As you are most likely aware, there are a range of grants available from Government and a number of tax changes have been implemented by Inland Revenue to support Kiwi businesses. Please take some time to read the following information which covers:
- the Government’s support package for businesses
- how to account for wage subsidies in your accounting software
Please get in touch with us if you need support or advice about Government support available.
Government’s support package for businesses
The Government has announced a substantial fiscal and economic response to the COVID-19 pandemic. It is expected that if required, additional economic stimulus will be implemented to maintain the workforce capability of New Zealand businesses.
E-commerce funding and incentives
Hon Grant Robertson allocated $10 million in his 2020 Budget to help small businesses improve their e-commerce service offerings; this package includes grants and incentives for e-commerce implementation. The funding acknowledges the importance of e-commerce during times of disruption and will also go towards training for more digital advisers to support SMEs as they incorporate this technology into their business operations. The fund is supported by an additional $12.5 million to advance the trans-Tasman e-invoicing programme.
Small Business Loan Scheme (SBCS)
The Government is now providing one-off interest-free loans for a year to SMEs impacted by COVID-19. The SBCS has been set up to support affected business’s immediate cashflow needs and for those that are experiencing loss of actual or predicted revenue. Eligible companies are those that employ 50 or fewer people, and the maximum amount loaned is $10,000 plus $1,800 per full-time-equivalent employee. Repayments are not required for the first two years. Loans that are paid back within in a year will not incur any interest; after that period, an interest rate of 3% for a maximum of five years will apply. Applications close on 24 July 2020. The scheme is being managed by Inland Revenue; more information about how to apply can be found here.
Wage subsidies and leave grants
A portion of this package has been established to support employees of businesses and the self-employed, it comprises targeted wage and leave grants. There is an expectation (and now a requirement) that the subsidies and grants are effectively paid to the employee and are not for the purpose of alleviating profit impairment in the business.
This grant has been set up to help businesses continue to employ staff and is available to employers, contractors, sole traders and the self-employed.
The subsidy is $585.80 per full-time employee (works more than 20 hours a week) and $350 for each part-time employee (works less than 20 hours a week). The grant is for 12 weeks’ worth of wages for each employee and is paid to the employer in a lump sum.
To qualify for the wage grant, employers must be able to confirm:
- a significant impact of COVID-19, being a 30% decline in actual or expected revenue in any month from January to June 2020
- they have tried alternative means to manage the effects of the decline, for example, reaching out to your bank
- a best endeavours commitment to paying employees 80% of their normal income during the subsidy period, or if they cannot do so that at a minimum, the grant is paid to the employee in full.
The leave grant was put in place to support self-isolation measures to prevent the spread of COVID-19. It was available for employers, contractors, sole traders and the self-employed where there was a requirement for them or their staff or a dependent to self-isolate, and they could not work from home.
The leave payment was $585.80 per week per full time employee (works more than 20 hours a week) or $350 per week for each part time employee (works less than 20 hours a week).
Today, it was announced that this grant has now been folded into the wage subsidy as it was put in place before the lockdown commenced for people who had to self- isolate, and now that everyone has to self-isolate, the Government wants to ensure people are not ‘double dipping’ on the grants.
Follow the links below to apply for the subsidies that are applicable to your business. Be sure to contact your Grant Thornton adviser if you need support or advice when making your application.
Wage subsidy and leave payment application forms:
Wage subsidies for large businesses:
Business Finance Guarantee Scheme
The Government has also announced a scheme that will provide short-term credit to cushion the financial distress on solvent small and medium-sized firms affected by the COVID-19 crisis. The Government will carry 80 per cent of the credit risk, the other 20 per cent will be carried by the banks. The loans still need to be repaid, but the Government carrying 80% of the credit risk is intended to make it easier for the bank to make the loan under normal criteria.
NZTE support for businesses impacted by COVID-19
The Government has provided New Zealand Trade & Enterprise (NZTE) with additional funding for Kiwi businesses impacted by COVID-19. Companies can apply for up to $5,000 in funding to access certain business consultancy services; Grant Thornton New Zealand has been approved to provide finance and cashflow management, and business continuity planning services under NZTE’s COVID-19 support programme. We can also help guide you through the application process. More information about eligibility criteria and how to apply can be found here.
- Businesses with turnover between $250,000 and $80 million will be eligible for loans
- Up to $500,000 will be loaned for a term of up to three years and is expected to be provided by the banks at competitive, transparent rates
- The banks, not the Government, will make decisions on whether the businesses should be eligible for the loans.
How to treat wage subsidies in your accounting software
We are receiving a lot of enquires about how to account for wage subsidies. Here are some key things to note:
- The subsidy is not subject to GST and is non-taxable income in the hands of the employer
- We suggest that you create a new code in the Revenue section in your accounting system’s chart of accounts called "Wage Subsidy Received" and make it a No GST code
- When you start paying the subsidy amounts to employees through your payroll system, normal deductions like PAYE and KiwiSaver still need to be made
- The wage subsidy portion of your payroll is also non-deductible for tax purposes, so we recommend setting up another code to capture this portion of your wage bill. This will help you easily track how much has been paid and the balance remaining
How Grant Thornton can help your business
Your Grant Thornton advisor can assist you with applying for any of the Government grants outlined above. We can also help you identify steps to manage your cashflow and any decline in revenue that your business is currently experiencing.
Take care and keep in touch
As a valued client of Grant Thornton, we are committed to supporting you through this time of unprecedented uncertainty. The key piece of advice we can give you and your teams is to avoid focusing on the challenges beyond your control, particularly the macro-economic climate created by this pandemic, and to focus your energy on the micro-economic measures you can take within your business – measures that are within your control.
We here to help get you through this challenging time and hope that you, your teams and other stakeholders remain well – we’re all in this together.