As the COVID-19 outbreak progresses, the challenges to businesses are becoming more visible. By being aware of actions that you can take to improve your position, it will help with overcoming the issues that you may encounter.
Here are our top tips to help you deal with the challenges that you may be facing:
- Prepare a 13 week short term cash flow forecast to identify what your business’ cash position looks like on an ongoing basis. This should be a rolling document that is used as a management tool not only to assess what payments can/should be made but also to ensure all parts of your business perform as well as they can.
- Review your direct debits and standing orders to ascertain which payments are business critical.
- If you have missed a tax payment or you might struggle with your next payment due to COVID-19, you can call HMRC’s dedicated helpline: 0800 024 1222. This can cover corporation tax, income tax, VAT and also PAYE. Our initial feedback is that HMRC are being incredibly flexible on this.
- Determine whether your staffing levels are adequate and seek advice if you need to reduce the work force/hours. Consider utilising the government's new Job Retention Scheme.
- Understand what your debt obligations are (both for the business and the directors personally) and seek to negotiate payment holidays if appropriate.
- Seek rent payment holidays where possible.
- Speak to your customers to obtain payment dates for outstanding debtors – consider their ability to pay if agreeing to longer terms.
- Negotiate with suppliers to ensure your ongoing orders can be sourced and delivered; identify alternative suppliers for any business critical item.
- Ongoing funding is likely to be a concern for many. For any funding that is required, if you cannot demonstrate to a funder that you have taken the above steps then it will be more difficult to obtain funding, whether or not backed by the government. Now is the time to take action, even if you have a buffer that may see you through a short period. Contact your current bank/lender.
- In addition to the above, it is important to note that company directors have to ensure that they continue to comply with their statutory obligations under various pieces of legislation, including (but not limited to) employment, health and safety and company laws.
- And finally, communicate, communicate, communicate!
The Coronavirus Job Retention Scheme (JRS) was announced on 20 March 2020. The Government is moving very quickly and this unprecedented announcement is hugely significant. Understandably, many of the practical points currently remain unclear, however, as we learn more we will continue to interpret the detail and provide practical guidance, along with links to the systems needed to apply.
The Government has said that the funds available for these grants will come into force “within weeks” and before the end of April. However, how wage costs are calculated will need to be confirmed and this may not be easy given the complexity of existing tax and payroll systems. It has been suggested that "basic salary" will be used as a reference point and potentially pay received in the February payroll will be used as the basis for calculating the grants, however, this remains conjecture at this point in time.
What employers need to do to designate employees as furloughed is another concern and the usual employment law principles relating to fairness, discrimination and contractual consent will of course apply. Employers will also need to consider how, what and when they communicate this too.
It is not yet clear how backdating will work, and whether the three month period could start at any point from 1 March to 31 May and other issues that need to be clarified and worked through include: managing those on zero hour contracts (and other flexible arrangements); measures already taken to manage cash flow (e.g. lay offs and short time working); how to treat new hires from 1 March; the definition of employee/worker; and the interaction with payroll.
Under the JRS, HMRC will reimburse 80% of ‘furloughed workers’ wage costs, up to a cap of £2,500 per month for each furloughed employee and can be backdated to 1 March. The JRS is open initially for three months and this will be extended if necessary. Employers can also top the salaries of furloughed workers further if they choose.
The JRS payment is a grant to cover most of the wages of the people who are furloughed and is open to all UK employers.
To access the scheme employers need to:
- Designate affected employees as ‘furloughed workers,’ and notify employees of this change;
- Submit information to HMRC about the employees that have been furloughed and their earnings through a new online portal (details to follow)
Whilst the exact steps are currently unclear, changing the status of employees to “furloughed workers” remains subject to existing employment law.
HMRC are working urgently to set up the portal and underlying system for reimbursement as existing systems are not set up to facilitate payments to employers, with the intention of reimbursements beginning in April
Changing the status of employees remains subject to existing employment law and may be subject to negotiation.
