus to requirements, so all future applications were to be made under the Covid-19 wage subsidy scheme. Further modifications were also made to the subsidy rules, widening the entitlement criteria to essentially any NZ business which could show the 30% revenue reduction impact, thereby also including non-employees such as shareholders, partners and sole traders.

On the 2nd April, the Government announced a further support package for workers of essential businesses who were unable to go to work for various reasons (and cannot work from home) – self-isolating in accordance with MOH guidelines, those deemed at higher risk if they were to catch Covid-19 and those who have other household members deemed at higher risk if they were to catch Covid-19. The new support package was titled the Essential Workers Leave Scheme.

The first step in the process therefore, is to determine whether or not the applicant has experienced a minimum 30% decline in actual or predicted revenue over the period of a month, when compared with the same month last year, and that decline is related to COVID-19. Note that if the applicant is either a new business or a high growth one, then you should choose a recent 4-week period that would give you a best estimation of the revenue decline related to Covid-19.

If the applicant does meet the 30% revenue decline test, then you need to determine whether or not the applicant is an essential business (which you can attempt to establish by reading the guidance here – https://covid19.govt.nz/businesses-and-employees/essential-businesses/).
 
If the applicant is an essential business with the requisite 30% revenue decline, they can claim either the wage subsidy or the essential workers leave support (or both – as long as not for the same employee). It should be noted here that while the rates for both full-time and part-time workers are identical under either support package, the wage subsidy payment is a 12-week lump sum, whereas the essential workers leave support payment is a 4-week sum – although a further 4-week lump can be applied for in the 4th week of any employees 4-week period. Naturally the Government expects that the applicant will apply for the payment most appropriate to their particular employee’s situation.

If the applicant is not an essential business, but has the requisite 30% revenue decline, then they should apply for the 12-week wage subsidy.

If the applicant does not have the requisite 30% revenue decline, but they are an essential business, then they can still apply for the essential workers leave support payments for entitled employees.

So understanding the basics of who can apply and for what, other key factors to be aware of are – 

• you only need to show a 30% revenue reduction for a single 4-week period to receive the full 12-week lump sum;
   
• you should be able to show that you took active steps to mitigate the financial impact of COVID-19, which could include drawing from your cash reserves (as appropriate), activating your business continuity plan, making an insurance claim, proactively engaging with your bank or seeking advice and support from either the Chamber of Commerce, a relevant industry association or the Regional Business Partner programme;
   
• where possible the employer should attempt to use the subsidy to help them maintain at least 80% of the employees income, but this is no longer a criteria for making a subsidy application. At the very least the full subsidy should be paid to the employee. It is also important to note that Covid-19 has no impact on existing employment legislation. Consequently any reduction in wages should still be agreed between the employee and the employer, otherwise the employer could be exposed to claims as a result of breaching their legal obligations under employment law.
   
• all Covid-19 payments are exempt from GST (so no output tax exposures for the applicant), are exempt from income tax for employers (but equally the wages paid via the subsidy are not tax deductible), are assessable income for the self-employed (as the repayments replace lost income) and when paid to employees are subject to normal deductions (PAYE, KiwiSaver etc – note in this regard there is no “grossing-up” of the subsidy payment – e.g. it’s $585.80 less PAYE);
   
• if the details you provide on your application form do not match those held by IR, then you may find that your application is declined. If this occurs, then either check with IR and then reapply using corrected details, or request a review of the decision (via the method indicated on the email you will receive advising you that the application has been declined); 
   
• if the part-time subsidy amount ($350 per week) exceeds what you would usually pay your part-time employees, then you should be paying them 100% of their income still, and then use any excess to support wage payments to your other employees. The wage subsidy can only be used for wages, and there is now a Wage Subsidy Employer search link, which details what employers have been paid out, for how many employees and for how much;
   
• any applicant must agree to meet certain obligations, which includes retaining employees for which the subsidy has been claimed, for the minimum 12-week subsidy period. If the applicant does not retain the employees, then they have breached the subsidy criteria and will be exposed to having to repay the subsidy. Note however that if an employee voluntarily leaves during the 12-week subsidy period, the remaining subsidy amount does not need to be repaid; and
   
• an applicant will also need to repay the subsidy if they no longer meet the criteria for the subsidy, they have received insurance (e.g., business continuity insurance) for any costs covered by the subsidy, they are found to have provided false or misleading information in the application or they think they need to pay back some or all of the COVID-19 Wage Subsidy because they think they were overpaid or made a mistake on their application.

A full list of FAQ’s can be located here – https://workandincome.govt.nz/products/a-z-benefits/employer-questions-and-answers.html The Government is due to announce further support packages on Wednesday the 15th April, so watch this space in next week’s AWIR for details.

IR provides UOMI remission guidance

The COVID-19 Response (Taxation and Social Assistance Urgent Measures) Act 2020 was passed under urgency on 25 March 2020, containing new section 183ABAB of the Tax Administration Act 1994, which gives the Commissioner a discretion to remit UOMI (use of money interest) on overdue tax payments.

IR has now issued guidance which is intended to provide clarity on the remission of UOMI and other measures available to taxpayers who are struggling to pay their tax in full and on time as a result of the COVID-19 crisis. 
To be eligible for remittance of UOMI and penalties, a taxpayer must meet the following criteria: 

• the taxpayer has tax that is due on or after 14 February 2020, and
   
• the taxpayer’s ability to pay by the due date, either physically or financially, has been significantly adversely affected by COVID-19. 

The Commissioner may exercise her discretion to remit the interest if the taxpayer has contacted the Commissioner as soon as practicable to request relief and has paid the outstanding tax as soon as practicable. 
The Commissioner’s ability to exercise the discretion applies until 25 March 2022.

The two key elements that IR has identified in the guidance are determining when a taxpayer has been significantly adversely affected by Covid-19, and what does the term “as soon as practicable” mean with respect to the taxpayer making contact with IR.

In this regard:

Significantly adversely affected by COVID-19 – a taxpayer has been “significantly adversely affected by COVID-19” financially where their income or revenue has reduced as a consequence of COVID-19 and, as a result of that reduction in income or revenue, is unable to pay their taxes in full and on time. Taxpayers taking this positon may be asked to provide at least three months’ banks statements and/or credit card statements, any management accounting information and a list of aged creditors and debtors in order to satisfy IR of the effect Covid-19 has had on the business. 

As soon as practicable – will be determined on the facts of each case. For guidance, the Commissioner considers the term means that so long as the taxpayer applies for the relief at the earliest opportunity and agrees to an arrangement that will see the outstanding tax paid at the earliest opportunity, or will be paid over the most reasonable period given the taxpayer’s specific circumstances, the test will have been met. 

Alternative to UOMI remission relief, taxpayers who can show a Covid-19 impact could also apply to IR to:

• enter into an instalment arrangement (perhaps with a deferred payment start date);
   
• partially write-off the debt due to serious hardship, with payment of the remaining tax by instalment or a lump sum;
   
• allow a partial payment, and write-off the balance; or,
   
• write-off the debt due to serious hardship.

It should be noted that IR still expects all tax returns to be filed on time, regardless of any difficulties the taxpayer may presently be experiencing with respect to paying the associated taxes.