Business Support

The scope of the Coronavirus Large Business Interruption Loan Scheme (CLBILS) was expanded by the Chancellor ahead of the scheme launch on 20 April 2020. The scheme enables banks to make loans to firms with an annual turnover of over £45 million. Businesses with a turnover exceeding £500m were not originally eligible to use the scheme. This will allow more firms to be able to benefit from this government support.

Qualifying businesses can apply for up to £25 million if their turnover is between £45 million up to £250 million and for up to £50 million if turnover exceeds £250 million. Facilities backed by a guarantee under CLBILS will be offered at commercial rates of interest from three months to three years.

Under the scheme, the government will provide 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.

Lenders will still be expected to conduct their usual credit risk checks, but this scheme allows them to specifically support business that were viable before the COVID-19 outbreak but are facing significant cash flow difficulties that would otherwise make their business not viable in the short term.

The new scheme supports a range of finance products including short term loans, overdrafts, invoice finance and asset finance.

The government has announced that more than 1,000 fishing and aquaculture businesses in England will receive direct cash grants through a new fisheries support scheme.

The scheme will make available grants of up to £9 million for eligible fishing and aquaculture businesses. These measures will help support businesses with small to medium-sized boats up to 24 metres in length with fishing licences registered in England who recorded sales of £10,000 or more in 2019.

The majority of the fish caught by these fishermen is usually for export and the price and customer base has been slashed. The new scheme will run for up to three months and will focus on helping English fishing and aquaculture businesses with their fixed costs such as insurance, equipment hire and port costs.

A further £1 million will be made available to support projects to assist fishermen to sell their catch in their local communities. This money is expected to help fishing businesses find new ways to market and sell their catch while traditional markets are restricted.

The seafood and fisheries sectors can also apply for the existing support available for businesses, including the Coronavirus Business Interruption Loan Scheme and the Coronavirus Jobs Retention Scheme.

The government has announced a new £1.25bn scheme to help innovative firms survive the coronavirus pandemic.

The package is made up of:

• £500 million investment fund for high-growth companies impacted by the crisis, made up of funding from government and the private sector, called the Future Fund.
• £750 million of grants and loans for SMEs focusing on research and development.

The £500 million Future Fund will be delivered in partnership with the British Business Bank and launched in May. The loans will provide between £125k and £5m from the government, with private investors at least matching the government commitment. These loans will automatically convert into equity on the company’s next qualifying funding round, or at the end of the loan if they are not repaid. Qualifying businesses must be an unlisted UK registered company that has raised at least £250k in equity investment in the past five years. The government is committing £250 million in funding towards the scheme, which will initially be open until the end of September.

The £750 million of targeted support for the most R&D intensive small and medium size firms will be available through Innovate UK’s grants and loan scheme. This will include up to £200 million of grant and loan payments for its 2,500 existing Innovate UK customers on an opt-in basis. An extra £550 million will also be made available to increase support for existing customers and £175,000 of support will be offered to around 1,200 firms not currently in receipt of Innovate UK funding. The first payments are expected to be made by mid-May.

The Chancellor of the Exchequer, Rishi Sunak, has announced today (17 April 2020) that the Coronavirus Job Retention Scheme is to be extended by one month until the end of June. This announcement will help provide many businesses with more certainty at this very difficult time. This change follows the extension to the nationwide Coronavirus lock-down measures until at least 7 May 2020 that were announced on 16 April 2020.

The scheme was first announced last month and was originally intended to run backdated from 1 March for 3 months until the end of May. The scheme is designed to help employers furlough their employees with significant government support payment cash grants of up to 80% of their wages to a maximum of £2,500 per month.

The Chancellor of the Exchequer, Rishi Sunak, said:

'We’ve taken unprecedented action to support jobs and businesses through this period of uncertainty, including the UK-wide Job Retention Scheme. With the extension of the coronavirus lockdown measures yesterday, it is the right decision to extend the furlough scheme for a month to the end of June to provide clarity.'

The government has confirmed a number of important of announcements regarding the eligibility requirements for using the Coronavirus Job Retention Scheme and the opening of the online portal for applications.

1. The date on which employees can be placed on furlough has been changed to 19 March 2020. This means that employees who were on the PAYE payroll of their employers on or before 19 March 2020 will be eligible to receive support through the Coronavirus Job Retention Scheme. The original eligibility date was 28 February 2020. The new date is fixed at the day before the scheme was originally announced by the Chancellor and is therefore unlikely to be changed again to protect the government against fraudulent claims.
2. Employees who were employed as of 28 February 2020, and on payroll, who were made redundant or stopped working for the employer after that and prior to 19 March 2020, can also qualify for the scheme if they are re-employed and placed on furlough.
3. It has been confirmed that the online claim service for the Coronavirus Job Retention Scheme will be launched on Monday 20 April 2020. The only way to make a claim will be online.

It is expected that claims will be paid within six working days. HMRC have requested that you do not contact them unless absolutely necessary.

Once the present lock-down is eased, those businesses that have manged to weather the disruption will be eager to start selling.

Sales will be the indicator that receives the most attention; sole-traders, partners and directors will be out of their starting blocks to be the first in their market sector to secure deals.

There will the temptation to relax terms and conditions in order to win these early sales. For example, firms could offer their customers 90 days to pay their bills in order to convert sales.

Ironically, if businesses are successful in winning new sales, those that are most successful will be in danger from overtrading. Even if the sales produced are profitable on paper, a business can still go under if it trades its way out of cash, out of liquidity.

How can this happen?

