Below are some common questions we have received from clients concerned about the impact of COVID-19. If you have a question that has not been answered below, please submit your question here, and we will respond to your query directly.
Question: Does the COVID-19 lockdown constitute an event of Force Majeure? Can I claim that the contract is frustrated? Will insurance cover it? Can I cancel the event that I'm holding?
Answer: This will depend on the wording of the contract but it is not uncommon for contracts of this nature to have Force Majeure or similar exclusion clauses which specifically provide for pandemics/government intervention. For further information, please read our blog here.
Question: Can I insist on payment for my services sooner than usual?
Answer: If your contract specifies that payment for goods or services is due within a certain period of time, that is the agreement, and you cannot unilaterally change it. However, it may be worth negotiating with the counterparty to see if different terms can be arranged, particularly if the counterparty is dependent on you and restricted cashflow imperils your business. But be careful not to threaten a breach of contract, as that may result in costly legal proceedings.
Question: What is the VAT holiday, as announced by the UK government?
Answer: Payments for the period ended 31 March 2020 would ordinarily be due by direct debit or standing order by 7 May 2020, but are now deferred to 31 March 2021, with a lengthy repayment window giving businesses an approximate 11 month breathing space. This VAT Holiday is automatic (i.e. there is no need for businesses to agree it in advance with HMRC) but only, of course, if you remember to cancel your direct debit/standing order.
Question: What about VAT refunds/reclaims?
Answer: The Government will still be issuing VAT refunds/reclaims for businesses that spend more on input VAT than they receive in VAT on sales. In the current situation many businesses will find themselves in this position, so now is the time to make sure your VAT compliance is slick, so that you can swiftly submit your VAT reclaim to HMRC and help improve cashflow in the current economic market by quickly accessing that repayment of excess input VAT.
If you think your business will not survive the current shut-down, do not immediately cancel your VAT registration – you need to make sure that you process all your VAT reclaims from HMRC before doing this. If your business continues, but you drop below the VAT de-registration threshold of £83,000, think about putting off de-registration until you've reclaimed all excess input VAT. For further information, please refer to our blog here.
Question: What are the potential VAT charges for landlords and developers?
Answer: A business that intends to make wholly VATable supplies can typically recover all of its business input VAT, and that also applies to expenditure on capital projects. But if, within ten years of fitting out, the building is used for making non-VATable supplies, then there can be a re-capture of part of this recovered VAT under the capital goods scheme. Landlords need to be aware that a change from a café to a charity tenant (which can disapply a landlord's OTT) could be very costly.
The VAT Holiday will assist with short term cashflow for businesses that are usually net payers of VAT to HMRC, but it is only a deferral and there are many other VAT issues that need to be considered. It is also hoped that HMRC will once again defer the introduction of the domestic reverse charge as businesses don’t need a new complicated system to understand in these difficult times. For further information, please refer to our blog here.
Question: What is the Government's position on construction projects?
Answer: As at 7 April 2020, communication from the Government indicated its desire for construction projects to continue, so long as work can be carried out safely and in accordance with Public Health England (PHE) Guidance (see for instance the letter from the Secretary of State for Business, Energy and Industrial Strategy to the Construction Industry dated 31 March 2020). To this end the Construction Leadership Council has released a set of Site Operating Procedures (SOP) which specify how to run a site in accordance with the PHE Guidance. Revisions to the first version of the SOP are presently being considered.
Clients and contractors should be aware that the Government may issue further guidance or directions at any time, which could affect whether construction works can properly continue.
Question: Should I consider including express provisions in my building contract or appointment to cater for coronavirus/COVID-19?
Answer: As the coronavirus/COVID-19 situation develops, it is becoming apparent that its consequences will continue to have effect for the mid- to long-term. As such, parties to construction contracts should consider introducing certainty and planned risk-allocation into their contracts by making express provision for the effects of coronavirus/COVID-19. The precise amendments which may be required will vary depending on the form of building contract and the project in question, but parties may consider adjusting:
- the provisions governing extensions to the time for completion of the works;
- the provisions allowing increases to the sums payable to the contractor under the contract; and
- the provisions relating to suspension and termination of the contractor's employment under the contract.
