ALERT MEMORANDUM COVID-19: UK Government’s Latest Measures to Support Businesses

Updated July 17, 2020 If you have any questions concerning This memorandum updates the position as at July 17, this memorandum, please reach out to your regular firm contact or the 2020 in relation to the UK government’s following authors “unprecedented” economic measures to support UK businesses and mitigate the economic disruption caused LONDON by the coronavirus pandemic (“COVID-19”). Since Nallini Puri + 44 20 7614 2289 March 2020, a number of measures have been [email protected] implemented and/or announced and the official Jennifer Maskell guidance has evolved. In particular, the Chancellor’s +44 20 7614 2325 ‘summer economic update’, delivered on July 8, 2020, [email protected] included a number of measures to assist businesses and Melissa Reid 1 individuals . +44 20 7614 2395 [email protected] As part of these measures, the UK government is making available to UK businesses an initial £330 billion of government- Ferdisha Snagg backed and guaranteed loans, making a material contribution to +44 20 7614 2251 the salary and wage bills of those who are furloughed in [email protected] connection with the pandemic, and financially supporting the Bree Morgan-Davies self-employed. HM Treasury and the Bank of England (the +44 20 7614 2223 “Bank”) are also providing major financing schemes to help UK [email protected] businesses bridge COVID-19 related disruption to their cash flows. Eloise Skinner +44 20 7614 2296 The UK government has obtained new legal powers via the [email protected] Coronavirus Act 2020 (the “Act”), which received royal assent on Frederick Howell March 25, 2020 after a rapid passage through parliament. The Act +44 20 7614 2347 enables the UK government to offer any further financial support [email protected] that is required in order to prevent, mitigate or compensate for the impact of COVID-19 on UK businesses. This memorandum outlines the economic and fiscal measures implemented and/or proposed by the UK government and certain other developments likely to be relevant to UK businesses.

1 See: https://www.gov.uk/government/speeches/a-plan-for-jobs-speech clearygottlieb.com © Cleary Gottlieb Steen & Hamilton LLP, 2020. All rights reserved. This memorandum was prepared as a service to clients and other friends of Cleary Gottlieb to report on recent developments that may be of interest to them. The information in it is therefore general, and should not be considered or relied on as legal advice. Throughout this memorandum, “Cleary Gottlieb” and the “firm” refer to Cleary Gottlieb Steen & Hamilton LLP and its affiliated entities in certain jurisdictions, and the term “offices” includes offices of those affiliated entities.

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Directions”234), the UK government has I. Bank Rate cut confirmed the following: The Bank’s Monetary Policy Committee A. Who can claim? (“MPC”) voted at a special meeting on March 10, 2020 to cut the Bank’s base rate of interest  The scheme is available to any business, (“Bank Rate”) by 50 basis points to 0.25%. charity, recruitment agency, individua l However, by March 19, 2020, the MPC found employer and public authority who that conditions in the UK gilt market had established a UK ‘Pay As You Earn’ deteriorated, and UK and global financial (“PAYE”) payroll scheme on or before conditions had generally tightened, prompting March 19, 2020, and has a UK bank the MPC to reduce Bank Rate further to 0.1%, its account. There is no requirement that an lowest level ever. Since May 6, 2020, the MPC organisation be incorporated in the UK. has voted unanimously to maintain Bank Rate at  Whilst the scheme is intended to help 0.1%. employers whose operations have been The reduction in Bank Rate is intended to support severely affected by the pandemic, there business and consumer confidence during the is no requirement to demonstrate such COVID-19 outbreak and bolster the cash flows of impact when making a claim under the businesses and households. It reduces the cost, scheme, as the UK government has and improves the availability, of finance – handy, acknowledged that different businesses given the significant funding measures included will face different impacts from in the package of measures (and discussed COVID-19. Indeed, the Treasury below). Directions formally extend the scheme to any employees who are furloughed, “by II. Salary and wage support for all UK reason of circumstances arising as a employers result of coronavirus or coronavirus On March 20, 2020, the Chancellor announced disease”. the ‘Coronavirus Job Retention Scheme’, B. Who is an ‘employee’ for this purpose? pursuant to which any UK employer, regardless of size and sector, can receive government  Provided that they were hired, were on a funding to cover 80% of an employee’s salary or PAYE payroll and had been notified to wage, up to a maximum of £2,500 per month, if HMRC via a ‘Real Time Information’ they are furloughed but kept on the payroll in PAYE submission (“RTI”) on or before connection with the pandemic, rather than made March 19, 2020, claims can be made in redundant. Employers can top up the amounts respect of any employee regardless of paid by the UK government, but they do not have whether they are employed on an to (although see further below regarding holiday indefinite or fixed-term contract or on a pay). full-time, part-time or zero-hours basis.  Claims can also be made in respect of the In a series of subsequent guidance notes, and following, provided they are paid through directions given on April 15, 2020, May 20, 2020 PAYE: (i) office holders such as and June 25, 2020 by HM Treasury to the UK’s company directors (including those who tax authority, HM Revenue & Customs are paid annually); (ii) members of (“HMRC”) pursuant to the Act (the “Treasury limited liability partnerships (“LLPs”)

2 See: https://www.gov.uk/government/publications/treasury- 4 See: direction-made-under-sections-71-and-76-of-the-coronavirus- https://assets.publishing.service.gov.uk/government/uploads/syst act-2020 em/uploads/attachment_data/file/895778/Further_Treasury_Dire 3 See: ction_made_on_25_June_2020_under_Sections_71_and_76_of_ https://assets.publishing.service.gov.uk/government/uploads/syst the_Coronavirus_Act_2020.pdf em/uploads/attachment_data/file/886959/CJRS_DIRECTION_N o2___20_05_2020.pdf#Second%20Treasury%20Direction

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who are treated as employees for UK tax employees would not qualify for purposes (so called ‘salaried members’); Statutory Sick Pay whilst on furlough). (iii) agency workers; (iv) apprentices; and  However, the scheme is not intended to (v) so-called ‘limb (b) workers’, who are apply to employees during short-term individuals that have contracted to periods of incapacity for work or while perform work or provide services they are self-isolating in accordance with personally but are neither employees nor government guidance.6 Such employees independent contractors (for simplicity, should instead receive Statutory Sick Pay we use the term ‘employees’ and (see further, part III para G. below) and ‘employers’ in this part II). may be entitled to receive enhanced  The scheme is also available to contractual sick pay from their employer employees who were made redundant or during the relevant period, but can be otherwise stopped working on or after furloughed thereafter. If an employee February 28, 2020 or on or after March becomes sick whilst on furlough it is up 19, 2020 if they are re-employed and then to the employer to decide whether to furloughed, subject to having been hired, move them onto sick pay or keep them on on a PAYE payroll and notified in an RTI their furloughed rate of pay. submission on or before February 28,  Foreign nationals on all categories of visa 2020 or March 19, 2020, as applicable. can be furloughed and, for internationally  Employees put on unpaid leave on or after mobile employees or in cross-border February 28, 2020 are eligible to be situations, the test is simply whether an furloughed instead (no claim may be employee was, as at March 19, 2020, paid made under the scheme in respect of the via a UK PAYE payroll scheme unpaid leave period), whilst those who (essentially, an employee who has been were already on a sabbatical or unpaid ‘paying in’ to the UK tax and social leave on that date can be furloughed only security system). This will have been after their originally agreed or determined, for the 2019-20 tax year, by contemplated return date. considering whether a particular  The UK government has confirmed that employee is ‘resident’ and/or ‘domiciled’ employees who transfer by operation of in the UK for tax purposes (or is the Transfer of Undertakings (Protection performing duties in the UK that are more of Employment) Regulations 2006 after than just incidental to non-UK duties), February 28, 2020 can be furloughed by and whether the employer has ‘sufficient their new employer. connection’ in the UK to be subject to the  The UK government has also clarified PAYE regime. that employees who are unable to work, C. What can be claimed? including from home, because they have caring responsibilities resulting from  Until July 31, 2020, an employer can COVID-19 can be furloughed (for claim 80% of an eligible employee’s example, parents who need to look after gross regular salary or wage (as in the last children following school closures). pay period prior to March 19, 2020), up to  Vulnerable employees shielding (or a maximum of £2,500 per month. staying at home with someone who is Detailed guidance on how to calculate shielding) in accordance with government guidance5 can also be furloughed (such