For further information visit: https://www.businesssupport.gov.uk/coronavirus-job-retention-scheme/
The CBILS was announced by the Chancellor in the budget and the scope was extended in subsequent announcements as part of a series of measures to support businesses affected by the ongoing impact of Covid-19. It can provide facilities (loans, overdrafts, invoice and asset finance) of up to £5m for smaller businesses across the UK who are experiencing lost or deferred revenues and disruption to their cash flow. The scheme launched on 23 March and is expected to operate for six months.
The scheme gives the lender (not the borrower) a government backed partial guarantee potentially enabling a business to access facilities which would otherwise not be available.
Unlike Enterprise Finance Guarantee scheme loans, there is no guarantee fee payable by the SME. The government will also cover any interest and lender levied fees in the first 12 months.
There are therefore no upfront costs to SMEs and reduced initial repayments (this may not apply in full for certain fishery, aquaculture and agriculture businesses).
Who is eligible for CBILS?
SMEs from all sectors (excluding certain financial services and public sector organisations) can apply for the full amount of the facility up to a maximum of £5m.
The business must be:
- UK based with UK activity and annual turnover of no more than £45m
- Have a borrowing proposal which would considered viable by the lender, were it not for the current pandemic
- Demonstrate to the lender that the provision of finance will allow the business to trade out of any short to medium term financial difficulty.
What does viable mean?
The decision of what viable means is a credit decision for the individual lenders. In practice this is likely to be a combination of the performance of the business prior to the outbreak of Covid-19, the demonstrable impact the virus has had on the trading of the business (ie partial or total loss of revenue, supply chain interruption etc), the actions the business has taken to manage this impact and how the business will trade out of the current position with the support of the finance being requested.
What information will I need to provide?
The information required will vary by lender and product but as a minimum will include the following:
- Detailed management accounts for a reasonable period to support the historic trading of the business (this could be up to the last three years)
- Management information for February (and March month to date) even if these are not ordinarily prepared (ie if you do quarterly management accounts or no management accounts) to show how the pandemic has impacted on the business. This can be taken direct from your accounting system if needed.
- A summary of what has caused the impact – ie leisure business forced to close due to social distancing measures has dramatically reduced revenue, measures taken in other countries have disrupted supply chain etc.
- A summary of actions the business has taken to manage the impact of the virus such as closing sites, employees furloughed, negotiations of payment terms with suppliers, negotiation of holidays with existing finance providers etc and the financial impact these will have on ongoing trading performance of the business.
- Details of how the business will trade out of the current situation ie a set of financial projections showing P&L, balance sheet and cash flow, and the assumptions supporting these projections.
- Additional information which may be relevant for Asset Finance or Invoice Finance applications includes aged debtor reports, customer contracts etc. Businesses should look at a variety of scenarios when considering how they will trade out of the current situation, looking at the impact of the pandemic lasting for the short (3 months), medium (6 months) and long term (12 months).
How do I apply for CBILS?
The list of participating lenders is available here and being updated as new lenders are accredited under the scheme: https://www.british-business-bank.co.uk/ourpartners/coronavirus-business-interruption-loan-scheme-cbils-2/current-accredited-lenders-and-partners/
If your existing bank or lender is on the list of accredited partners then they should be your first port of call. Understandably institutions are prioritising their existing customers when the volume of enquiries is expected to be incredibly high. Advice is to where possible make applications online as phone lines are likely to be extremely busy.
The package of temporary support measures for public services, people and businesses announced by The Chancellor, Rishi Sunak, on Friday 20 March were broadly welcomed and commended due to the size and scope of the measures. However, there was a clear lack of additional support and protection afforded to Self Employed, estimated at around five million people in the UK.
Since then many have been pressing the government for further help for the Self Employed, particularly for those outside of the retail, hospitality and leisure sectors. Before the announcements of Thursday 26 March, the best the Self Employed could achieve in benefits to help cover their loss of earnings was £95 a week. This is in sharp contrast to the employed that were promised 80% of normal wages up to £2,500 per month.
Thankfully Rishi Sunak has now announced significant additional measures to address the imbalance.
