There are a couple of scenarios that we have come across multiple times in the last couple of weeks.
We have had a few enquiries about the wage subsidy for a business that had not actually opened or had only just opened before Covid. Working through these scenarios we concluded that they could not get the subsidy in the particular circumstances we were considering.
We have now come across published guidance from WINZ confirming how this works. WINZ confirm that a business needs to have operated for at least:
– 30 days for the original subsidy; or
– 60 days for the wage subsidy extension.
It could be possible that a business started during Covid but did not suffer the turnover drop until a later month. However, all other criteria need to be met.
In a recent publication, we raised the confusion in the WINZ guidance around which month that a new or high growth business should compare its revenue against for the Wage Subsidy extension. The other website has the answer to this:
When a business has been operating for less than a year or is a high growth firm (eg businesses that have had a significant increase in revenue), they must compare their revenue against a more recent comparison time period that gives the best estimation of the revenue decline related to COVID-19.
Example 40% loss of revenue attributable to COVID-19 comparing 11 May 2020 – 9 June 2020 to 1 – 30 January 2020.
Multiple businesses in one entity
It is not uncommon for one entity (usually a company) to be used to own multiple business units that are clearly distinct from one another.
Near the beginning of the original subsidy scheme we received verbal confirmation from MSD that if an entity owned businesses that were clearly distinct from each other, then the turnover drop could be tested for each independent business unit and the subsidy could be available for employees of any business unit that suffered the prerequisite turnover drop. This was entirely consistent with the purpose of the scheme (keeping people employed) and the use of the term “business” throughout the scheme.
Recently, we heard through the grapevine that MSD now had a different view and now considered that the turnover needs to be measured for the entity as a whole. Therefore, we sought their guidance. MSD responded to us today pointing us to this comment on their secondary website:
“The decline in revenue must be experienced across all parts of the business as a 40% decline in total revenue. This includes Councils and other business structures who may have different programmes or branches that are differently affected by COVID-19, but who employ all their workers under one business.”
We have major concerns about the correctness of this passage and whether it is the right policy outcome.
The MSD/WINZ guidance and the declaration for the Wage Subsidy and Wage Subsidy Extension all refer to “business”, they do not at any point refer to the entity undertaking the business. The concept of a business is a well-understood concept in law, tax and accounting. Despite the scheme referring at all times to “business”, the above scheme seems to narrow the application for the turnover drop threshold to the entity owning the businesses for undisclosed reasons. Therefore, we doubt the correctness of the passage quoted above.
Further, the use of the term branch in the passage above is interesting and ambiguous. Branch in a tax/accounting/legal sense would normally refer to separate operating division. In more common usage, it would normally focus on the physical location (i.e. the local bank branch). It is unclear what WINZ/MSD mean when they refer to a branch here. If they mean a physical location, then we would agree with them that the intention of the scheme would not to have been to look at the revenue store by store. That being said, when you see that many large multi-location retailers are closing their worst performing stores, allowing a location by location approach may have saved jobs. Of course, and without wanting to sound too cynical, it is quite likely that some of the larger players will be using Covid as an excuse to close stores that they were already wanting to close.
Many smaller enterprises choose to run multiple distinct businesses from the same entity to reduce complexity and compliance costs. In other cases, this is just the way that their trading has evolved. As the stated reason for the Wage Subsidy Scheme is to keep employees connected to their employer, there is no obvious reason why the subsidy should focus on the entity that owns the businesses rather than the businesses that employ the employees.
Many small businesses do not have the resources to allow one of their businesses to subsidise another. Focusing on the entity rather than the separate businesses and therefore not allowing the Subsidy in these extensions puts thousands of jobs at risk – it is as simple as that.
We have asked MSD to review the correctness of this passage, and to consider the practical implications of this position if they consider it is correct. In the meantime, caution is required in these multiple business situations.