5 See: https://www.gov.uk/government/publications/guidance- 6 See: https://www.gov.uk/government/publications/covid-19- on-shielding-and-protecting-extremely-vulnerable-persons-from- stay-at-home-guidance/stay-at-home-guidance-for-households- covid-19/guidance-on-shielding-and-protecting-extremely- with-possible-coronavirus-covid-19-infection vulnerable-persons-from-covid-19

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this amount is available,7 as well as a  For a salaried member of an LLP, the helpful online calculator8 and a step by relevant amount is the member’s profit step guide9 to make a claim via the online allocation, excluding any amounts which portal10. Please see below for changes to are determined by their performance or the amounts that can be claimed under the the overall performance of the LLP. scheme from August 1, 2020 onwards.  Claims under the scheme can be  An employer can, in addition to the backdated to March 1, 2020. capped £2,500, claim the cost of paying D. What does being furloughed involve? employer National Insurance contributions and the minimum employer  An employee will be considered pension contributions required under the ‘furloughed’ if they are placed on a UK auto-enrolment regime in respect of temporary leave of absence by their the government-funded portion (for employer, for a minimum period of 21 which the employer remains responsible, calendar days, and they do not undertake unless an employee has opted out of auto- any work, provide any services or enrolment). generate any revenue for their employer  Where an employee’s pay varies and they (or any connected organisation) during have been employed for fewer than 12 that period. An initial furlough period can months, the claim amount should be an be extended for any period of time, and an average of their monthly earnings since employee can be furloughed more than starting work until being furloughed. If once. However, see below on ‘flexible they have been employed for more than furlough’ arrangements from July 1, 12 months, it should be the higher of the 2020. same month’s earnings in the previous  If the employee’s employment contract year or their average monthly earnings in allows, they may undertake other the 2019-20 tax year. If the relevant employment whilst their current employee has been working for the employer has placed them on furlough, employer for less than a month, the claim and this will not affect the amount that amount should be 80% of their earnings can be claimed under the scheme in so far. respect of that employee. The employee  An employee’s ‘regular salary or wage’ must, however, be able to return to work includes amounts that are neither for the employer that placed them on conditional nor discretionary (which furlough if that furlough is brought to an excludes tips, for example), does not end. constitute a benefit in kind, and does not  Employees can volunteer for other vary according to business or personal organisations, and undertaking training performance or the contribution made or directly relevant to their employer whilst duties performed by the employee, unless on furlough is encouraged. However, the variation arises from a legally employees must be paid at least the enforceable agreement, understanding, Apprenticeship Minimum Wage, scheme or transaction (so, in the case of National Living Wage or National commission, for example, it depends on Minimum Wage, as applicable, during the circumstances). any time spent training, and the training must not directly involve the provision of

7 See: https://www.gov.uk/guidance/work-out-80-of-your- 9 See: https://www.gov.uk/government/publications/coronavirus- employees-wages-to-claim-through-the-coronavirus-job- job-retention-scheme-step-by-step-guide-for-employers retention-scheme 10 See the “claim now” link: 8 See: https://www.tax.service.gov.uk/job-retention-scheme- https://www.gov.uk/guidance/claim-for-wages-through-the- calculator/ coronavirus-job-retention-scheme

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services, the generation of income or worker’, but the employee does not profit, or contribute to the business strictly need to provide a written response activities of the employer. where their agreement is valid as a matter  Company directors may, whilst on of employment law. This would allow an furlough, undertake work to fulfil their employee to give their agreement orally, statutory duties or obligations relating to or potentially for the employer to rely on the filing of company accounts or the deemed consent in appropriate provision of other information relating to circumstances where there are practical the administration of the company. They difficulties obtaining a more formal may also make claims under the scheme response. for company employees, and pay salaries  However, the employer must provide a and wages. formal ‘instruction’ (also described in the  Employees who act as union or non-union guidance as a ‘confirmation’ or representatives may undertake duties and ‘notification’) to cease all work in relation activities for purposes of individual or to their employment, and be furloughed. collective representation whilst on That communication must be in writing, furlough, provided they do not, in doing although may be in electronic form, and a so, provide any services or generate any copy must be retained until at least June revenue for their employer (or any 30, 2025. connected organisation).  In respect of office-holders and members  Employees will continue to accrue, and of LLPs, any furlough arrangement can take, annual leave whilst on furlough. should be adopted formally as a decision However, an employee’s normal rate of of the company or LLP. holiday pay will apply, meaning that the  If an employer has fewer than 100 UK government’s grant will need to be furloughed staff, claim details need to be topped up during holidays. entered individually in the online claim E. How do I put someone on furlough? portal (see link below), whereas employers with 100 or more furloughed  If any employee has been identified as staff can upload collated information in being at risk of redundancy, the option of certain types of electronic files. being placed on furlough could naturally F. When will the scheme end? be discussed in the context of individua l and/or collective consultation as a way of  The scheme closed to new entrants on avoiding (or postponing; the grant can be July 1: employers can only claim for used to pay notice pay prior to furlough periods after July 1 in respect of termination, but not to make a payment in employees who had previously been lieu of notice or to pay a statutory furloughed for at least 3 consecutive redundancy payment) the dismissal. weeks between March 1 and June 30 However, as a general matter, employers (essentially, were on furlough by June 10, are unlikely to have either an express or 2020). Employers have until July 31, implied unilateral right to place an 2020 to make any claims in respect of the employee on furlough on reduced pay, period to June 30, 2020. and so any such arrangement should be  The scheme will gradually be phased out discussed and agreed with each affected until its end date on October 31, 2020. employee (and/or their representatives in  From July 1, 2020 (a month earlier than the case of collective redundancies) as a previously announced) employers are temporary variation of contract. able to bring furloughed employees back  An employer must, in all cases, agree with to work for any amount of time, and on the employee that they are a ‘furloughed any shift pattern. These employees will be

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on ‘flexible furlough’. The employer will are able to work can do so, while still be able to claim under the scheme for remaining amongst the most generous in the employees’ normal hours not worked the world.” (subject to the caps applying prior to July G. Job Retention Bonus 1, 2020) but will have to pay in full for any hours worked (and will be  As part of the Chancellor’s “Plan for Jobs responsible for tax and National 2020” presented to Parliament on July 8, Insurance contributions on those 2020, the Chancellor announced that payments). To remain eligible for flexible businesses will receive a one-off Job furlough, employers must agree a new Retention Bonus (“JRB”) of £1,000 for flexible furloughing arrangement with each worker furloughed under the scheme their employees and confirm that who is brought back into work, and who agreement in writing. Guidance on remains in employment until at least flexible furloughing and how employers January 31, 2021. A ministerial direction can claim was published on July 1, was issued by the Chancellor on the JRB, 202011. in response to correspondence from the  From August 1, 2020, the level of UK Chief Executive of HMRC12. government grant will be slowly tapered III. Financial support for small- or medium- to reflect a gradual return to work, and sized UK businesses employers must begin to contribute to furloughed employees’ salaries. A. Term Funding Scheme  During August, the UK government will The MPC voted on March 19, 2020 to enlarge the continue to pay 80% of an eligible new Term Funding scheme with additional employee’s gross regular salary or wage, incentives for Small- and Medium-sized up to a maximum of £2,500 per month, Enterprises (“TFSME”), which was announced but employers cannot claim for the on March 11, 2020. The TFSME scheme will be associated National Insurance and financed by the issuance of central bank reserves. pension contributions. The TFSME scheme will offer, over the next 12  During September, the UK government’s months, 4-year funding of at least 10% (increased grant drops to 70% of an employee’s from an initial 5% allowance) of banks’ lending salary (up to a maximum of £2,187.50), to the real economy at interest rates at or close to with employers being required to top up Bank Rate. Additional funding will be available to 80%, and again with claims for the for banks that increase lending, especially to associated National Insurance and small- and medium-sized enterprises (“SMEs”). pension contributions precluded. It is anticipated that the TFSME scheme will:  During October, the UK government will only reimburse 60% of an employee’s  help transmit the effect of the reduction in salary (up to a maximum of £1,875), and Bank Rate to the real economy; employers must top up to 80% and pay  provide participants with a cost-effective associated National Insurance and source of funding to support additional pension contributions. lending to the real economy; and  The Chancellor said of these changes that  incentivise banks to: (i) provide credit to “now, as we begin to re-open our country businesses and households to bridge and kick-start our economy, these through a period of economic disruption; schemes will adjust to ensure those who and (ii) support lending to SMEs that