The new Self Employed Income Support Scheme will be available to the Self Employed as a taxable grant of 80% of their earnings, based on their average earnings over the last three financial years, up to £2,500 per month. This scheme will be open for at least three months and includes members of partnerships. Unlike the employed scheme, the Self-Employed can continue to work under this scheme too.
The measure is described as targeted support for anyone with averaged trading profits up to £50,000 and will benefit 95% of people who make the majority of their income through self-employment. For those with less than three year’s returns it will be based on the years available.
Only those already in Self Employment will be eligible. Those who are late with their 2019 Self-Assessment Tax returns will have up to 23 April 2020 to get their return filed so as to be eligible for the scheme. The government will be contacting those who they believe are eligible and will be asking them to complete a form for the scheme and amounts will be paid directly into bank accounts. It is estimated that the grants will be paid no later than the beginning of June, to include amounts back dated to March so people will receive three months’ in a lump sum.
Those who pay themselves a salary and dividends through their own company are not covered by the scheme and will only be covered for their company salary by the Coronavirus Job Retention Scheme if they are operating PAYE schemes. This is another unfortunate gap in the support as many will be taking the vast amount of their remuneration (often under £50,000) via dividends which are essentially disregarded. One reason given was that it would be difficult to separate these dividends from other dividend income but I suspect that’s not the main reason.
Those contracting via Umbrella companies will need to refer to their supplier to see how they are being dealt with.
This will not support all Self-Employed, including the newly Self-Employed, and there will be some earning more than the £50,000 cap which will still be impacted. However, the Government has also provided the following support for the Self-Employed;
- Tax payments that were due to be paid in July 2020 can be deferred until January 2021. While this tax still needs to be paid it will help short-term cash flow.
- Business interruptions loans are available.
- The self-employed are able to access Universal Credit. An advance payment can be made within a matter of days so people won’t need to wait a number of weeks to access some cash.
- The self-employed are able to access Welfare Support.
It was clear from the Chancellor’s comments that the self-employed were told to expect to pay the same National Insurance Contributions as employees. This is news to look out for at future budgets. Given the scale of this support as a result of the COVID-19 pandemic, we might expect to see significant tax increases in the future for all of us.
The Government have said that individuals should not contact HMRC now. HMRC will use existing information to check potential eligibility and invite applications once the scheme is operational.
HMRC are seeing an increase in scam emails, calls and texts. If someone gets in touch claiming to be from HMRC, saying that financial help can be claimed or that a tax refund is owed, and asks you to click on a link or to give information such as your name, credit card or bank details, please do not respond.
HMRC will never contact you out of the blue to ask for these details.
Main Government guidance can be found at: https://www.gov.uk/government/publications/guidance-to-employers-and-businesses-about-covid-19/covid-19-support-for-businesses
Rules for Job Retention scheme – what we do know
- The Government will pay up to 80% of furloughed workers (see definition below), with a cap of £2,500.
- New online HMRC portal will be set up whereby a business will need to provide salary details for those impacted and were on the PAYE scheme as at 28 February 2020.
- Gig workers- the 80% is expected to be based on their wages received in the month of February and backdated to 1 March; we await confirmation of this process.
- It is expected that employers will get in touch with any employees already laid off to advise they are now a furlough worker, but the employee can obviously get in touch with their previous employer to see if they intend to operate this scheme?
- Written communication changing the status of a worker will be required
HMRC describes the furloughed worker as (directly from HMRC)
- If your employer cannot cover staff costs due to COVID-19, they may be able to access support to continue paying part of your wage, to avoid redundancies.
- If your employer intends to access the Coronavirus Job Retention Scheme, they will discuss with you becoming classified as a furloughed worker. This would mean that you are kept on your employer’s payroll, rather than being laid off.
- To qualify for this scheme, you should not undertake work for them while you are furloughed. This will allow your employer to claim a grant of up to 80% of your wage for all employment costs, up to a cap of £2,500 per month.
- You will remain employed while furloughed. Your employer could choose to fund the differences between this payment and your salary, but does not have to.
