What will this entail for the building industry?
What will this entail for the building industry?
The regulations that govern compensation scheme 2, was established 21 December. The arrangement is based on compensation scheme 1, but several sets of rules are different. Below, we will review the new scheme and the most important changes and we will also provide some advice as to how a typical company with projects in Norway should relate to a possible application for compensation.
The new compensation scheme for companies with a large loss in turnover will cover the period from 1 September 2020 to 28 February 2021. One can apply for compensation for two and two months. That is:
As in compensation scheme 1, there are a number of terms and conditions that must be met in order for a company to be entitled to compensation. The terms and conditions in the two schemes mostly coincide.
The most central condition is that the company must have had a loss in turnover in the compensation period of at least 30%, compared with the same period last year. Turnover and fixed unavoidable costs shall be calculated in the same way as in compensation scheme 1, but the calculation is simpler: In compensation scheme 2, the calculation is made through a comparison with the corresponding period last year, without any growth factor. The adjustment factor per application period is indicated in the parentheses above.
An estimated subsidized amount up to NOK 60 million per compensation period (two months) is paid in full. For amounts exceeding NOK 60 million, the compensation is reduced by 50%. The maximum subsidized amount per compensation period is NOK 160 million.
The example below shows a "normal case". Note that the calculation will be different in cases where restrictions have to be applied. This may, for example, be due to a minimum / maximum limitation, that the subsidized amount may not exceed the decline in turnover in NOK or that the company experienced a loss before tax in 2019.
|A||Turnover September-October 2020||600 000|
|B||Turnover September-October 2019||1 000 000|
|C||Loss in turnover in NOK||400 000|
|D||Loss in turnover in %||40%|
|E||Fixed unavoidable costs Sept-Oct 2020||300 000|
|F||Contribution (D*E*0,7)||84 000|
Turnover means income from the sale of goods delivered and services performed by the company in the relevant period, even if the deliveries are not invoiced.
Income from public compensation schemes is also considered as turnover, as compensation for income, and income security granted in connection with the corona pandemic.
Only income that is taxable in Norway shall be included. Income or return from total assets, real estate or other financial assets shall not be included. Rental income from real estate must still be included. VAT and excise duties related to sales revenues are not considered as income.
It is the turnover for the period for which compensation is applied for, ie the value of the supplied goods and services performed including profits, which must be stated. This applies regardless of the financial handling of the sales.
For building and construction contracts, this means that the turnover must be accrued according to the current settlement method with profit. Regarding how a construction company that has a project-based business should relate to this regulation in practice, we refer to our previous article.
The business must have fixed, unavoidable costs in order to receive subsidiary payments. Fixed, unavoidable costs are costs that cannot be reduced in the short term in line with the level of activity. Examples of actual costs that can typically be reduced, are costs that vary with turnover, quantity of goods and services produced or that are related to time-limited assignments, deliveries, etc. Note that long-term manufacturing contracts with a duration of more than one year are not to be regarded as time-limited in this context.
In order to be regarded as a fixed, unavoidable cost, the cost must be linked to an agreement entered into prior to 1 September 2020, and it must refer to specified items in the Income Statement. Fixed, unavoidable costs must be allocated evenly over the period in which they are incurred. The question of what are typical fixed unavoidable costs for a construction company, as well as some issues related to this, is discussed in our previous article here: https://www.bygg.no/article/1431695. Please note that the cost of confirmation to the accountant or auditor is reimbursed with 80 percent, but with a maximum of NOK 10,000 per compensation period.
The applications are submitted in a separate application form in Altinn. This form will look different from the application form in compensation scheme 1. In the first scheme, the applicant answered questions that would clarify whether or not the company was entitled to compensation before the company was even given the opportunity to fill in the application form. In the new scheme, all questions are included in the application form.
The application deadline for the period 1 September to 31 October 2020 and for the period 1 November to 31 December 2020, is 14 March 2021. However, the first application cannot be submitted before 18 January 2021. For the period 1 January to 28 February 2021, applications can be submitted from 15 March 2021 and the final application deadline is 15 May 2021.
For some companies, receiving compensation is time-critical in order to cover liquidity needs. Our advice is to start the preparations immediately. Below is a suggested process:
Find more information about the scheme here: https://kompensasjonsordning.brreg.no/ and the Regulations are published here: https://lovdata.no/dokument/SF/forskrift/2020-12-21-3085.