11 See: https://www.gov.uk/government/news/flexible-furlough- em/uploads/attachment_data/file/899022/Job_Retention_Bonus_ scheme-starts-today -_Ministerial_Direction.pdf 12 See: https://assets.publishing.service.gov.uk/government/uploads/syst

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typically bear the brunt of economic grade corporate bonds) will be funded by the downturns. issuance of central bank reserves. Eligible participants in the TFSME are banks and On April 2, 2020, the Bank announced that it building societies that are participants in the would utilise the Corporate Bond Purchase Bank’s Sterling Monetary Framework (“SMF”), Scheme (“CBPS”) that was launched in August and that are signed up to access the Discount 2016 to purchase at least £10 billion of eligible Window Facility (“DWF”). SMF participants sterling non-financial corporate bonds in coming that are not already signed up to the DWF can months, increasing the level of purchased apply for access alongside applying to use the corporate bonds to at least £20 billion. The Bank TFSME. Institutions that are not currently SMF has also increased the maximum purchase size participants can apply to join, subject to the per bond in each auction, as stipulated under the Bank’s usual eligibility criteria. Collateral must CBPS, from £10 million to £20 million. be pre-positioned with the Bank. Eligible An updated list of corporate bonds eligible for collateral consists of all collateral currently purchase under the scheme is available on the eligible in the SMF. Bank’s website.13 Eligible bonds comprise The TFSME opened for drawings on April 15, conventional investment-grade senior unsecured 2020, sooner than anticipated. The Bank or secured, unsubordinated debt securities that estimates that this scheme should lead to around are, inter alia, admitted to official listing on an £100 billion being provided in term funding. EU14 stock exchange and have a minimum residual maturity of 12 months (no perpetual On May 2, 2020, the Bank announced debt). On June 4, 2020, the Bank updated the list amendments to the TFSME to further support the new Bounce Back Loans Scheme (“BBLS”) of eligible securities to include additional bonds discussed below. These amendments enable with 3 months to maturity par call features. Bonds with complex or non-standard structures and TFSME participants to extend the term of some convertible or exchangeable bonds will not be funding they access via the TFSME to align with the 6-year term of loans provided through the eligible. BBLS. The amount of TFSME drawings that can Eligible issuers include companies (including be extended is expected to be determined in the their finance subsidiaries) that make a material first half of 2021, based on the quantity of BBLS contribution to the UK economy, subject to the loans outstanding at that time. restrictions set out above. Companies with significant employment in the UK or As of July 8, 2020, it was reported that over £18.3 billion of funding has been made available under headquartered in the UK will normally meet this the TFSME since the start of the COVID-19 requirement, but the Bank will also consider whether a company generates significant crisis. revenues in the UK, serves a large number of B. Asset Purchase Facility customers in the UK or has a number of operating On March 19, 2020, the MPC also voted to sites in the UK. Corporate bonds issued by banks, increase the Bank’s holdings of UK government building societies, insurance companies and other and corporate bonds by £200 billion (to a total of financial sector entities regulated by the Bank or £645 billion). The additional purchases of bonds the Financial Conduct Authority (“FCA”) will (the majority of which will comprise UK not be eligible. Bonds will also not be eligible if government bonds but will include some issued by leveraged investment vehicles or from additional sterling non-financial investment- companies within groups which are predominantly active in businesses subject to financial sector regulation.

13 See: https://www.bankofengland.co.uk/markets/bank-of- 14 We presume that this includes the UK. england-market-operations-guide/information-for-participants

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The Bank will undertake operations via reverse D. Coronavirus Business Interruption Loan auctions which began on April 7, 2020. The Bank Scheme intends to continue to hold three purchase On March 11, 2020 the Chancellor announced the operations a week on Tuesdays, Wednesdays and ‘Coronavirus Business Interruption Loan Thursdays. The Bank will keep the size of the Scheme’ (“CBILS”), a temporary loan scheme scheme and purchase pace under review in light delivered by the British Business Bank, which of prevailing market conditions and any future became available the week commencing MPC decisions. March 23, 2020. C. Contingent Term Repo Facility The scheme provides support to UK SMEs with On March 24, 2020, the Bank announced that it a turnover of no more than £45 million per year, was activating the ‘Contingent Term Repo for up to 6 years for term loans and asset finance Facility’ (“CTRF”) as a temporary enhancement facilities, and 3 years for overdrafts and invoice to its existing sterling liquidity insurance finance facilities. The scheme provides facilities with operations initially run on participating lenders with a government-backed March 26, 2020 and April 2, 2020. guarantee of 80% on each loan (subject to pre- lender cap on claims) of up to £5 million and, The CTRF is a flexible liquidity insurance tool with the UK government covering the first 12 that allows participants to borrow central bank reserves (cash), in all major currencies, in months of interest payments and any lender- exchange for collateral. Eligible collateral levied fees, seeks to bolster lenders’ confidence in continuing to provide financing to SMEs. comprises collateral assets eligible in the SMF. The CTRF is open to banks and building societies More than 90 accredited lenders including that signed up to the DWF. Barclays, RBS, HSBC and Lloyds are currently providing funds under the scheme as term loans, The CTRF provided funding for a period of either 1 or 3 months, allowing participants to use the overdrafts, or asset-based lending secured on CTRF as a way to bridge beyond the point at equipment or invoices. which drawings under the TFSME could be made Eligibility will be determined by application. The in order to support lending to the real economy as CBILS was initially limited to SMEs that were quickly as possible. unable to secure regular commercial financing. However, on April 2, 2020 the Chancellor The 3-month term and 1-month term CTRF operations were extended through May 2020 indicated that the scheme would be made after which, in light of more stable funding available to all viable SMEs affected by COVID-19, regardless of whether they could market conditions and usage patterns, the Bank secure commercial financing outside of the discontinued the 3-month term CTRF operations. On June 19, 2020, the Bank announced the scheme. discontinuation of the 1-month term CTRF For facilities below £250,000, the Chancellor operations, the final operation taking place on also confirmed that accredited lenders are not June 26, 2020. permitted to take a personal guarantee. For larger facilities, personal guarantees may still be The Bank’s regular liquidity insurance facilities required at a lender’s discretion; however, will continue to operate, including the 6-month Indexed Long-Term Repo which currently recoveries are capped at 20% of the outstanding operates weekly; and the on-demand DWF. balance of the facility after the proceeds of business assets have been applied. Furthermore, The Bank will keep the situation under review principal private residences cannot be taken as and has stated that operation of the CTRF can be security under the CBILS. These amendments reintroduced at any stage if justified by market will apply retroactively to any financing conditions. arrangements that have already been put into