Question: What are the contractual consequences of the employer or the contractor closing the site?
Answer: The legal position in each case will depend on a number of factors. These include:
- whether it is the employer or the contractor who takes the decision to close the site;
- the terms of the building contract between the parties;
- the circumstances that exist at, and following, the time of the site closure; and
- the efforts that the contractor has made to keep the site open.
In addition to their legal position, parties should also consider commercial factors when deciding how to proceed.
In the event of site closure, whichever party takes the step, the contractor is likely to seek an extension of time to the date for completion, as well as sums in respect of its loss and expense. Such claims will need to be properly interrogated by the employer's professional team (principally any appointed employer's agent or contract administrator), having regard to the provisions of the building contract.
The parties will also need to review the suspension and termination rights contained within the contract.
Question: Can we require staff to work?
Answer: The government guidance is clear: where possible, staff should work from home. If this is not possible (and assuming an employer’s place of business has not been ordered to close (such as pubs and restaurants)), staff can be required to work. In such situations, it is important that employers consider all reasonable steps to ensure that social distancing rules in the workplace are complied with and generally to reduce risk to staff. For example, employers could consider changing an employee’s working hours so that they do not travel at peak times, providing them with appropriate protective equipment and limiting interaction with others (such as limiting the number of customers/contacts who enter the workplace).
Question: What happens if an employee cannot work from home but refuses to attend the workplace due to fear of contracting coronavirus?
Answer: An employer should consult with the employee to understand why he/she is concerned about attending work and consider whether it is appropriate to withhold pay and/or take disciplinary action. This will be fact dependant and it will be important to take advice to ensure that no actions of the employer amount to discrimination or gives rise to an automatic unfair dismissal on the grounds of health of safety.
Question: Should we pay sick pay to those who are self-isolating or shielding in accordance with government lines?
Answer: Statutory sick pay rules have been updated so that employees who are sick as well as those who are isolating because they live with someone who is experiencing symptoms and those who are required to “shield” for 12 weeks in accordance with medical guidance are eligible for statutory sick pay.
Question: What special consideration apply where an employee is pregnant?
Answer: As a matter of course, employers have additional duties to protect the health and safety of new and expectant mothers. For example, this requires employers to carry out workplace risk assessments and alter working conditions or hours to avoid significant risk. Pregnant women have been “strongly advised” to socially isolate, avoid travelling on public transport and work from home where possible. Where the nature of the employee’s role means that they cannot work from home and there is no suitable work available which they could temporarily do from home, employers should consider suspending the employee on full pay in accordance with health and safety regulations.
Question: Are there health and safety issues to consider with staff working from home?
Answer: Yes, employers are still responsible for their employees’ welfare, health and safety whilst working from home. Employers should conduct a suitable risk assessment of activities carried on by employees at home to identify risks and communicate with them about how to work from home safely (e.g. reminding them how to set up their home working space). In addition, most employers will find it useful to introduce home working policies so that staff know what is expected of them.
Question: Our business is needing to reduce its salary spend, what options are available?
Answer: The government has recently introduced the Coronavirus Job Retention Scheme which allows employers to “furlough” staff (i.e. put them on leave of absence) and claim for 80% of salary costs (and the associated pension and employer’s national insurance contributions) up to a cap of £2,500.
Other options include:
- Consulting with employees (and trade unions or other employee representative bodies) to try and agree a temporary reduction in pay.
- Considering temporary lay-offs or reducing employees’ working hours. Employers will need to consider whether they have the contractual right to do this under their employment contracts, or seek employee consent.
- Considering whether to require employees to take annual leave now (at a time where there is little/no work to do).
- Considering whether there are contractors or other workers (who do not have unfair dismissal protection) whose contracts could be terminated.
- Making redundancies – although it is important to follow correct redundancy procedures to minimise the risk of claims.
The constantly evolving situation has resulted in rapidly changing regulations and guidance and when our focus is on our own and our loved ones’ health and well-being, it can be difficult to keep track of these new and unprecedented measures. These are some of the frequently asked questions from our clients concerning themselves or their family matters and should you have additional queries, we welcome you to submit them to us.