While businesses will be planning their next steps as the country’s economy rebuilds, the Ministry of Social Development (‘MSD’) have begun the mammoth task of auditing certain applications made under the Wage Subsidy Scheme (‘the Scheme’). Given the significant sum spent by the Government and the high level of public interest in the Scheme (evidenced by the regular media articles naming claimants), businesses should be looking to revalidate their eligibility to have claimed under the Scheme (the original 12-week Wage Subsidy (WS), the current 8-week Wage Subsidy Extension (WSE) and the 2-week Resurgence Week Subsidy (RWS)).
When considering your eligibility in light of a possible audit by MSD, we believe there are four key areas:
1. What is your degree of confidence that the business was and remains eligible for the Wage Subsidy?
Consideration should be given to the parts of the declaration that were not certain at the time your application was made. This is most likely your revenue decrease and the amount you paid your employees.
If your application for the WS was made on a predicted 30% or more revenue decline, active steps should be taken to assess whether this decrease has materialised and whether the decline was due to COVID-19. The evidence of this should be documented in the event you are asked to prove it.
Further, when your application was made you would have declared your ‘best efforts’ to pay and retain employees at 80% of their regular income after receiving the subsidy (less than 80% is accepted in circumstances where this was not possible). Payroll data should be assessed to ensure that employees’ pay remained at an amount agreed to by the employee.
2. What is your degree of confidence that the business was and remains eligible in respect of all employees named on your application?
Consideration should be given to all of the named employees in your application and whether they were all eligible for the wage subsidy during the entire 12-week, 8-week and/or 2-week period of the different schemes. Some of the changing circumstances that are regularly faced by businesses that may impact on their eligibility are:
The impact of casual or seasonal workers with varying hours;
Any new starters or (voluntary) leavers during the wage subsidy period; and
Any redundancies during the wage subsidy period.
3. What steps has your business taken to document evidence that supports on-going eligibility for the Wage Subsidy?
It is important to consider taking active steps to clearly document your business’ eligibility. Having a spreadsheet and a couple of emails somewhere on your computer is not enough. The eligibility criteria per the declaration should be a ‘checklist’, and a file should be constructed which includes the evidence that your business satisfied every part of the Scheme’s eligibility criteria. For example, this should include documenting:
The necessary revenue drop;
The steps taken to mitigate the impact of COVID-19 on the business;
What cash reserves the business had at the time of making the claim;
What discussions were held with bankers, insurers or business advisors;
What payments were made to employees;
On what basis did any employees cease employment (whether voluntarily or involuntarily) during the Wage Subsidy period.
4. What is your degree of confidence that the evidence collected will be sufficient for a Government agency review / audit?
Once you have prepared your eligibility documentation, thought should be given toward the sufficiency of the evidence gathered. If you operate a small business with few employees and your revenue is recognised under ordinary accounting concepts the documentation may be straight forward. The requirements will vary for a larger employer with complex structures and revenue recognition methodologies.
Summary
The Wage Subsidy has cost over $13 billion dollars and now our “team of 5 million” will ultimately be the ones who will pay it all back one way or another. As at 14 August 2020, 12,920 claimants have repaid a total of $389.2 million of wage subsidies.
For more advice on Wage Subsidy documentation requirements and other accounting and business services, please contact the expert team at Tax Professionals. First consultation is FREE.
-by Eshan Gupta of Tax Professionals