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place under the scheme as well as all new start-up businesses to join, given the high facilities. demand. As of July 12, 2020, it was reported that £11.85 Continuity grants and loans scheme. The billion of loans had been approved under the package also included a further £750 million in CBILS since the start of the COVID-19 crisis.15 grants and loans that will be available through Innovate UK’s grants and loan scheme to SMEs E. Support for innovative businesses focusing on research and development. This On April 20, 2020 the Chancellor announced a scheme was launched on May 15, 2020. £1.25 billion COVID-19 support package to Under this scheme, up to £90 million was made assist businesses driving innovation in the UK (ranging from tech to life sciences), which may available in the form of continuity grants for be unable to access other business support SMEs and existing Innovate UK customers whose projects were at risk as a result of COVID- programmes (such as CBILS), and are reliant on 19. These grants aimed to support eligible equity investment. companies that expected to have a funding gap Future Fund. The government committed an (between £25,000 and £250,000), and was made initial £250 million towards a loan scheme (the available until May 29, 2020. “Future Fund”) for high-growth companies that have been impacted by COVID-19. The fund will Up to £210 million will also be made available in continuity loans to SMEs and third sector be delivered in partnership with the British organisations that are experiencing difficulties in Business Bank, and will provide funding from the government and the private sector on a match continuing a live project for which they have an funded basis. award from Innovate UK. These loans aim to support eligible companies that expect to have a The scheme aims to provide government loans to larger funding gap as a result of COVID-19 of UK-based companies ranging between £125,000 between £250,000 and £1.6 million. Continuity and £5 million, subject to at least equal match loans will be open for applications until the funding from private investors. It is intended that earlier of the date on which all available funds these loans will automatically convert into equity have been allocated or December 31, 2020.17 on the company’s next qualifying funding round, F. Bounce Back Loans or at the end of the loan term if they are not repaid. On May 4, 2020, HM Treasury and the Bank launched the BBLS to enable smaller businesses To be eligible for this scheme, a business must be to access financing more quickly during the an unlisted UK registered company that has previously raised at least £250,000 in equity COVID-19 crisis. Under this scheme, eligible investment from third party investors in the last 5 businesses may borrow up to 25% of their annual turnover, with the maximum loan amount capped years. at £50,000. The scheme opened for applications on May 20, Loans provided under the scheme will be fully 2020, and is expected to remain open until the guaranteed by the government, with no end of September 2020. As of July 12, it was reported that over £419.6 million of convertible repayments due and no fees or interest payable loans had been approved under the scheme16 – for the first 12 months, following which the interest rate on such loans will be 2.5% per exceeding the initial £250 million allocated by annum. Under the scheme, each loan will have a the Treasury. It is anticipated that the government will expand the scheme further to allow more 6-year term but may be repaid early without

15 See: https://www.gov.uk/government/collections/hm-treasury- 17See: https://www.gov.uk/government/publications/access- coronavirus-covid-19-business-loan-scheme-statistics coronovirus-business-innovation-support-package 16 See: https://www.gov.uk/government/collections/hm-treasury- coronavirus-covid-19-business-loan-scheme-statistics

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incurring any fees or penalties. It was reported There are currently 26 lenders participating in the that over £2 billion of loans were approved in the BBLS including many large retail banks. Banks first 24 hours of the launch of the BBLS. subject to the UK leverage ratio will also be able to apply to the PRA for a “modification by To be eligible, businesses must be based in the consent” allowing them to exclude loans under UK, must have been established before March 1, 2020 and must have been adversely impacted by the BBLS from the UK leverage ratio exposure the outbreak. Eligible businesses include banks, measure. insurers and reinsurers (but not insurance As of July 12, 2020, it was reported that £31.7 brokers); public-sector bodies; and state-funded billion of loans had been approved under the primary and secondary schools. Businesses BBLS since its implementation.18 already benefiting from the CBILS, CLBILS or G. Support for UK employers the CCFF (each as defined below under Part IV) will not be eligible. However, businesses that Under the ‘Coronavirus Statutory Sick Pay have already received a loan of up to £50,000 Rebate Scheme’, employers with fewer than 250 under one of these schemes can transfer it into the employees (which is estimated to include BBLS (to take advantage of the 6-year term, for approximately 2 million employers), as at example). Businesses seeking to transfer their February 28, 2020, are eligible for a government loans to the BBLS have until November 4, 2020 refund of up to 14 days of Statutory Sick Pay paid to arrange this with their lender. to any employee who, on or after March 13, 2020 is either ill or required to self-isolate because of The government has made changes to the COVID-19. Under the Act, an employer who Financial Services and Markets Act 2000 fraudulently or negligently receives a refund is (Regulated Activities) Order 2001, which defines liable to a penalty not exceeding £3,000. the “regulated activities” for which authorisation from the FCA or Prudential Regulation Authority Statutory Sick Pay is currently paid at a rate of (“PRA”) is needed in the UK. Lending under £95.85 per week to eligible employees on a five- BBLS that would otherwise have resulted in day work schedule (with different amounts regulated credit agreements (i.e., loans of payable to those on other types of schedules), for £25,000 or under to sole traders, certain small up to 28 weeks in any period of incapacity for partnerships and other relevant small businesses) work or in any series of linked periods of will fall outside regulated lending activity. This incapacity for work. The online claim portal is means that the usual regulatory regime that now open19. applies to regulated credit agreements, including With effect from March 13, 2020, the eligibility the requirements in the Consumer Credit Act criteria for Statutory Sick Pay were also relaxed 1974 (the “CCA”), will not apply to lending or in two respects: post-lending (other than debt collecting) activity under BBLS. In addition, primary legislation,  Statutory Sick Pay is payable from the intended to have retrospective effect from May 4, first day of sickness absence, as an 2020, will also be introduced to disapply sections enhancement to the usual rule (which 140A-140C of the CCA for BBLS lending. These provides for payment from the fourth sections cover the ability of the court to make qualifying day in any period of incapacity determinations on the fairness of the relationships for work); and between debtors and creditors, which would limit  Statutory Sick Pay is payable to any the scope of any complaints or claims raised by employee who is ill because of borrowers. COVID-19, or who is following UK

18 See: https://www.gov.uk/government/collections/hm-treasury- 19 See: https://www.gov.uk/guidance/claim-back-statutory-sick- coronavirus-covid-19-business-loan-scheme-statistics pay-paid-to-your-employees-due-to-coronavirus-covid-19

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government advice20 to self-isolate or UK incorporated companies, including those shield, whether or not they are ill or with foreign-incorporated parents and a genuine showing any symptoms of COVID-19. business in the UK, companies with significant H. Grants for certain small enterprises employment in the UK or firms with their headquarters in the UK, should normally qualify Approximately 700,000 small businesses that for the CCFF scheme. Eligibility decisions will already pay little or no business rates are eligible be made by the Bank’s risk management staff. for £10,000 grants to help meet business costs Commercial paper issued by non-bank financial (the UK government estimates that this is roughly companies will, in principle, be eligible, subject the cost of 3 months of rent). Local authorities to the Bank being satisfied that the company will write to businesses that are eligible for makes a material contribution to corporate grants, and funding commenced in early April financing in the UK. 2020. Commercial paper issued by leveraged Additionally, a cash grant of up to £25,000 may investment vehicles or from companies within be available for businesses in the retail, groups that are predominantly banks, investment hospitality and leisure sectors operating from banks or building societies will not be eligible. premises that have a rateable value (for business Purchases will be made in the primary market via rates purposes) of over £15,000 and less than £51,000. eligible dealers and after issuance from eligible counterparties in the secondary market. IV. Financial support for larger UK The CCFF will operate for an initial period of 12 businesses months, and the Bank will provide 6 months’ A. Covid Corporate Financing Facility notice of withdrawal of the facility. On March 23, 2020, HM Treasury and the Bank On May 19, 2020, HM Treasury announced that launched the ‘Covid Corporate Financing companies receiving funding under the CCFF for Facility’ (“CCFF”) to provide funding to a term extending beyond May 19, 2021 will be businesses by purchasing, at a minimum spread required to exercise restraint in respect of over reference rates, newly issued commercial dividend payments and other capital distributions paper of up to 1-year maturity and meeting as well as senior pay. Issuers will be required to certain other eligibility criteria issued by non- provide a letter of commitment in relation to this financial businesses (including their finance if an increase in an issuer’s CCFF limit, over and subsidiaries) which are considered to make a above that suggested by the issuer’s investment material contribution to the UK economy. rating, is requested and approved; and/or a CCFF Funding under the scheme is provided on terms transaction is entered which involves CP comparable to those prevailing in markets in the maturing on or after May 19, 2021. Companies period before the COVID-19 economic shock, participating in the scheme will also be able to and is open to firms that can demonstrate they repay their drawings early, at their discretion. were in sound financial health prior to the shock Since June 4, 2020, HM Treasury and the Bank (i.e., companies that had a short- or long-term also publish the names of businesses that have rating of investment grade, as at March 1, 2020, drawn funds under the CCFF, as well as the or equivalent). The scheme is intended to help amounts borrowed under the scheme every such businesses across a range of sectors that Thursday at 3:00 pm (GMT). Publication is have been affected by a short-term disruption of intended to make the scheme more transparent cash flow to finance their short-term liabilities.

