Business Support

Many retailers and manufacturing businesses have stock on their shelves gathering dust.

There are compelling reasons for tackling this issue as we cautiously emerge from lock-down.

For example, freeing up storage space will enable you increase the volume of goods that are selling.

Stock that is not selling is rather like withdrawing money from your bank dropping it into a box and parking it in your stores or stock-room. It has no real value to your business apart from the vague possibility that it will sell at some future date.

What to do?

As we emerge from lock-down everyone is going to be on the lookout for bargains. Accordingly, create a sale of your slower-moving stocks. You can lower the price to recover the cost to you or set sales prices at a level that is marginally higher than its scrap value.

Why should stock turnover be your key indicator in the coming months? 

Every time you sell stock for more than you paid for it you release the profit into your cash-flow.

In which case it makes sense to monitor sales and stock movements to see which items of stock are selling faster than others: faster stock turnover means valuable cash resources being returned to your bank account.

What works against this process is to have stocks on your shelves that are slow to sell and actually tie-up your working capital to no great effect.

The opportunity to buy at reduced prices will encourage customers to return to your business and help to boost your cash-flow. Both factors that will help you re-establish in the post-COVID economy.

Without a doubt, the furlough scheme has provided small businesses with the means to retain staff that would otherwise have been laid-off.
The government is paying 80% of furloughed employees’ wages (subject to a £2,500 maximum). From 1 August 2020, this level of support is expected to drop to say 60%.

From the same date, 1 August, the rules that effectively ban employees from working while they are furloughed is also expected to be eased and affected employees encouraged to return to part-time working.

However, employers will need to draw breath and figure out their choices regarding staffing levels as we start to emerge from lock-down.

The choices will be:

1. Retain staff and gradually wean the business from the Coronavirus Job Retention Scheme as sales activity resumes pre-March 2020 levels.
2. Lay-off part of the workforce, retaining those needed to support lower levels of activity.
3. Lay-off all the workforce as longer-term restrictions in trade make continued trading impossible.

Whichever of these three choices is considered planning needs to be a key part of the decision making process.

Many employers will need to consider these options as more of the economy is opened up and financial support for furloughed workers is decreased. Please contact us if you need help preparing the necessary forecasts so you can make an informed decision.  

The scope of the Coronavirus Large Business Interruption Loan Scheme (CLBILS) is to be extended from 26 May 2020. The maximum loan size will be increased from £50 million to £200 million. Larger businesses will be able to benefit from loans up to the lower of 25% of turnover or £200m. The changes are expected to go live on 26 May and full details are expected to be made available on that date. 

This increase will help ensure those large firms which do not qualify for the Bank of England’s Covid Corporate Financing Facility (CCFF) have enough finance to meet cashflow needs during the outbreak.

Companies borrowing more than £50 million through the CLBILS will be subject to restrictions on dividend payments, senior pay and share buy-backs during the period of the loan, including a ban on dividend payments and cash bonuses, except where they were previously agreed. These restrictions also apply to CCFF participants who wish to borrow money beyond 12 months, effective 19 May 2020.

Under the CBILS, the government provides commercial lenders with an 80% partial guarantee on individual loans for businesses that would be otherwise unable to access the finance they need at this critical time.

Personal guarantees of any form will not be taken for facilities below £250,000. For facilities of £250,000 and over, claims on personal guarantees cannot exceed 20% of losses after all other recoveries have been applied. The CLBILS currently supports a range of finance products including short term loans, overdrafts, invoice finance and asset finance.

To date, the government has provided loans of £359 million through the CLBILS and £18.7 billion through the CCFF.

Last month, the Chancellor, Rishi Sunak, announced a number of measures to help innovative firms survive the Coronavirus pandemic. One of these measures was the launch of a special investment fund for high-growth companies impacted by the crisis, made up of funding from government and the private sector, called the Future Fund. The government has committed to an initial £250 million in funding towards the scheme. This amount will be kept under review.

Funding applications for the Future Fund opened on 20 May 2020 and the scheme will remain open until the end of September 2020. The Future Fund will provide government loans to UK-based companies ranging from £125,000 to £5 million, subject to private investors at least matching the government commitment.

These convertible loans may be an option for businesses that rely on equity investment and are unable to access other government business support programmes because they are either pre-revenue or pre-profit.

There are a number of conditions that must be met in order to apply for a loan. For example, qualifying businesses must be an unlisted UK registered company that has raised at least £250k in equity investment in the past five years. The company must also have been incorporated on or before 31 December 2019.

Trade credit insurance is a contract acquired by suppliers to make sure they get paid even if their customers default. This gives businesses the confidence to trade with one another and is especially important as the COVID-19 pandemic continues to decimate many businesses. The risk of COVID-19 meant that insurers could withdraw insurance or increase premiums to unaffordable levels.

HM Treasury has now confirmed that to prevent this from happening, the government will provide guarantees for all currently available for trade credit insurance. This will support supply chains and help businesses to trade with confidence as they can trust that they will be protected if a customer defaults on payment.

The final details of the scheme are being worked on and government will liaise with businesses and the industry on the full details of the scheme to ensure firms are supported and risk is ‘appropriately’ shared between the government and insurers.

The guarantees will cover trading by domestic firms and exporting firms and the intent is for agreements to be in place with insurers by end of this month. The guarantee will be temporary and targeted to cover COVID-19 economic challenges and will provisionally last until the end of the year.