During lock-down, many businesses will be faced with paying fixed costs – rent for example – even if turnover has reduced or been eliminated due to Coronavirus disruption. Government schemes to assist with rates and payroll costs will help, but many businesses will be loss making.

These losses will reduce cash reserves and in some cases, firms will be obliged to lend money to fund these losses; if they want their businesses to survive.

When we come out of lock-down, and sales pick-up, it may be some time before these sales actually reach our bank accounts, especially, if we are tempted to offer extended credit in order to win sales.

Consequently, the extra sales may not generate cash inflows at a fast enough rate to meet current costs, and as most businesses will be entering this post lock-down period with depleted or exhausted reserves, unpaid creditors including your bank, may enforce a close-down in order to part recover their unpaid bills and loans.

This is overtrading and the way to avoid it is to adopt rigorous cash-flow management. This is a process that you can start now, before any upturn. If you need help designing the necessary spreadsheets, please call, we can help. 

There is a temptation to treat expenditure as a cost. The Cambridge Online dictionary defines cost as:

“The amount of money needed to buy, do, or make something”

What this definition does not do is to expose the difference between a cost that deals with a current need – to replace a printer cartridge for example – or to provide information or resources to deliver more goods and resources in the future or to improve the quality or range of goods and services that you sell.

The “current need” costs are costs. Those that fall into the latter category are better defined as investments.

There is a tendency to treat costs as something to avoid, especially, as now, when sales are low or non-existent. And this may be a sensible precaution to protect cash-flow at this time. But this process needs to be reconsidered when the brakes start to come off, when lock-down is eased, and when business activity starts to pick-up.

A better classification, when you consider expenditure options, is to favour investments.

For example, you may have computer hardware that is constantly falling over and hindering your efforts to resume trade. Clearly, replacing this kit is an investment that will support your efforts in the future; the expenditure required is, therefore, an investment.

Alternatively, you may have a delivery vehicle that is still road-worthy, but you would like to have a new piece of kit on the road. This expenditure would not add to your resources and allow you to increase sales or reduce other costs, it would, if you like, be a new toy. If so, this expenditure would be a cost to your business.

Costs are necessary but should be minimised. Investments add value to your business plans and should be maximised. How to plan for both categories is a key part of your budgeting process.

As we have written about previously, the Coronavirus Job Retention Scheme (CJRS) provides significant government support to allow employers to furlough employees and apply for a grant that covers 80% of their usual monthly wage costs, up to £2,500 a month – plus the associated Employer National Insurance contributions and pension contributions. The scheme is available from 1 March 2020 for 3 months but will be extended if necessary.

The government guidance includes the following notes:

• Shielding Employees – Employers can claim for furloughed employees who are shielding in line with public health guidance (or need to stay home with someone who is shielding). This includes if your employee is defined as extremely vulnerable. For example, suffering from a severe respiratory condition or with a high risk pregnancy.
• Employees with caring responsibilities – Similarly, employers can claim for furloughed employees who have caring responsibilities resulting from Coronavirus. For example, employees that need to look after children who are home from school.
• If your employee has more than one job – If your employee has more than one employer, they can be furloughed for each job. The government guidance makes it clear that each job is separate, and the cap applies to each employer individually. This means that an employee can be furloughed from one employment but continue to work for another employer and receive their normal wages.

As most self-employed readers will be aware, Self-Assessment tax and NIC payments on account are based on profits earned in the previous tax year and balancing payments due are not payable until the 31 January following the tax year end date.

From a cash flow point of view this is an advantage but only if taxable profits year on year are increasing.

During this unsettled period due to COVID-19 disruption, many self-employed businesses will have lower profits in 2019-20 compared to 2018-19, and even lower numbers in 2020-21 compared with 2019-20.

For these two years – profits arising in 2019-20 and 2020-21 – we recommend the we prepare accounts and submit returns as soon as possible after the end of the tax year. The 2019-20 tax year ended 5 April 2020.

Why do we recommend this?

• If profits have fallen, year on year, we can apply for payments on account (payable January and July each year) to be reduced.
• You will be advised of any balancing tax payments due for the previous tax year – due the following January – well in advance of the payment date, so you have time to save appropriately.

And there is a non-tax advantage to preparing accounts and tax calculations as quickly as is possible after the end of the tax year. If you need to apply for one of the recently announced Coronavirus Business Interruption Loans, your bank may need to see a copy of your most recent accounts. The data will also provide up-to-date information to create a realistic cash flow forecast.

Clients are requested to call as soon as they have updated their accounting records taxable in 2019-20 – for most businesses that will be for the year to 31 March 2020 (or 5 April 2020). 

During periods when demand for your goods and services drop – for example, if your business has been closed down or adversely affected by the recent COVID-19 outbreak – your sales and incoming cash receipts tend to drop at a faster rate than you are able to reduce your outgoings.

Expenses tend to fall into one of two groups:

• Those that tend to vary in direct proportion to your sales: buying raw material or stock for resale, or
• Fixed overheads: rents, rates, wages, and other recurring costs.

Variable costs can be reduced quickly once a downward sales trend is confirmed. Fixed costs can also be reduced but over a longer time period.

During a time when costs overtake income, losses occur. If losses are significant they may exhaust any reserves you have built up in your business. When this happens, you are in danger of becoming insolvent (liabilities exceeding assets).

Consequently, if your business is experiencing a downturn, keeping your accounts up-to-date is of paramount importance. Most accounting software will produce a balance sheet and we can show you how to monitor this report to warn you of approaching insolvency.

Please call if you need help to organise your record keeping and we will provide you with the information you will need.