20 See: https://www.nhs.uk/conditions/coronavirus-covid- 19/what-to-do-if-you-or-someone-you-live-with-has- coronavirus-symptoms/

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and enable participating businesses to claims are capped at 20% of losses after other demonstrate their access to the scheme. recoveries have been applied. More information regarding the operation of the Businesses in all sectors are eligible to apply for CCFF can be found in our memorandum21 and on CLBILS (including companies backed by a the Bank’s website.22 As of July 8, 2020, it was private-equity sponsor, which will be treated as reported that around £18.25 billion of support has standalone applicants for the scheme and whose been made available under the CCFF. turnover will be assessed independently from the B. Coronavirus Large Business Interruption sponsor’s other investment portfolio companies) with the exception of banks and building Loan Scheme societies, insurers and reinsurers (but not On April 2, 2020, HM Treasury announced the insurance brokers), public sector organisations, ‘Coronavirus Large Business Interruption Loan including state-funded primary and secondary Scheme’ (“CLBILS”) which is intended to schools. Businesses that have received support provide support to larger UK businesses which under the CCFF are also precluded from are unable to obtain relief under the CBILS (see accessing funding under this scheme. part III para D. above). The scheme aims to The scheme will help give eligible businesses support UK businesses that were viable before access to term loans, revolving credit facilities the COVID-19 outbreak but which now face (including overdrafts), invoice finance and asset significant cash flow difficulties, and are unable finance. It is intended that facilities backed by a to secure standard commercial financing. The guarantee under CLBILS will be offered at CLBILS launched on April 20, 2020 and was commercial rates of interest. updated on May 19, 2020. Borrowings under the CLBILS which are larger The scheme will provide participating accredited than £50 million will be subject to restrictions on lenders with a government-backed partial dividend payments, senior pay and share guarantee (80%) on each loan provided under the buybacks during the term of the loan, including a scheme. There are currently 19 accredited lenders ban on dividend payments and cash bonuses. taking part in the scheme. Lenders can provide Borrowers may, however, make dividend loans of: (i) up to £25 million to UK businesses payments to the extent these were declared before with an annual turnover of over £45 million up to the loan was taken out. Under the restrictions on £250 million; and (ii) up to £50 million to UK executive pay, borrowers cannot pay any cash businesses with an annual turnover of over £250 bonuses or award pay rises to senior management million, available on repayment terms of up to 3 (including the board) except in cases where such years, in order to encourage lending to medium- payments: sized and larger UK businesses. On May 19, 2020, HM Treasury announced that loan amounts  were declared before the CLBILS loan for eligible firms with a turnover of over £250 was taken out; million would be increased from £50 million to  are in line with similar payments made in the lesser of 25% of a firm’s turnover or £200 the preceding 12 months; and million. This change came into effect on May 26,  would not have a material negative 2020. impact on the borrower’s ability to repay the loan. Lenders are not permitted to take personal guarantees of any form in respect of facilities Further details regarding the CLBILS are below £250,000. For facilities above £250,000, available on the British Business Bank’s personal guarantees may still be required but

21 See: https://www.clearygottlieb.com/news-and- 22 See: https://www.bankofengland.co.uk/markets/covid- insights/publication-listing/covid19-covid-corporate-financing- corporate-financing-facility facility-explained

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website23 and set out in our memorandum.24 As and are able to confirm to HMRC that of July 12, 2020, it was reported that over £2.7 your business has been adversely affected billion of loans had been approved under the by COVID-19 or your business could be CLBILS since the start of the COVID-19 crisis. 25 adversely affected by COVID-19 because you are unable to work as you are V. Financial support for the self-employed and shielding, self-isolating, or have caring for members of partnerships responsibilities, or you have had to scale Through guidance notes and two directions given down or suspend trading due to your on April 30, 2020 and July 1, 20202627 by HM supply chain being interrupted or your Treasury to HMRC, pursuant to the Act, the UK staff being unable to work; government has confirmed the creation,  You have either filed a tax return for the modification and extension of the ‘Self- 2018-19 tax year as self-employed or as a Employment Income Support Scheme’. Under member of a trading partnership or, if you this scheme, the UK government is providing were late to file, you did so before financial support to the self-employed (including April 23, 2020; members of partnerships) at a level which is  You traded in the 2019-20 tax year, you comparable to that provided to employees under are trading (or would be except for the Coronavirus Job Retention Scheme (see part COVID-19) when you apply for the grant, II above). and you intend to continue to trade in the Two separate grants can be claimed under the 2020-21 tax year; and scheme: (i) first, a grant equal to 80% of average  You have trading profits of no more than monthly trading profits, up to a cap of £7,500, £50,000, and they are at least equal to which is paid in a single instalment covering your non-trading income. March, April and May 2020; and (ii) second, a grant equal to 70% of average monthly trading Grants under the scheme are not considered profits, up to a cap of £6,570, which is paid in a ‘access to public funds’ and consequently one can single instalment covering June, July and August claim for the grants on all categories of work visa. 2020. Unlike the Coronavirus Job Retention The Chancellor believes that 95% of those who Scheme, recipients of the grant can continue to receive the majority of their income from self- work or take on other employment, including employment or trading partnerships will qualify voluntary work, during the claim period. under the scheme; the remaining 5% having an Grants under the scheme are subject to income average income of c.£200,000. tax and self-employed National Insurance The online claim service for the first grant28 contributions. opened on May 13, 2020. HMRC have also been The scheme is available if: contacting potentially eligible individua ls directly since May 4, 2020, and inviting  You are a self-employed individual or a applications. Claims for this first grant closed on member of a partnership in the UK; July 13, 2020. The online claim service for the  You have lost trading or partnership trading profits as a result of COVID-19,

23 See: https://www.british-business- 26 See: bank.co.uk/ourpartners/coronavirus-business-interruption-loan- https://assets.publishing.service.gov.uk/government/uploads/syst schemes/clbils/faqs-for-businesses/#f7 em/uploads/attachment_data/file/882593/SEISS_Direction_Final 24 See: https://www.clearygottlieb.com/-/media/files/alert- _-_SIGNED.pdf memos-2020/coronavirus-large-business-interruption-loan- 27 See: scheme-pdf.pdf https://assets.publishing.service.gov.uk/government/uploads/syst 25 See: https://www.gov.uk/government/collections/hm- em/uploads/attachment_data/file/897184/SEISS_Extension_Dire treasury-coronavirus-covid-19-business-loan-scheme-statistics ction_final_19_Oct_closure_date_-_FINAL_SIGNED.pdf 28 See: https://www.gov.uk/guidance/claim-a-grant-through-the- self-employment-income-support-scheme

