Business Support

The Coronavirus Large Business Interruption Loan Scheme (CLBILS) will be made available to enable banks to make loans of up to £25m (the present limit for the smaller scheme is £5m). This will allow firms with an annual turnover of between £45m and £500m access to the 80% government guarantee. The CLBILS is expected to be launched later this month. Facilities backed by a guarantee under CLBILS will be offered at commercial rates of interest.

The government will provide commercial lenders with an 80% guarantee on individual loans for businesses that would be otherwise unable to access the finance they need.

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 at risk in the short term.

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

The Coronavirus Business Interruption Loan Scheme (CBILS), delivered by the British Business Bank, is designed to help support primarily small and medium-sized businesses to access bank lending and overdrafts.

The government will provide lenders with a guarantee of 80% on each loan (subject to a per-lender cap on claims) to give lenders further confidence in continuing to provide finance to SMEs. The government will not charge businesses or banks for this guarantee, and the Scheme will support loans of up to £5 million in value. Under the scheme, businesses can access the first 12 months of that finance interest free, as the government will cover the first 12 months of interest payments.

If you have clients looking to submit an application, they should be aware of what they need to submit when making an application.

Firstly, your clients will need to provide loan details: the amount they would like to borrow, what the money is for and the period over which they will make the repayments.

They will also need to provide certain evidence to show that they can afford to repay the loan. This is likely to include management accounts, cash flow forecasts, business plan, historic accounts and details of assets.

For clients approaching their existing lenders for a smaller facility, the process may be automated and therefore may not require the same level of documentation.

Many small businesses that have applied for a government backed CBILS loan thus far have been offered standard overdrafts and loans – without the Government's 80% guarantee – on the basis that they fit the banks’ criteria for this type of lending.

The Chancellor has now confirmed that this is not the intention of his CBILS scheme and that from now on all businesses affected by the COVID-19 disruption should be offered a CBILS loan with the government guarantee. This change is underlined by the following statement in the press release:

“To maximise the support available, the Chancellor is extending the CBILS so that all viable small businesses affected by COVID-19, and not just those unable to secure regular commercial financing, will now be eligible should they need finance to keep operating during this difficult time” 

A summary of other changes to CBILS are set out below. 

• Lenders will be banned from requesting personal guarantees on loans under £250,000.
• For loans over £250,000 personal guarantees will be limited to 20% of any amount outstanding on the CBILS lending after any other amounts have been recovered from business assets.    

These two changes will provide further reassurance for business owners. Not only will their homes be protected – lenders are already prohibited from asking business owners to put their house on the line – but will also limit the exposure to other personal assets. Reassuringly, these changes will apply to finance already offered under CBILS.

Further changes include:

• The Government encouraging operational changes to speed-up applications under the scheme. 
• The government still covering the first twelve months of interest and bank fees.
• A new Coronavirus Large Business Interruption Loan Scheme (CLBILS) is to be made available to enable banks to make loans under the scheme of up to £25m (the present limit for the smaller scheme is £5m). This will allow firms with an annual turnover of between £45m and £500m access to the 80% government guarantee.
• The Government actively requesting that banks keep interest rates to “a reasonable level”. After all, base rates are at a record low…

These changes should make it easier for small and mid-sized firms to get access to funding that will support their efforts to survive the COVID-19 disruption. Readers who need to make an application would be wise to revise their business cashflow and other projections prior to making an application. This funding is a loan not a grant. The impact of loan repayments and interest charges after the first twelve months need to be considered as part of this planning process.

We can help you consider your options and prepare the necessary forecasts.

During and after any period when economic activity is depressed, companies that survive the process are those that manage their cashflow effectively.

A number of businesses will be in the fortunate position of heading into the current COVID-19 crisis with adequate cash reserves to see them through, many others will not.

In both cases, minimising expenditure and maximising cash inflows should be the name of the game.

Last week we stressed the importance of gathering in monies due from customers. This week we offer a number of additional ideas to bolster cash inflows. They are:

• If you have stock gathering dust in your storeroom offer it to customers at a discounted price – set an initial price reduction to cost – converting these items to cash makes sense. It is also a win-win strategy: you free up space and add to cashflow, and your customers will perceive that they are getting a bargain.
• If stock items are perishable, food for example, set up distribution to food banks and relevant charities and make sure that local press and radio stations are made aware of your generosity – this may not create cashflow, but it will provide free publicity.
• Can you sub-let space office or factory space for storage?
• Do you have any redundant plant or IT equipment that you could sell online – eBay etc.
• Keep your accounts up to date. If you have made losses you may be able to carry losses back in time and recover tax paid in previous years.

