Insurers must pay many small firms for Covid lockdown losses

Tens of thousands of small businesses will receive insurance payouts covering losses from the first national lockdown, following a court ruling.

The Supreme Court found largely in favour of small firms receiving payments from business interruption insurance policies.

For some businesses it could provide a lifeline, allowing them to trade beyond the coronavirus crisis.

The ruling could cost the insurance sector hundreds of millions of pounds.

The City watchdog, the Financial Conduct Authority (FCA), brought the test case, with eight insurers agreeing to take part in proceedings.

One of the insurers set to make significant payouts is Hiscox, which was challenged by thousands of its policyholders as part of the case.

Richard Leedham, who represented the Hiscox Action Group - on behalf of small businesses, said: "This is a landmark victory for a small group of businesses who took on a huge insurance player and have been fully vindicated.

"What is important now is that Hiscox accepts the Supreme Court's verdict and starts paying out to its policy holders, many of whom are in danger of going under".

Other insurers involved in the test case are Arch, Argenta, MS Amlin, QBE and RSA - but as many as 60 insurers sold similar products. They will now pay out on many, but not all, policies.

Huw Evans, director general of the Association of British Insurers, said: "All valid claims will be settled as soon as possible and in many cases the process of settling claims has begun.

"We recognise this has been a particularly difficult time for many small businesses and naturally regret the Covid-19 restrictions have led to disputes with some customers."

What is this case about?

In the lockdown of last spring, many small businesses made claims through business interruption insurance policies for loss of earnings when they had to close.

But many insurers refused to pay, arguing only the most specialist policies had cover for such unprecedented restrictions.

It was agreed that a selection of policy wordings should be tested in court, setting the parameters for what would be considered a valid claim.

The ruling provides guidance for a wider pool of 700 policies, potentially affecting 370,000 small businesses - although only some of these will end up with payouts.

Giving the court's ruling, Lord Hamblen said the court accepted the arguments from representatives of policyholders and dismissed appeals from insurers against an earlier judgement finding in policyholders' favour.

The complex ruling covered issues such as disease clauses, whether business were denied access to the properties, and the timing of lost earnings.

James Ollerenshaw's hair salon was one of those businesses unable to operate during the first national lockdown.

The business - The Drawing Room in London's Spitalfields - paid an annual premium of £1,200 for business interruption insurance, and disease cover came as part of it.

Mr Ollerenshaw said the Supreme Court's decision would not directly affect his policy, but would decide the principles on claims such as his - and were vital for the business.

"A payout would cover the major costs, which is the rent. We have debt sitting there," he said.

He said he was delighted with the Supreme Court's ruling.

"The insurance industry needs to face up to the fact that it failed customers at their greatest moment of need, destroying companies, livelihoods and jobs," he said.

He formed a Covid Claims Group, joining other small business owners in calling for a quick resolution and payouts.

"Time matters," he said, pointing out that some small businesses have been forced to close down while waiting for the decision.

Sheldon Mills, from the FCA, which brought the case on behalf of policyholders, said: "Coronavirus is causing substantial loss and distress to businesses and many are under immense financial strain to stay afloat. Today's judgment decisively removes many of the roadblocks to claims by policyholders.

"We will be working with insurers to ensure that they now move quickly to pay claims that the judgment says should be paid, making interim payments wherever possible."

The test case was fast-tracked to the highest court in England and Wales - the Supreme Court, which heard four days of legal representations in November. The final ruling provides authoritative guidance for these policies, and potentially of similar ones not part of the case.

The FCA, the insurance sector, and the Financial Ombudsman will all use the judgement to guide their decisions in other cases.

The Financial Ombudsman Service and courts in Scotland and Northern Ireland are expected to use the judgment to rule on other, similar cases.

Insurance policies would have been amended for new and renewing customers since this issue emerged, so losses from the latest lockdown measures in different parts of the UK would be clearly stated as part of the cover - or not - in new business interruption insurance policies.

Source: BBC


£4.6 billion in new lockdown grants to support businesses and protect jobs

Businesses in the retail, hospitality and leisure sectors are to receive a one-off grant worth up to £9,000, the Chancellor has announced.

