With coronavirus having been declared as a pandemic by the World Health Organisation ("WHO"), businesses and individuals must prepare for the potential challenges ahead and react as necessary. As the Government continues to impose further restrictions on a daily basis in order to deal with the situation, the challenges the restrictions will create will only increase and will almost certainly have significant implications for most and no one knows how long this crisis will last.
At Harbour Key we will continue to keep you updated via our news alerts and a coronavirus web-page has been set up on our website, to which we will add both Government and non-Government advice and support, as it is issued.
In this initial information fact sheet we highlight advice, tips and Government support that has been recently announced to help business deal with the crisis.
The first point we would make is that cash is going to be king. We raise the importance of cash to businesses on a regular basis, but this crisis makes it a top priority. Although collecting cash is going to become more difficult, our fact sheet on the subject can be found at here.
Look at the potential impacts to cash flow and how, by taking action now, it may be possible to manage or plan for the problem (which we accept is difficult with no idea how long the crisis will continue).
If not done so yet, carry out a risk assessment and list your plans to overcome any key issues. For example, are any of your suppliers/supplies likely to be impacted? If the answer is yes – what can do you to sustain your stocks? What does your current inventory look like - do you need to look for new suppliers - do you have contractual obligations to current suppliers? How is this likely to impact on cash?
Undertake a thorough review of your cash flow to understand where the pinch points are likely to be. Don’t ignore potential cash issues - by planning now you are more likely to work out a plan which helps to overcome your problems.
Consider how you can improve cash flow, hopefully our factsheet has some tips.
The Government has recognised that cash is going to be an issue for most businesses and announced a number of measures to help businesses. Confusion has arisen with measures being announced in The Budget, then being revised/updated a week later, with little detail.
We have summarised the Government measures below, as they stand at the date of writing. However, we would recommend speaking with your bank or lender to understand what help and support they can provide, so as to understand all options available. For example, your lender may offer a payment holiday or restructure the loan. Most banks have already started to offer support to their customers, for example NatWest has promised £5bn to support UK small and medium-sized businesses suffering from disruption caused by the coronavirus outbreak.
- Coronavirus Business Interruption Loan Scheme (CBILS) - The facility is a Loan Guarantee, the bank lends the business money with the Government providing the bank with an 80% Guarantee. It is not risk free to the bank, but they are likely to be more supportive where they can be, as they can recover 80% of any loss from the Government. Remember it is still a loan, that has to be repaid, and personal guarantees may be required.
Key points known currently about the loan:
- Open to companies with less than £41m turnover
- Open to most sectors, but the conditions for applying are not known yet
- A sound borrowing proposal required
- Amount – £1,000 to £5,000,000
- Term – 3 Months to 10 Years
- Interest – Low rates but as yet unannounced
- Fees – No arrangement fees are being levied
- Initial – 6-month interest free
- Available through most high street banks.
The British Business Bank are in the process of defining and agreeing the scheme’s details, specifications and eligibility and therefore information is subject to change. The aim is to get the scheme operational for Monday 23rd March 2020.
From our discussions with a couple of banks, they believe that the principles of EFG loans (another Government backed scheme) are likely to be followed for CBILS. Our experience of dealing with EFG loan applications, is that the following will be required to support an application with a strong proposal:
- Latest (and up to date) Statutory Accounts
- Current Management Accounts
- Integrated (P&L/Balance Sheet/Cashflow) Forecasts, with written assumptions. The assumptions are going to need to cover:
- Predict a period of distress caused by the virus, say 6 months.
- A gradual reversing showing an increase back to historic levels pre virus
- Highlight other measures/actions implemented for example time to pay taxes, grants applied for.
- Business rates holiday for retail, hospitality and leisure businesses in England for 12 months.
- A £25,000 grant will be provided to retail, hospitality and leisure businesses operating from smaller premises, with a rateable value between £15,000 and £51,000.