It will be followed by a review of the trade credit insurance market to ensure continued support for businesses in the future. Further details will be announced in due course.

Under the Coronavirus Statutory Sick Pay Rebate Scheme small-and medium-sized businesses and employers will be able to reclaim Statutory Sick Pay (SSP) paid for sickness absence due to COVID-19. It has now been confirmed that the online service to reclaim SSP will launch on 26 May 2020.

In order to claim, you will need the Government Gateway user ID you acquired when you registered for PAYE Online. If you use an agent who is authorised to undertake PAYE online for you, they will be able to claim on your behalf. An alternative way of claiming for those unable to do so online will also be made available in due course.

The scheme covers up to 2 weeks’ SSP per eligible employee who has been off work because of COVID-19. Employers are eligible for the scheme if their business is UK based, small or medium-sized and employed fewer than 250 employees as of 28 February 2020. Employers must also have had a PAYE payroll scheme that was created and started on or before 28 February 2020.

A claim can be made for employees that had / have Coronavirus, cannot work because they are self-isolating at home or are shielding in line with public health guidance. The claim amount should not take claimants above the state aid limits under the EU Commission temporary framework.

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.

The insolvency measures to help prevent businesses unable to meet debts due to the impact of Coronavirus to continue trading and not be forced to file for bankruptcy have been extended. It was confirmed that the temporary suspension of wrongful trading liability during the pandemic will now continue until 30 June. The measure was initially set to expire on 1 June 2020.

This means that company directors can keep their businesses going without the threat of personal liability. This measure allows directors of companies to pay staff and suppliers even if there are fears the company could become insolvent due to the Coronavirus outbreak.

The Department for Business, Energy and Industrial Strategy (BEIS) also confirmed that temporary measures to give companies and other bodies flexibility regarding Annual General Meetings (AGMs) and other meetings will be made retrospective to 26 March 2020.

The BEIS and the Financial Reporting Council (FRC) have also jointly published a Q&A document containing further clarifications. The document confirms that the government intends to introduce the necessary legislation as soon as the Parliamentary timetable allows and that the measures will apply retrospectively from 26 March.

However, it is important to note a caveat within the document stating that 'while it is our expectation that the legislation passes into law and applies retrospectively, we cannot guarantee this outcome. Therefore, companies and other bodies will need to take their own view on how to proceed.'

Under the proposed legislation, companies will have until the end of September 2020 to hold their AGMs. This date will be extended if necessary. The measures will also apply to general meetings or other meetings of members that are required.

The Self-employment Income Support Scheme (SEISS) opened for applications on 13 May 2020. HMRC has confirmed that by midnight on 17 May there had been a total of 2 million claims with over £6.1 billion claimed. The scheme will provide grants of up to £2,500 per month based on 80% of average profits to qualifying applicants.

The initial grant is for the three months, from 1 March through to the end of May 2020. The government has not yet confirmed whether this scheme will be extended, past the current expiration date of 31 May.

The self-employed can only make a claim if their business has been adversely affected by Coronavirus. For most claims, the grant will be based on average trading profits over the tax years 2016-17, 2017-18, 2018-19. To be eligible, trading profits must be no more than £50,000 and at least equal to non-trading income.

HMRC will assess eligibility for the grant based on trading profits and non-trading income from Self-Assessment tax returns. Trading profits are calculated as the profits from self-employment or partnership tax calculation after deducting any allowable expenses. HMRC will not deduct any losses brought forward from previous years or the personal allowance.

Most companies will have fairly healthy accounts up to the middle of March 2020 when the lock-down of activity to control coronavirus started.

Since that date, many firms will have struggled to maintain profitability even with the support of the various government programmes.

If we do manage to extract ourselves from lock-down without re-awakening COVID-19, it will probably be the end of this year before we can start to show modest profits once more.

Accordingly, the last nine months of 2020 will likely ring-fence our COVID losses.

There are three issues arising that are worth contemplating:

1. Profits up to 31 March 2020 will create tax payments early 2021 when our cash flow will be at its lowest ebb due to any COVID losses to the end of 2020.
2. How will credit reference agencies react when the COVID losses start to be filed next year?
3. Is there a strategy to extend accounting periods to absorb part of the COVID losses? For example, extending 31 December 2019 year ends to 30 June 2020, or 31 March 2020 to 30 September 2020? This would help to reduce tax payments next year but risk an earlier adverse reaction by credit reference agencies.

Credit reference agencies are already adding COVID risk indicators to their reports. Being one step ahead of these issues makes sense. 

There is no one-fix solution. We suggest that business owners contact us to discuss these options and to find a best-fit option for their business. 

For less than you would spend on tea milk and coffee each month, you can acquire the use of cloud-based accounting software.

Why bother?

Computerising your accounting routines in this way has a number of benefits for your business; of crucial concern if we are to survive the current COVID disruptions.

Benefits for individual businesses will vary but may include:

• Improved credit control
• Automated bank reconciliation process – links your bank accounts to your accounting software
• Profitability and solvency can be monitored in real time
• Links to your payroll software and online filing
• Automated VAT return production and online filing

And of increasing importance to all businesses at present, the ability to forecast and manage cash flow. Usually, this particular function is provided by a specialist APP that is bolted on to your accounting software.

Every business has different requirements and so selecting the right software is critical. We have our preferred suppliers and would welcome the opportunity to discuss your options with you.

If you already use cloud accounting software and would like to extend functionality to manage cash-flow, we can help. There are various APPs on the market that offer various levels of complexity.