- If your salary is reduced as a result of these changes, you may be eligible for support through the welfare system, including Universal Credit.
- We intend for the Coronavirus Job Retention Scheme to run for at least 3 months from 1 March 2020, but will extend if necessary.
Statutory Sick Pay update
Employers who are eligible include:
- A refund of the full SSP paid that will cover up to 2 weeks’ SSP per eligible employee who has been off work because of COVID-19. It should be noted, we understand a Period of Incapacity to Work (PIW) is still required i.e. must be off sick for 4 days or more (it is expected this rule will be met due to the 7 plus days isolation).
- Employers with fewer than 250 employees will be eligible - the size of an employer will be determined by the number of people they employed as of 28 February 2020 but all payments can be backdated to 13 March 2020.
- Employers will be able to reclaim expenditure for any employee who has claimed SSP (according to the new eligibility criteria) as a result of COVID-19
- Employers should maintain records of staff absences and payments of SSP, but employees will not need to provide a GP fit note. If evidence is required by an employer, those with symptoms of coronavirus can get an isolation note from NHS 111 online and those who live with someone that has symptoms can get a note from the NHS website.
- Eligible period for the scheme will commence the day after the regulations on the extension of SSP to those staying at home comes into force
- The government will work with employers over the coming months to set up the repayment mechanism for employers as soon as possible.
Changes to Carrying Over Annual Leave
Workers who have not taken all of their statutory annual leave entitlement due to COVID-19 will now be able to carry it over into the next 2 leave years. To find out more click here
Time to Pay
If you find you are struggling to pay your PAYE bill then all businesses and self-employed people who are in financial distress, and with outstanding tax liabilities, may be eligible to receive support with their tax affairs through HMRC’s Time To Pay service.
These arrangements are agreed on a case-by-case basis and are tailored to individual circumstances and liabilities.
To be eligible your business needs to:
- pay tax to the UK government
- have outstanding tax liabilities
How to access the scheme:
If you have missed a tax payment or you might miss your next payment due to COVID-19, please call HMRC’s dedicated helpline on 0800 0159 559 or if you’re worried about a future payment, please call HMRC nearer the time.
Self-employed and payments
For the self-employed an automatic deferral of payments that were originally due 31 July 2020 will be deferred to 31 January 2021 – no application is needed.
Please visit the new Business Support Hub for advice or contact a member of our team https://www.businesssupport.gov.uk/
Under the Retail and Hospitality Grant Scheme businesses can access cash grants of £25,000 for each property with a rateable value of £15,001-£51,000 and £10,000 for each property with a rateable value of £15,000 or lower.
Details of the properties that will benefit from the relief can be found here: https://www.gov.uk/government/publications/guidance-to-employers-and-businesses-about-covid-19/covid-19-support-for-businesses#support-for-retail-hospitality-and-leisure-businesses-that-pay-business-rates
Small businesses which occupy premises and already receive small business rate relief or rural rate relief are eligible for a one-off grant of £10,000 to help meet their ongoing business costs. Scotland & Wales have announced similar grant schemes. The link for information on the Scottish Scheme can be found here: https://www.mygov.scot/non-domestic-rates-coronavirus/
Please contact your local authority to confirm if you are eligible for a grant.
Business Rate Reliefs
12-month business rates holiday for all retail, hospitality and leisure businesses in England and Scotland for the 2020 to 2021 tax year.
To estimate the saving for your business please use the calculator here: https://www.gov.uk/calculate-your-business-rates (based on English rates).
Businesses may also be able to request Hardship Relief via their local authority.
Business rates holiday for retail, leisure and hospitality businesses: https://www.businesssupport.gov.uk/business-rates-holiday-for-retail-hospitality-and-leisure/
Business rates holiday for nurseries: https://www.businesssupport.gov.uk/business-rates-holiday-for-nurseries/
Business Interruption Loans
The Coronavirus Business Interruption Loan Scheme (CBILS) will provide UK businesses with annual turnover of no more than £45m a loan of up to £5m interest-free for 12 months under a British Business Bank (BBB) scheme, where the Government provides the lender with a guarantee for 80% of each loan (subject to a per-lender cap on claims) and covers the cost of the first 12 months of interest.