You can also achieve the same benefits by reducing expenditure. See our further article on this aspect in our newsfeed next week.

And we can help. Call if you want to brainstorm options that you may have, to convert assets into cash.
 

As part of the government’s response to assist businesses during the COVID-19 crisis is the offer to defer VAT and self-assessment tax and NIC payments.

VAT

HMRC will not enforce payment of VAT liabilities that fall due between 20 March 2020 and 30 June 2020. For most VAT registered firms, this will boost cashflow as one quarter's VAT payment will not be made.

SELF-ASSESSMENT TAX AND NIC

HMRC have also confirmed that any second payment on account due 31 July 2020 does not need to be made.

Whilst businesses and tax payers will appreciate this offer, there will come a day of reckoning.

Deferred does not mean cancelled.

Any deferred VAT will need to be paid by 31 March 2021, and any deferred self-assessment tax by 31 January 2021.

Make sure you factor these 2021 payments into your cashflow forecasting. Business owners may forget that these potentially significant payments will need to be dealt with early next year.

As the COVID-19 lock-down starts to bite, businesses will be utilising available resources to meet their daily needs. In a number of cases this may see cashflow diminish as losses start to make inroads into reserves.

The best way to plan for these deferred payments is to create a cashflow forecast. This can be a simple spreadsheet with a list of monies due in, monies to be paid out, and that projects a running balance of your bank balances. This needs to be done at least a year ahead and reviewed monthly so you can see where cash shortages are likely to occur.

We can set this up for you and show you how to keep the report up-to-date.  
 

New insolvency measures have been announced 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. The measures were announced by the Business Secretary, Alok Sharma.

These changes will see the temporary suspension of the wrongful trading law during the pandemic. It will apply retrospectively, from 1 March 2020, for three months. This means that company directors can continue to trade without the threat of personal liability. This will allow directors of companies to pay staff and suppliers even if there are fears that the company could become insolvent due to the current, exceptional trading circumstances. 

Other changes include a temporary moratorium for businesses undergoing a rescue or restructuring process. During this period, they cannot be placed in administration by creditors and be able to continue buying important supplies – such as energy costs and raw materials. There will also be a new restructuring plan binding on creditors.

These measures should help some businesses to cope with the significant difficulties of the current crisis and hopefully, enable them to continue functioning until the situation improves. 
 

The long-awaited statement from the Chancellor, Rishi Sunak regarding COVID-19 support for the self-employed has been announced. The Chancellor said that the scheme will benefit some 95% of people whose main income source is derived from self-employment.

A list of the scheme features as announced, and published, are as follows:

• Those that qualify will receive a cash grant from HMRC based on 80% of profits, up to £2,500 per month,
• The initial grant will be for the three months, from 1 March through to the end of May 2020, but could be extended for a longer period. 

To be eligible, the following conditions will be taken into account:

• Applicants must be self-employed or a member of a trading partnership,
• Have lost trading profits due to COVID-19,
• Have filed a tax return for 2018-19. Late filers will have four weeks from 26 March 2020 to do so,
• Have traded in 2019-20; be currently trading at the point of application (or would be except for COVID-19) and intend to continue to trade in the tax year 2020-21,
• Have trading profits of less than £50,000 and more than half of total income from self-employment. This can be with reference to at least one of the following conditions:
  • Your trading profits and total income in 2018-19,
  • Your average trading profits and total income across up to the three years between 2016-17, 2017-18, and 2018-19.

There is no need to apply to HMRC as they will contact you if you are eligible. HMRC will use existing data to make this judgement. The initial three-month grant will be paid directly to a nominated bank account in a single lump sum. The grants are expected to be paid out at the beginning of June. The reason for this delay is likely down to three main factors: the 4 weeks additional filing time for late filers, the requirement to set up a complex new system at the same time as the Coronavirus Job Retention Scheme and to reduce the risk of fraud. 