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second and final grant will open on August 17, Japan, the European Central Bank, the Federal 2020. Reserve and the Swiss National Bank in Interestingly, in an early public address on the increasing the frequency of 7-day maturity operations on their standing US dollar liquidity topic of this scheme, the Chancellor made what swap lines, which are an important liquidity he called a “fair and reasonable observation” on the UK tax and social security system, noting that backstop to mitigate strains in global funding in light of parity between the scheme and the markets, from weekly to daily. These daily operations commenced on March 23, 2020, and Coronavirus Job Retention Scheme, it is now will be carried out until at least the end of April much harder to justify inconsistencies in the amount of tax and National Insurance paid by 2020. The central banks will also continue to hold employees and the self-employed “if we all want weekly 84-day maturity operations. to benefit from State support”. Whilst refusing to VII. Fiscal measures in response to COVID-19 provide any further details at the time, he A. Tax deferral declared that “we must all pay in equally in future.” The original package of measures announced by the Chancellor on March 20, 2020 allowed UK The scheme supplements for the self-employed value added tax (“VAT”) payments due from the following three support measures previously businesses to HMRC in the period between announced: March 20 and June 30 this year to be deferred, at  The Coronavirus Business Interruption the taxpayer’s option. Loan Scheme (see part III D. above), Businesses that opted to defer continued to be which is available to the self-employed required to submit their VAT returns on time but provided their activity is channelled have been given until March 31, 2021 to account through a business account; for the relevant amounts (with the effect of easing  As described further in part VII B. below, cash-flow problems caused by the impact of the next income tax payments on account COVID-19). Late payment interest and penalties due under the self-assessment system, will not be charged in connection with deferred which would otherwise be due by July 31, payments. As the deferral scheme is now closed, 2020, may be deferred to the end of HMRC’s guidance has been updated to focus on January 2021; and what participating businesses should do next,  The “minimum income floor” will not be including reinstating direct debits and paying or applied during any period a self- making payments towards deferred VAT on or employed person is required to stay at before March 31, 2021.29 home or is ill as a result of COVID-19 prior to April 6, 2020 nor generally from Similarly, payments on account that are due April 6, 2020 for the duration of the under the Self-Assessment system on July 31, pandemic, if they wish to apply for 2020 may, if the impact of COVID-19 causes a monthly welfare payments (Universal taxpayer difficulty in making payment on time, Credit) to help with living costs. be deferred to January 31, 2021. The UK government has indicated that anyone who is due VI. Coordinated action with other central to make a Self-Assessment payment on account banks to enhance the provision of global US on July 31 (and not just those who are self- dollar liquidity employed) is eligible for this optional deferment. In a measure that is also calculated to bolster the No application is required to take advantage of supply of credit to households and businesses, the the deferral scheme, and it has been confirmed in Bank will join the Bank of Canada, the Bank of guidance that no late payment penalties or

29 See: https://www.gov.uk/guidance/deferral-of-vat-payments- due-to-coronavirus-covid-19

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interest will be levied where payment is deferred tax year. The scope of this measure extends to all to January 202130. However, after the deferral businesses in those sectors, regardless of their ends, usual interest, penalties and collection size. A similar business rate holiday has been procedures will apply to missed payments. introduced for certain nurseries. No action is required from eligible businesses: the measure Taxpayers are able to set up ‘budget payment plans’ with HMRC during the deferral period to will be applied automatically to bills for the help them put aside funds to cover the deferred period beginning April 2020, with existing bills being reissued where necessary to reflect the payment on account when it becomes due. It may holiday. also be possible to add payments on account to arrangements through HMRC’s “Time to Pay” D. VAT reduction service (see Section B, below). As announced in the Chancellor’s ‘summer After its initial publication, the government economic update’, delivered on July 8, 2020, VAT guidance31 on the deferral was updated to refer will be charged at 5% (rather than 20%) on simply to ‘payments on account’, rather than to certain supplies of food and non-alcoholic drinks ‘income tax payments on account’. This seemed from restaurants, pubs, cafés and similar premises to be aimed at clarifying that any deferral extends in the UK, on supplies of hotel and holiday to the full Self-Assessment payment that a accommodation and on admission to certain taxpayer is due to make on July 31, 2020 (which attractions across the UK. The reduced VAT rate may relate to a combination of income tax and will apply from July 15, 2020 to January 12, National Insurance contributions), and not only 2021. to the component of such payment that relates to E. Delays to IR35 reforms and to income tax. commencement of DAC6 reporting B. Additional support for payment of tax Reforms to the off-payroll working rules Where businesses or self-employed individua ls (“IR35”) that would have applied from April 6, are unable to make tax-related payments on time 2020 for people contracting their services to (other than those payments which are already large- or medium-sized organisations outside the subject to the VAT and Self-Assessment deferral public sector have been delayed by a year. The schemes described above), they are invited to call planned reforms are an anti-avoidance measure, a dedicated COVID-19 helpline established by aimed at contractors who are effectively HMRC: details are available on the gov.uk providing the same service as employees, but via website.32 a limited company, giving a different tax result. Once live, they will mean that the recipient of Taxpayers who are in financial distress and have services (where it is a large- or medium-sized outstanding tax liabilities may potentially be given additional support by HMRC through its organisation in the private sector) will be “Time to Pay” service. Any such arrangements responsible for determining the employment status of the individual ultimately performing (such as instalment plans and/or delayed those services. The reforms are now provided for repayments) are agreed on a case-by-case basis and are tailored to a taxpayer’s specific in Finance Bill 2020, to take effect from April 6, circumstances and liabilities. 2021. C. Business rates relief Separately, HMRC has confirmed that it will take advantage of the ability, proposed by the The UK government has introduced a business European Commission, to delay by six months rates’ ‘holiday’ for businesses in the retail, leisure the first deadlines for filing and exchanging and hospitality sectors in England in the 2020-21

30 See: https://www.gov.uk/guidance/defer-your-self-assessment- 32 See: https://www.gov.uk/government/organisations/hm- payment-on-account-due-to-coronavirus-covid-19 revenue-customs/contact/coronavirus-covid-19-helpline 31 See: https://www.gov.uk/pay-self-assessment-tax-bill

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information pursuant to the Directive on office equipment expenses is exempt from tax Administrative Cooperation (generally known as and National Insurance contributions. “DAC6” and implemented in the UK by the To be eligible for the new exemption, the International Tax Enforcement (Disclosable expenditure must meet the following conditions: Arrangements) Regulations 2020)33. DAC6 is a new reporting regime which will apply across the • the equipment is obtained for the sole European Union as well as in the UK. It requires purpose of enabling the employee to work those involved in the design and implementation from home as a result of the coronavirus of arrangements which meet certain tax-related outbreak; and ‘hallmarks’ to report information on those • the provision of the equipment would arrangements to the tax authorities. Various other have been exempt from income tax under jurisdictions have also taken advantage of the existing legislative provisions if it had ability to delay reporting. been provided directly to the employee by The delay is intended to give those within the or on behalf of the employer.34 scope of the rules, who are already dealing with The exemption is conditional on the benefit of the effects of the pandemic, further time to ensure any reimbursement in respect of home-office that they can comply with their obligations. The equipment expenses being made available to all first reports will now be due by January 30, 2021, of an employer’s employees generally on similar although no changes have been made to the scope terms. of the transactions which will ultimately be reportable once the reporting obligations become The exemption applies for amounts reimbursed live. Secondary legislation effecting the delay on or after June 11, 2020 but before the end of the will come into force on July 30, 2020. tax year 2020-21 (although HMRC has indicated that, provided the conditions in the legislation are F. Temporary exemption for employer- otherwise met, it will exercise its discretion not reimbursed expenses that cover the cost of to collect tax or National Insurance contributions relevant home-office equipment and tax due on any reimbursement payments made treatment of other benefits between March 16, 2020 and June 11, 2020, Established tax exemptions apply where an when the relevant legislation came into force). employer provides home-office equipment Relatedly, the government has confirmed the tax directly and retains ownership of that equipment, treatment of various other expenses, and benefits and where the employee’s private use of the made available by employers to their employees equipment is not significant. Relief is also during the pandemic. This guidance includes available where an employee incurs a cost that is confirmation that the government will introduce ‘wholly, exclusively and necessarily in the an exemption from income tax and Class 1A performance of the duties of their employment’. National Insurance contributions for COVID-19 Through crucial phases of the COVID-19 tests provided to employees outside the response, employees were encouraged to work government’s national testing scheme35. from home wherever possible. To provide G. HMRC advice for people choosing to give support for those employees, a new temporary up their income to support their business exemption has been introduced to ensure that or donate to charity during the employer reimbursement for the cost of home- coronavirus pandemic