Before applying, businesses are strongly advised to speak to their existing bank lender(s) and/or seek advice from our team if they wish to access CBILS.
Access to the scheme can be found here: https://www.british-business-bank.co.uk/ourpartners/coronavirus-business-interruption-loan-scheme-cbils/
Due to the COVID-19 outbreak working from home has now become a reality for millions of people. While it’s important to be aware of how we can adapt to this new way of working effectively, it’s more important than ever to make sure that we are working securely. There has already been an increase in coronavirus cyber-attacks, so we’ve put together some tips on how to make sure your business and employees are prepared to work securely.
Tips to work securely from home
When working from home you are most likely to be connected to your home Wi-Fi. If you are using a router supplier by one of the major providers (BT, Virgin, Sky, etc.) you are most likely to be automatically using an encrypted Wi-Fi connection, which is a good secure option
Be mindful of that fact that you may be working with confidential information that you shouldn’t share with other people. Make your family members aware that they shouldn’t share what they see with other people.
If your employer allows you to use your home laptop, make sure that you have antivirus software installed and try not to download or store confidential information on the device. Also make sure you follow any guidance that your employer gives you around security.
VPN’s allow you to create a secure connection between your device (such as a laptop) and a “safe” point on the internet (which might be your company’s office network or a server hosted by a provider in a major data centre). This can allow you to reduce the risks of your confidential data being viewed by third parties such as cyber criminals. You should seek advice from your employer about whether or not they want you to us a VPN and which service to use.
Cyber criminals will be taking advantage of the current situation to send more scam emails in relation to the pandemic. Please be extra vigilant when opening an email if you have any concerns that it might be a scam.
During the COVID-19 outbreak it's likely that the majority of businesses will encounter trading difficulties at some point - in these instances our advice is to manage cash flow appropriately, deal with potential issues head on, seeking help quickly if you're at all concerned.
We have experience assisting businesses in difficulty, so if you are concerned about any of the following business or cash management issues, please get in touch;
- Difficulties in turning stock into debtors and then into cash
- Managing cash flow, identifying critical payments over the short to medium term
- Assessing customers’ ability to pay
- Reviewing supply chain terms and negotiating with suppliers
- Understanding any additional cash requirements and accessing the appropriate external funding
- Reviewing staffing requirements
- Communicating with different stakeholders (including HMRC and existing lenders)
HMRC have announced that a deferral will apply to VAT payments due from 20 March 2020 until 30 June 2020. All UK businesses are eligible, and no applications required to the relief - businesses will not need to make a VAT payment during this period. Taxpayers will be given until the end of the 2020 to 2021 tax year (i.e VAT quarters ending on or after 31 March 2021) to pay any liabilities that have accumulated during the deferral period. VAT refunds and reclaims will be paid by the government as normal.
The deferral relates only to the payment of the return, and therefore the return should be filed on time as usual. This is subject to the normal rules – if a business has a reasonable excuse for not filing the return on time then HMRC would accept this (such as illness, bereavement and so on).
HMRC has confirmed that businesses will need to cancel their direct debits. Businesses that have a direct debit mandate in place to pay their VAT and wish to defer payment will need to contact their bank to cancel that mandate. This needs to be done before the direct debit is due to be collected.
Taxpayers have until the end of the 2020/21 tax year to pay any liabilities that accumulate during the deferral period. VAT refunds and reclaims will be paid by the government as normal. Businesses will also need to remember to reinstate their direct debit mandate once the deferral is over and to make arrangements to pay the accumulated VAT by the end of the 2020/21 tax year.
Businesses should continue to file their VAT returns by the due date.
Barclays Business Banking: 0345 605 2345
HSBC Business Banking: 0800 0121614
Lloyds Business Banking: 0345 307 3809
NatWest Business Banking: 0345 711 4477
Santander Business Banking: 0800 085 1805