It is assumed that those self-employed who have experienced a significant drop in income due to COVID-19 disruption will need to apply for Universal Credits or Business Continuity Loans to tide them over until June. This will be a challenging time for those affected as the demand for help will place significant challenges on the institutions charged with providing this support.
 
CORONAVIRUS JOB RETENTION SCHEME (CJRS) – update for director shareholders

There has been uncertainty as to the position of director/shareholders claiming under the CJRS as their income is usually taken from their company as a combination of a low salary and dividends. In the news story published following the Chancellor’s statement on 26 March (regarding the Self-employed scheme) is a telling paragraph. It says:
 
Those who pay themselves a salary and dividends through their own company are not covered by the scheme (the Self-employed Scheme) but will be covered for their salary by the Coronavirus Job Retention Scheme if they are operating PAYE schemes.

This infers that directors will only be eligible for the CJRS based on their salary alone, and only if there is a proven PAYE record.

Further details of the CJRS are due to be published imminently and will be added to our newsfeed as soon as they are available.

Most business owners are rightly focussed on sales. If sales dry up business costs will quickly result in losses; and losses will eventually burn through your assets until insolvency rears its ugly head.

In the current “lock-down” environment there is a temptation to ease back on collecting cash from customers if you offer credit in order to maintain sales.

And, of course, your customers may not be in a position to pay you according to agreed terms if their finances are being stretched.

What to do?

1. Firstly, negotiate with your customers, if you sell goods or services have a candid conversation about payment, when will your bills be paid?
2. Offer special discounts for cash sales or prompt payment. It is better to trim your profit margins than sell and increase bad debts.
3. Use online direct debit resources so that you can collect payment from customers on the agreed due date. We can help you choose an appropriate scheme.
4. Respond quickly to customers that are late in settling their account. There is no point in selling additional goods to a business that may be unable to pay.

If you offer credit to a customer – they pay you at a future date after goods or services have been supplied – you are volunteering to leave your money in their bank account for that period of time.

To minimise your risks of bad debts at this difficult time we recommend that you reconsider your credit control processes. Please call if you would like our help to do this.

The current “lock-down” to slow down the Coronavirus epidemic is a sensible medical response, but a potential disaster for small businesses desperately trying to keep their businesses open and operational.

Since the 10 March, we have had a formal budget and at least two major “mini-budget” announcements bringing forward schemes to assist individuals and firms to cope with this unprecedented COVID-19 disruption.

We are working round the clock, and when necessary from our homes, to keep you informed of these changes and with advice to ease your progress through these difficulties.

Please keep an eye open for our emails and other updates as they will help you survive the process. 

New schemes to support businesses are being announced almost weekly, so please, make a point of reading our updates and contact us if you have concerns that need to be addressed.

Finally, if you have business colleagues who may benefit from our news feed, please forward them a copy of our updates and ask them to sign up for our newsletter on our website.

Being informed and acting on the latest news can only have a positive impact on your ability to weather the Coronavirus disruption. If you need to respond to any of the issues we raise please pick up the phone. We are here to help.
 

If you have been 'furloughed' then the new Coronavirus Job Retention Scheme may be able to help. If you are furloughed it essentially means that your employer has given you a temporary leave of absence or a type of sabbatical to help cope with the economic turmoil resulting from COVID-19. If you are on furlough, then you should be at home and not working. However, you remain technically employed.

The new scheme will see the government cover up to 80% of wage costs, up to a cap of £2,500 per month per employee. HMRC are working to set up a system for reimbursement and the first grants are expected to be paid in the coming weeks. The scheme will run for at least 3 months, backdated from 1 March 2020, but will be extended if necessary. The government has not placed any limit on the funds to be provided using this scheme, but the costs will run into the billions each month the scheme is operational.

The use of this scheme is designed to encourage employers to avoid making people redundant and to help avoid significant financial hardship for individuals who have unfortunately been furloughed.  Your employer could choose to fund the differences between this government payment and your salary but is under no obligation to do so.

If your salary is reduced as a result of these changes, you may also be eligible for further welfare support. It appears that these grants will only be available to PAYE workers. It was not clear how this will apply to gig workers or those on zero-hours contracts. There will also need to be proper safeguards to ensure that this scheme is not subject to abuse.