33 See: https://www.gov.uk/hmrc-internal-manuals/international- office-expenses/income-tax-and-national-insurance- exchange-of-information/ieim800010 contributions-exemption-for-home-office-expenses 34 See: https://www.gov.uk/government/publications/income- 35 See: https://www.gov.uk/guidance/how-to-treat-certain- tax-and-national-insurance-contributions-exemption-for-home- expenses-and-benefits-provided-to-employees-during- coronavirus-covid-19

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HMRC acknowledges that many people are I. Stamp Duty Land Tax choosing to give up part of their income to As part of the Chancellor’s ‘summer economic support their business or employer, or to donate update’, delivered on July 8, 2020, Stamp Duty to charity. Guidance has been published to help Land Tax (“SDLT”) rates payable on residential employers, directors and employees understand property purchases will be temporarily reduced. available options to support a business or 36 Purchases of residential property with a value of employer, including : up to £500,000 will not (subject to the special • waiving their salary or bonuses before rules for the purchase of a second or additional they are paid; home) attract any SDLT. Residential purchases of over £500,000 will attract approximately £15,000 • waiving the right to any dividends; or less SDLT. This measure will be effective for • giving salary or bonuses back to their purchases which are completed or substantially employer after they have been paid. performed between July 8, 2020 and March 31, H. Temporary zero rating of personal 2021. The additional 3% rate of SDLT applicable protective equipment (“PPE”) supplies to the purchase of a second or additional for VAT purposes residential property will continue to apply to purchases of any value, including those below Under the UK’s VAT rules, supplies of PPE £500,000. The rates of SDLT are expected to generally attract VAT at the 20% rate. However, revert to the prior rates and thresholds on April 1, as a temporary measure, PPE that is supplied 2021. between May 1, 2020 and October 31, 2020 and that is recommended for use by Public Health J. Taxation of coronavirus support England (in its guidance of April 24, 2020 titled payments ‘Guidance, COVID-19 personal protective Draft legislation contained in Finance Bill 2020 equipment (PPE)’37) will instead be zero-rated confirms that particular grants to assist for UK VAT purposes. businesses, employers and individuals (including Alongside the National Health Service, many of partners of partnerships) affected by the the types of business (such as residential care or coronavirus crisis are within the scope of tax and healthcare providers) that currently need to included as revenue for income tax and purchase large quantities of PPE are wholly or corporation tax purposes. The proposed partially unable to recover VAT paid to their legislation covers payments under the suppliers, meaning that such VAT becomes an Coronavirus Job Retention Scheme, the Self- absolute cost. Acknowledging this, the temporary Employment Income Support Scheme, the zero-rating is intended to relieve the tax burden Coronavirus Statutory Sick Pay Rebate Scheme, associated with increased PPE purchases during coronavirus business support schemes and others the COVID-19 emergency. that may be specified in directions or regulations issued by the government. This temporary zero rating will not affect the VAT treatment of PPE supplies that already fall within K. Tax residence existing zero-rating or VAT exemption Ordinarily, days spent in the UK in a given tax provisions. Guidance on the temporary zero- year could be relevant to the UK’s statutory rating is available.38 residence test (“SRT”), a series of rules used to

36 See: https://www.gov.uk/government/news/check-the-tax- 38 See: https://www.gov.uk/government/publications/vat-zero- rules-on-waiving-your-income-or-donating-to-charity rating-for-personal-,protective-equipment/vat-zero-rating-for- 37 See: personal-protective-equipment. See also: https://assets.publishing.service.gov.uk/government/uploads/syst https://www.gov.uk/government/publications/revenue-and- em/uploads/attachment_data/file/881669/COVID- customs-brief-4-2020-temporary-vat-zero-rating-of-personal- 19_personal_protective_equipment__PPE__-_GOV.UK.pdf protective-equipment-ppe/revenue-and-customs-brief-4-2020- temporary-vat-zero-rating-of-personal-protective-equipment-ppe

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determine whether individuals are resident in the spent in the UK where an individual is, as a result UK for tax purposes. An individual is considered of COVID-19: to have spent a day in the UK if they are in the  quarantined or advised by a health UK at the end (midnight) of the day in question. professional or by public health guidance As part of the UK’s response to the COVID-19 to self-isolate in the UK; outbreak, the services of skilled individuals from outside the UK may be required. As a result, such  advised by official government advice not to travel from the UK; individuals may spend more days in the UK than anticipated before the crisis. Recognising this  unable to leave the UK as a result of the (and that a shift in tax residence in such closure of international borders; or circumstances may be an undesirable or  asked by their employer to return to the burdensome outcome, both for the individua l UK temporarily, and, where relevant, for their employer), the Chancellor wrote to the chair of the Treasury will be considered exceptional, when considering Select Committee on April 9, 2020.39 His letter whether days spent in the UK can be disregarded proposed to relax the SRT requirements on a for SRT purposes. temporary basis, for individuals who meet It is worth noting that the changes announced to specific criteria, so that time spent in the UK deal with the possibility of a shift in tax residence between March 1, 2020 and June 1, 2020 is for individuals have not been mirrored by a disregarded for SRT purposes. similar announcement for companies. Under the The changes are included in Finance Bill 2020, to UK’s tax rules, it is possible for any non-UK take effect retrospectively (from March 1, 2020) incorporated company to become resident in the once the Bill receives Royal Assent. They are UK for tax purposes if ‘central management and targeted at medical and healthcare professionals control’ (“CMC”) of its affairs is exercised in the who are in the UK for purposes connected with UK. The CMC test is derived from case law and the detection, treatment or prevention of COVID- looks, broadly, at where the highest level of 19 and at those who are in the UK because they control of the company’s business is carried on. are involved in the development or production of Often CMC resides with the board of directors of medicinal products (including vaccines), devices, a company (or the equivalent), but the test looks equipment or facilities for the same purposes. to the facts and circumstances in each case. The provisions in the Bill include the ability for The CMC test carries the risk that a non-UK the relaxation to be extended in duration by company may be regarded as tax resident in the secondary legislation (to any date up to and UK without ceasing to be tax resident elsewhere including April 5, 2021), if the government (e.g., in its jurisdiction of incorporation). If a considers it necessary as the COVID-19 situation double tax treaty (“DTT”) is in force between the develops. UK and another relevant jurisdiction, the The SRT rules already contain a mechanism situation may be dealt with through a DTT ‘tie- which allows days spent in the UK by an breaker’ clause to determine where residence lies individual to be disregarded for SRT purposes, in in practice. Failing this, a company may end up certain ‘exceptional’ circumstances. The new as a dual-resident for tax purposes. changes for skilled workers will sit alongside 40 Where a non-UK company intends to be (or not other COVID-19 related guidance on this to be) UK tax-resident, it is common to adopt mechanism, published in March 2020. Whilst measures – such as controlling where and how circumstances will generally be judged on a case- board meetings are held, or written resolutions by-case basis, the guidance confirms that time are signed – to ensure that CMC is (or is not)

39 See: https://www.gov.uk/government/publications/covid-19- 40 See: https://www.gov.uk/hmrc-internal-manuals/residence- temporary-changes-to-the-statutory-residence-test domicile-and-remittance-basis/rdrm11005

