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Schemes to help businesses get through Covid-19

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The Government has recently produced several new Covid 19 schemes.

Covid 19 Resurgence Support Payments

The lower of

  • $1500 plus $400 per full-time equivalent employee (FTE) up to a maximum of 50 FTEs. Sole traders would therefore be entitled to $1900 or
  • Four times the actual revenue drop experienced by the applicant.

Employees working up to 20 hours per week are equivalent to 0.6 FTE. Those working more than 20 hours are full-time.

Applications for the payment will open in myIR for eligible businesses and organisations seven days after the alert level increase. They will remain open for a month after the return to alert level 1.

If the Government activates the scheme several times, affected businesses and organisations can make several applications for payments.

Inland Revenue will normally pay out within five working days of approving an application.

The payment must be used to cover business expenses. Payments received will contain GST output tax that needs to be returned and therefore you can claim GST input tax in the usual way on expenses incurred.

Payments received under the scheme are not subject to income tax, but the expenses funded by the payments are not tax-deductible.

Our comment: Logically, treat the expenses as tax-deductible and pay tax on the money received.

Eligibility criteria

  • A revenue decrease (or decrease in capital-raising ability) of at least 30 percent due to the higher alert level.
  • Businesses and organisations must have been in business for at least six months.
  • Applicants must be at least 18 years old at the time of application.
  • The business or organisation must be considered viable and ongoing.
  • Charities and non-profit organisations might be eligible, provided they meet the criteria.
  • State sector organisations are excluded but can apply to the Minister of Finance for exemption.
  • Passive income and all forms of rental income are excluded from the measurement of revenue.

Calculating drop in revenue

  • Apply standard accounting principles. Those who invoice their customers should calculate income on the basis of “entitle to bill”.
  • Use a continuous seven-day period where the first day is on or after the first day of the higher alert level. All seven days must be within the period of the higher alert level.
  • Compare the affected revenue with a typical seven-day revenue. That starts and ends in the six weeks before the higher alert level.
  • Actual figures must be used. Forecasts are not allowed.
  • Applicants need to keep records of their calculations.
  • Businesses with low revenue will have their payment capped at four times the amount their revenue has dropped during the seven-day period.
  • There is provision for dealing with seasonal businesses, groups of companies with common ownership and pre-revenue businesses.

Note this Resurgence Support Payment can be claimed in addition to wage subsidy.

Wages Subsidy Scheme

The Wages Subsidy Scheme is still running and claims can be made in addition to claims under other schemes. For businesses and the self-employed to be eligible they must experience a 40 percent drop in predicted or actual revenue over a consecutive 14-day period. This period is compared with a typical fortnightly revenue in the six weeks before the rise in alert level. It is no longer sufficient to demonstrate the fall in income is due to Covid-19.

To make the claim, you need to be able to show the revenue drop is due to a change in alert level as well.

The Covid-19 Leave Support Scheme

This scheme pays a lump sum and covers two weeks per eligible employee. It is paid as a flat rate of $1176.60 for people who were working 20 hours or more per week (full-time employees). For those working less than 20 hours per week the figure is $700. It is for those who can’t go to work because they have to self-isolate and they can’t work from home

Short-Term Absence Payment

From 9 February 2021 employees who need to miss work to stay home while waiting for a Covid-19 test result and who cannot work from home are entitled to a one-off payment of $350. The employer can apply for this only once for each eligible worker in any 30-day period unless a health official or doctor tells the worker to get another test. This payment is also available for self-employed workers.

Other support schemes

The Business Finance Guarantee Scheme has been extended to June 2021 and made more flexible.

The Small Business Cashflow Scheme has also been extended.