Like you, we are thinking through the potential financial impact of the COVID-19 pandemic and what it could mean for you in the coming months.
Our team has reviewed the $12.1bn fiscal package presented by the Finance Minister and we have every confidence that many of you will be able to access assistance over the coming months. Click here for more detail on the business support package
Be assured, we will work with you, to provide advice and support, keeping you well informed and up to date with developments and to make sure you and your business are as prepared as possible to weather the storm. We are working through the application process but there are complications, please get in touch to see how we can help you. it is important to note, while the actual application forms are relatively straightforward, you are signing a legal declaration and need to have supporting evidence to hand.
For ease of reference we provide further details below.
The Government announced a significant support package (originally $12.1 billion, now increased) on 17 March. It is important to note that the situation is fast moving, and this is the Government’s first support package. Additional measures will be announced in the 2020 Budget, due to be delivered on 14 May and we will keep you up-to-date as further measures are announced.
The package announced contains the following:
- $5.1 billion (now increased) in wage subsidies for affected businesses. Employers must have suffered, or are projected to suffer at least a 30% decline in revenue compared to last year for any month between January 2020 and the end of the scheme in June 2020. For businesses that have grown, or whose circumstances are materially different to last year, can now apply if they expect revenue to decrease by 30% in any month as compared to another comparable month (and that decrease is as a result of Covid-19). Support for qualifying businesses is $585.80 per week for a full time employee (20 hrs or more) or $350.00 per week for a part time employee (less than 20 hrs). The payment will be made as a lump sum for a period covering 12 weeks. This means employers will receive a payment of $7,029.60 for a full time employee and $4,200 for a part time employee. The maximum application threshold of $150,000 has now been removed. For further information and details of the application process, click here or contact us for assistance.
- $126 million in COVID-19 leave and self-isolation support. Provides support (through employers/to sole traders and the self-employed) for those people unable to work who are in self-isolation, are sick with COVID-19, or caring for others with COVID-19. The payments will be $585.80 per week for full time and $350 per week for part time worker. Employers apply for the leave on behalf of any employee who is self-isolating or sick. Payments can be backdated to 17 March, 2020.
- $2.8 billion income support package for our most vulnerable, including a permanent $25 per week benefit increase and a doubling of the Winter Energy Payment for 2020. There are three main changes to welfare settings.
- Main benefits will rise by $25 per week. These changes will come into effect on 1 April 2020 and are permanent.
- To support beneficiaries and superannuitants, the rate of Winter Energy Payment will double in 2020. This change is temporary.
- From 1 July 2020, working families with children who are not receiving a main benefit and have some level of employment income each week will no longer have to satisfy the hours test to receive the In Work Tax Credit.
- $2.8 billion in business tax changes – more information below.
- $500 million in additional health funding, to improve the COVID-19 response.
- $600 million to support the aviation sector.
Included in the Government’s support package are a number of tax measures to free up cashflow, including a provisional tax threshold lift, the reinstatement of building depreciation and writing off interest on the late payment of tax, specifically:
- Reinstatement of depreciation deductions on commercial and industrial buildings (including hotels and motels) from the 2021/22 tax year at the rate of 2% (DV) or 1.5% (SL);
- An increase in the threshold for deducting the full cost of low-value assets. Previously, assets with a cost under $500 could be fully deducted for tax purposes in the year purchased. This threshold is temporarily increased to $5,000 for the 2020/21 year before reducing to $1,000 thereafter.
- Increasing the provisional tax threshold to $5,000 from the 2020/21 year, removing some taxpayers from the requirement to pay provisional tax.
- Inland Revenue powers to waive interest on late tax payments for taxpayers who have had their ability to pay their tax on time significantly adversely affected by the COVID-19 outbreak. The relief will apply to interest on all tax payments (including provisional, PAYE, and GST) due on or after 14 February 2020.
We note, legislation has now been enacted for these changes.
We consider that these changes are substantial and will provide support to NZ businesses. However, these changes, and the wider package is not the lifeline many business will need in order to survive the disruption, and nor should it be. It is important that businesses identify and consider the risks they face, form Business Continuity Plans and review discretionary spending so as to come out the other side in the best position possible.
Important Actions to Take
Firstly, it is important to acknowledge that the situation is unprecedented and ever evolving. We encourage you to stay up to date with the latest information and guidelines and encourage you to refer to the Ministry of Health, MBIE and the World Health Organisation websites.
It is critical that you consider the impacts on both your business as well as your people. MBIE has recommended the following:
- Employers must take seriously and manage the health risks to workers and other people affected in the workplace and treat employees in good faith. Employers should plan ahead and work with workers and unions for likely scenarios of COVID-19.
- If a worker is sick with COVID-19, or required to self-isolate under Ministry of Health guidelines for COVID-19, the first consideration for an employer should be to look after people, contain COVID-19 and protect public health.
- Employers should not require or knowingly allow workers to come to a workplace when they are sick with COVID-19 or required to self-isolate under public health guidelines for COVID-19. If they do, they are likely to be in breach of their duties under the Health and Safety at Work Act.
- Employers and workers should consider whether working from home is practicable during the self-isolation period. In that case, the worker would be paid normally.
- If an employer requires an employee not to come to a workplace, an employee should be paid. Paid sick leave (and anticipated sick leave) may be used if the person is sick or needs to care for a sick dependent. If paid sick leave is not available, paid special leave should be considered. Other forms of paid leave can be used by agreement between the employer and the employee.
- If an employee, who is required to self-isolate under Ministry of Health guidelines for COVID-19, can’t practicably work from home, then special paid leave should be considered. Other forms of paid leave can be considered (such as paid sick leave) and used by agreement between the employer and the employee. The COVID-19 Leave Payment Scheme is available to support employers to pay employees in these circumstances. All workers will be eligible for the COVID-19 Leave Payment Scheme.
- Where a worker has not yet left New Zealand, but intends to do so, an employer may advise the worker that if they cannot agree how to manage the self-isolation period, then this will become unpaid leave. An employer may decline a new leave request for business reasons, where it is reasonable to do so.
- Contractor pay and leave is not covered by this guidance. Employers and contractors can agree to any payment arrangements they wish to. Contractors and the self-employed are eligible for the COVID-19 Leave Payment Scheme.
In our opinion, this is going to get a lot worse before it gets better. You need to plan for a worst case scenario. What would happen to your business if say there was a complete shutdown of our borders and/or business trade was restricted to essential services? From an accounting perspective, we recommend you do the following:
- Determine the risks to your business and form a business continuity plan that adequately addresses these. If you have an existing plan, review this now to ensure you are sufficiently prepared. Can you generate income by working from home, and if not, what can you do to enable this today.
- Consider your cash flows and review all discretionary spending. It is important to take steps to improve your cash position prior to feeling the full effects of COVID-19.
- Review and amend your forecasts in order to understand potential impacts.
- If you plan to have to have employees work from home where necessary, stress test all required systems in advance (we recommend a ‘dry run’ in advance).
- Discuss your situation with your advisors and utilise support offered. Unfortunately, it is often times like these that weaknesses are exposed and now may be the time to review and refine your business strategy to help you remain focused on the bigger picture. Our advisors are available to provide guidance and assistance as required, contact us.
- Discuss your situation with your bankers in advance and keep this dialogue ongoing.
- Is your stock perishable? Do you need to clear and sell through perishable items at discount?
- If you are closing doors, bank cash, secure stock and important documents.
- Consider your and your staff’s mental health and provide any assistance you can. Keep your staff well informed. Remember, your staff can be there to help you recover from this.
- Set up any forward payments that need to be made, including payroll.
- Use any downtime effectively.