  • Chancellor announces one-off top up grants for retail, hospitality and leisure businesses worth up to £9,000 per property to help businesses through to the Spring
  • £594 million discretionary fund also made available to support other impacted businesses
  • comes in addition to £1.1 billion further discretionary grant funding for Local Authorities, Local Restriction Support Grants worth up to £3,000 a month and extension of furlough scheme

This follows the Prime Minister’s announcement last night that these business will be closed until at least February half-term in order to help control the virus, and, together with the wide range of existing support, provides them with certainty through the Spring period.

The cash is provided on a per-property basis to support businesses through the latest restrictions, and is expected to benefit over 600,000 business properties, worth £4 billion in total across all nations of the UK.

Chancellor Rishi Sunak said:

The new strain of the virus presents us all with a huge challenge - and whilst the vaccine is being rolled out, we have needed to tighten restrictions further.

Throughout the pandemic we’ve taken swift action to protect lives and livelihoods and today we’re announcing a further cash injection to support businesses and jobs until the Spring.

This will help businesses to get through the months ahead – and crucially it will help sustain jobs, so workers can be ready to return when they are able to reopen.

A further £594 million is also being made available for Local Authorities and the Devolved Administrations to support other businesses not eligible for the grants, that might be affected by the restrictions. Businesses should apply to their Local Authorities.

The new one-off grants come in addition to billions of existing business support, including grants worth up to £3,000 for closed businesses, and up to £2,100 per month for impacted businesses once they reopen.

The government has also provided 100% business rates relief for retail, hospitality and leisure businesses, £1.1 billion existing discretionary funding for Local Authorities, the furlough scheme now extended to April and 100% government backed loans, extended until March.

Further information

The one-off top-ups will be granted to closed businesses as follows:

  • £4,000 for businesses with a rateable value of £15,000 or under
  • £6,000 for businesses with a rateable value between £15,000 and £51,000
  • £9,000 for businesses with a rateable value of over £51,000

Business support is a devolved policy and therefore the responsibility of the devolved administrations, which will receive additional funding as a result of these announcements in the usual manner:

  • The Scottish Government will receive £375 million
  • The Welsh Government will receive £227 million
  • The Northern Ireland Executive will receive £127 million

This will contribute to the funding which has already been guaranteed by the UK Government, to continue to provide the devolved administrations the certainty they need to plan for their COVID-19 response in the months ahead.

Small businesses in the devolved administrations should also be able to benefit from other UK-wide measures in the government’s unprecedented package of support for business, including the various business lending schemes (where the repayment terms were made easier as part of the Winter Economy Plan), and the extension of the Self Employment Income Support Scheme.

Source: GOV.UK


Manage your investments

In the challenging climate of Brexit negotiations, targeted long-term investment choices might offer the security for businesses mitigating financial uncertainty. Foreign direct investments (FDI) have fared well according to the Ernst and Young (EY) report for 2018.

Financial Conduct Authority regulatory changes may impact on Scotland’s attractiveness to foreign direct investment

Leading in attractiveness ahead of the UK average, Scotland expanded on foreign direct investment particularly in the Research and Development sector over 2017. However, firms must keep alert to the regulatory requirements of foreign investors in light of changes over Brexit.

The Financial Conduct Authority (FCA) highlights measures for operators applying to become a recognised overseas investment exchange (ROIE), in case existing regulation under the Markets in Financial Instruments Directive (MiFID) II serving the EEA financial market ceases to be recognised post-Brexit. This may directly impact the likelihood of securing a favourable deal with foreign investors in securing the liquidity of the business.

Ernst and Young Scotland Attractiveness Survey 2018

Nevertheless, the EY survey highlights positive potential for Scotland in the year ahead, summarising their findings with:

  • A new record for FDI projects in 2017 for the third consecutive year with an increase of 7% compared to 2016;
  • Scotland secures its position as the most attractive location in the UK for R&D projects for a second consecutive year with an increase of 70% compared with 2016;
  • The digital sector experienced a 56% increase in FDI projects and was the second largest sector to attract investment into Scotland behind business services;
  • Manufacturing activity experienced a 25% increase of FDI in 2017 compared to 2016;
  • 2nd place ranking, behind London, as the most attractive place to invest in the UK; and,
  • FDI job creation increased by 104%, from 3,131 to 6,374.