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exercised in the UK. However, where individua ls restrictions remain in place for a long period of find themselves subject to travel restrictions as a time. result of the COVID-19 crisis, it may not be More information is available in our possible to carry out these measures as before. memorandum on corporate tax residence and Travelling internationally to attend a board COVID-19.42 meeting or to sign a document, which may have been straightforward before the pandemic, has VIII. Other UK developments now become much more difficult. The result is A. Shareholder meetings that individuals with decision-making authority may find themselves in the ‘wrong’ place at the The Corporate Insolvency and Governance Act, point where a business-critical decision needs to passed on May 25, 2020 (the “Act”), contains be made. temporary measures with respect to the requirements for companies to hold annual 41 HMRC has issued revised guidance on general meetings (“AGMs”).43 The legislation company residence with this issue in mind. It has retrospective effect from March 26, 2020 and addresses the position of non-UK companies will apply until September 30, 2020. 44 seeking to avoid UK residence (but not the Importantly, these temporary flexibilities are position of non-UK companies seeking to secure available to companies irrespective of their UK tax residence) and does not provide any safe articles of association. harbours. Under the Act, companies required to hold an The guidance essentially states that HMRC AGM between March 26, 2020 and September considers the existing UK law and guidance on 30, 2020, whether pursuant to their articles or residence to be sufficiently flexible to deal with statute, have until September 30, 2020 to do so.45 the circumstances created by COVID-19. It In cases where a company has already issued places an emphasis on the ‘holistic’ view that notice of its AGM, it may be preferable to make HMRC will take in assessing the location of use of the extended time period provided by the CMC. Whilst the guidance does state that ‘a few Act, and consider postponing or adjourning the board meetings’ being held in the UK, or ‘a few AGM. Companies have two options for holding decisions’ being taken in the UK ‘over a short an AGM: (i) convene a virtual AGM pursuant to period of time’ will not necessarily result in a the temporary measures under the Act, non-UK company becoming UK tax resident, it irrespective of their Articles or other statutory also stops short of ruling this out in a provisions, or (ii) convene an AGM and restrict circumstance where business practices have the physical attendees to those required to changed solely as a result of the COVID-19 achieve the quorum. pandemic. On July 9, 2020 the Chartered Governance The underlying message is that each case will Institute published guidance to assist companies continue to be assessed on its own particular facts holding shareholder meetings under the Act.46 and circumstances. This is unlikely to provide More information can be found in the Q&A companies with much practical reassurance that published by the UK Department for Business, (without taking additional steps to manage the Energy and Industrial Strategy and the Financial risk) their UK residence position will remain unaffected if lockdown measures and travel

41 See: https://www.gov.uk/hmrc-internal-manuals/international- 44 Regulation may expedite or extend this deadline, but not manual/intm120185 beyond April 5, 2021. 42 See: https://www.clearygottlieb.com/news-and- 45 Regulation may further extend this deadline. insights/publication-listing/corporate-tax-residence-in-the-uk- 46 See: https://www.icsa.org.uk/about-us/press-office/news- and-covid19 releases/new-guidance-issued-about-shareholder-meetings- 43 See: https://publications.parliament.uk/pa/bills/cbill/58- under-the-corporate-insolvency-and-governance-act-2020 01/0128/en/20128en.pdf

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Reporting Council on June 8, 202047 and in our consequently, have taken a robust approach to memorandum.48 applications for extensions of time. A line of B. Operation of English Courts cases has emerged that makes clear the circumstances for getting an extension will need The English Courts have undertaken to continue to be specific and well-grounded – while the their work during the COVID-19 outbreak. Court Courts will take proper account of the difficulties staff were included in the scope of key workers that COVID-19 poses for parties, they won’t who are able to continue to send their children to provide a general excuse to hold up cases. schools despite the general school shutdown effective as of the end of the school day on The Courts and Tribunals Judiciary have also issued a series of FAQs in relation to the March 20, 2020. However, the Courts have operation of Employment Tribunals during the acknowledged that “it will not be business as 52 usual” and “there will be bumps along the road as pandemic. [they] get used to new ways of working.” . The On July 1, 2020, Robert Buckland QC MP (Lord Courts have increased their use of telephone, Chancellor and Minister for Justice), the video and other technology to enable as many Judiciary and HM Courts and Tribunals Service hearings as possible to be conducted remotely. (“HMCTS”) published an update53 on the recovery plans for courts and tribunals in On March 19, 2020 the Lord Chief Justice issued a statement49 making it clear that the default response to the COVID-19 outbreak. The updates position is now that hearings should be conducted revealed that HMCTS is, amongst other things: (i) working with stakeholders to explore options with one, more than one or all participants to stagger and extend court and tribunal operating attending remotely, whilst noting that attendance of hearings in person may still be necessary in hours, including starting hearings at different some cases. The Courts have also resolved to deal times, and weekend sittings, and (ii) introducing measures to make best use of judicial time and to with many more matters “on paper” rather than support staff and users. These include supporting by way of a hearing. On April 2, 2020, the Courts and Tribunals Judiciary announced that a ‘New judges to list in ways that make full use of space Practice Direction 51ZA – Extension of Time that can safely be employed, and supporting alternative dispute resolution in appropriate Limits’ had been approved.50 The Practice cases. Direction allows parties to agree an extension up to 56 days without formally notifying the court Since June 1, 2020 ‘hybrid hearings’ (in which (rather than the previous 28 days) so long as that the judge and some participants are in Court, and does not put a hearing date at risk, and also makes some participating remotely) have been able to certain clarifications of Practice Direction 51Y in take place in the Rolls Building Courts in relation to audio and video hearings. It takes London. This new format of hearing supplements effect immediately and ceases to have effect on other types of hearing which have been available October 30, 2020. to litigants throughout the pandemic, namely: (i) The Courts have generally expected litigants and fully remote hearings (with the judge at home), (ii) remote hearings (with the judge in their office their lawyers to “roll up their sleeves”51 and,

47 See: https://www.frc.org.uk/getattachment/e3224310-c39c- 51 See: paragraph 32(iii) of the judgment in Muncipio De 4b48-b56b-cc703936beeb/Updated-QA-AGMs-Best-Practice- Mariana & Ors v BHP Group Plc [2020] EWHC 928 (TCC) Final.pdf 52 See: https://www.judiciary.uk/wp- 48 See: https://www.clearygottlieb.com/news-and- content/uploads/2020/05/FAQ-edition-date-30-April-2020.pdf insights/publication-listing/agms-and-general-meetings 53 See: https://www.parliament.uk/business/publications/written- 49 See: https://www.judiciary.uk/announcements/coronavirus- questions-answers-statements/written- covid-19-message-from-the-lord-chief-justice-to-judges-in-the- statement/Commons/2020-07-01/HCWS329/ and civil-and-family-courts/ https://assets.publishing.service.gov.uk/government/uploads/syst 50 See: https://www.judiciary.uk/announcements/118th-practice- em/uploads/attachment_data/file/896779/HMCTS368_recovery_ direction-update-to-the-civil-procedure-rules-coronavirus- -_COVID-19-_Overview_of_HMCTS_response_A4L_v3.pdf pandemic-related/

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ALERT MEMORANDUM

or Court in the Rolls Building), and (iii) normal physical hearings, in which all the participants attend Court in person. The decision as to which type of hearing is appropriate in a particular case lies with the judge. C. Companies House services Corporates should be aware that, as from March 17, 2020 and until further notice, Companies House has suspended all same day services due to the COVID-19 outbreak. There are restrictions to public access to the London, Edinburgh and Belfast offices. Any documents that would previously be sent to London must now be sent to Companies House in Cardiff.54 Companies House has introduced a temporary service to upload documents online.55 On April 16, 2020, Companies House announced that it will temporarily pause the strike off process in an effort to allow businesses affected by the COVID-19 outbreak to update their records and to help them avoid being struck off the register. Companies House will continue to write to companies with overdue filings but will not publish the customary notice of strike off in the Gazette save where (effective from June 1, 2020) it has been concluded following an investigation that the relevant company is no longer in operation (in which case, the registrar will continue with strike off action for such a company). Companies House have reiterated that if companies do not apply for an extension and their accounts have been filed late, an automatic penalty will be imposed. Appeals to late filing penalties will be treated on a case-by-case basis and appeals based on COVID-19 will be considered under Companies House policies based on unforeseen poor health. …

CLEARY GOTTLIEB

54 See: https://www.gov.uk/guidance/coronavirus-guidance-for- 55 See: https://beta.companieshouse.gov.uk/efs- companies-house-customers-employees-and-suppliers submission/start?_ga=2.116335620.300031591.1594739227- 264965995.1587114758

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