Effective risk management and business review can support the best-suited investment portfolio to steer your business through hard times.

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Business Financial Distress UK

Inquiry to Examine HMRC’s Approach to Tax Disputes

The UK Parliament’s Treasury Sub-Committee has launched an inquiry into HMRC’s approach to tax enquiries and tax disputes.

It highlights that in its code of governance for resolving tax disputes, HMRC outlines internal governance processes that are intended to ensure that it deals with all tax disputes fairly and in an even-handed manner.

The Sub-Committee’s inquiry aims to establish whether HMRC meets these standards in the way it conducts tax enquiries, resolves tax disputes and determines the amount of tax to be paid.

In particular, the Sub-Committee is seeking views on:

  • How do HMRC governance and settlement processes affect its ability to resolve tax disputes in a proportionate and fair way?
  • Does HMRC’s litigation and settlement strategy provide a rational and sound framework for resolving tax disputes?
  • Do HMRC’s collection and management powers set out in the Commissioners for Revenue and Customs Act 2005 provide HMRC with sufficient flexibility to achieve cost-effective and fair results?
  • Does HMRC’s approach to enforcing compliance with tax law, including its approach to penalties and other sanctions, result in disproportionate or unjust outcomes? If so, how can the situation be remedied?
  • Is there sufficient governance over the whole of HMRC’s enquiry process to ensure that HMRC’s interventions are well-targeted and that taxpayers are treated fairly and professionally throughout?
  • Do HMRC’s governance processes provide sufficient scrutiny and assurance for clearances and approvals given to taxpayers outside the formal enquiry process.

HMRC Aggressive Tax Demand Advice Glasgow Edinburgh & London

We understand that facing up to financial challenges can be extremely difficult and stressful. However, you should be reassured to know that there are options available and, with the right advice and support, you can take the necessary steps to improve your situation. For further information on our services then please contact us at an office near you.

Contains Parliamentary information licensed under the Open Parliament Licence v3.0.


HMRC Wins Tax Avoidance Case

HMRC has recently announced its success in a tax avoidance case worth £55 million that involved businesses issuing loan notes as bonuses to avoid tax.

According to HMRC, its legal victory over Cyclops Electronics and Graceland Fixing proved that a multi-million pound tax avoidance scheme used by over a hundred other businesses was a ruse to avoid paying tax.

The businesses used loan notes to pay company directors’ bonuses in an attempt to get around paying tax and National Insurance on their awards.

Specially created companies issued loan notes in £10 denominations that matched the bonus amount exactly. Special conditions were included to avoid the tax and National Insurance due when the loan notes were given to the director.

HMRC says the scheme was designed to take advantage of legislation that provides tax relief for genuine commercial transactions. This legislation has now apparently been amended to prevent similar situations arising in the future.

“We cannot allow tax avoidance schemes like these to deprive the UK of vital revenue,” said Penny Ciniewicz, HMRC’s Director General for the Customer Compliance Group. “The money we’ve protected in this case alone would be enough to pay the annual salaries of around 2,400 newly qualified teachers.”

HMRC says that it has won nine out of ten tax avoidance cases taken to court in the last two years, with many more settling before reaching that stage.

HMRC Tax Demand Advice Glasgow Edinburgh & London

We understand that facing up to financial challenges can be extremely difficult and stressful. However, you should be reassured to know that there are options available and, with the right advice and support, you can take the necessary steps to improve your situation. For further information on Alleged Tax Avoidance and Accelerated Payment Notices, please contact us at an office near you.


Assistant Manager at mlm Solutions Achieves Insolvency Exam Success

We are pleased to announce that Barry Mochan, Assistant Manager at mlm Solutions, has recently passed the Joint Insolvency Examination Board exams and is on course to become a fully qualified personal insolvency practitioner with our firm.

All of us here at mlm Solutions are delighted by Barry’s success and we look forward to welcoming him as an appointment taking member of the IP team in the near future.