- £10,000 cash grant to smallest businesses, again delivered by local authorities, which pay little or no business rates and are eligible for small business rate relief or rural rate relief. The current plan is that eligible businesses will be contacted by their local authority – no application process. This is timetabled to start in early April, once guidance has been issued.
Tax returns & payment
Neither HMRC nor the Government has stated there will be any relaxation on tax filing deadlines. For the time being, businesses should meet their accounting and tax reporting obligations to avoid penalties being issued, and therefore wasting valuable cash.
Time to pay arrangement for taxes – All businesses and self-employed people 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 by HMRC and are tailored to individual circumstances and liabilities.
HMRC are setting up a hotline dedicated to deal with taxpayers impacted by the virus 0800 015 9559.
Whilst the first contact with HMRC will be via the above telephone helpline, in most cases it will be necessary to provide your repayment proposals and supporting evidence in writing. It is very important to be realistic about your repayment proposal as HMRC will not accept a proposal where they consider that the taxpayer is unlikely in practice to meet its terms. Compliance history will be taken into account, so any previous history of non-compliance will need to be explained, and any outstanding returns need to be sorted.
PAYE liabilities - HMRC has verbally confirmed to a firm of solicitors we know, that in relation to PAYE due to be paid for month 11 (i.e. March 2020) this can be deferred for two months, subject to specific agreement with HMRC.
Reimbursement of statutory sick pay - employers who have less than 250 employees (as of 28 February 2020) can reclaim up to two weeks statutory sick pay for each employee who is absent due to self-isolation as a result of the virus. It is understood that businesses account to HMRC for income tax and employee and employer’s NIC on statutory sick pay in the usual way. The reimbursement that employers can claim will be of the net amount paid to employees. Businesses will therefore bear the tax cost of paying statutory sick pay. The businesses will need to keep records to support their reimbursement claims but “fit notes” will not be required evidence.
Full guidance is to be issued which hopefully will cover how businesses can claim reimbursement and how long such claims will take to be processed.
Research & Development Tax Credit (companies only)
A successful R&D claim will aid cash flow, as it will either reduce the corporation tax liability, or if loss making the loss can be surrendered for cash. An R&D claim can be made where a company is engaged in activity which is seeking to resolve scientific and technological uncertainty.
A lot of businesses don’t believe they have R&D claims, as they are doing what they perceive as their day to day role, which can in some cases be innovative and, therefore, qualifying.
Harbour Key can provide further advice on whether a claim is possible or not.
Working from home
To obtain tax relief for working at home as an employee, it will normally be necessary for the employees’ contract of employment to require them to work from home. Where working at home is optional, it is very unlikely that HMRC will accept a deduction for expenses. However, the virus situation is resulting in employees having to work from home and therefore they can claim for the additional costs, such as electric and water. HMRC have a fixed home working allowance, currently £4, increasing to £6 per week, from 6th April. It is possible to claim more than this if possible, to show that the expenditure incurred is more than the allowance. Fixed costs that are unchanged, whether or not you work at home cannot be included, for example mortgage interest, rent, council tax and broadband.
If equipment has to be acquired for employees to work from home, for example a laptop, the cost of acquiring the equipment will be 100% deductible in calculating the business tax bill.
- The IR35 reforms due to take effect from 6th April 2020 have been delayed for a year, due to the coronavirus outbreak.
- Facebook has announced a small business grants program including cash and ad credit. You can register your interest here.
- The government is looking for businesses who can support in the supply of ventilators for the NHS and ventilator components across the UK.
- Businesses that have insurance cover for both pandemics and Government-ordered closure should be covered, as the Government and insurance industry confirmed that advice to avoid pubs, theatres etc is sufficient to make a claim. Insurance policies differ significantly, so check the terms and conditions of the policy and contact providers. Most businesses are unlikely to be covered, as standard business interruption insurance policies are dependent on damage to property and will exclude pandemics, but worth checking nonetheless.
- Don’t take your eye off the day to day operations. Since the start of the crisis there has been an increase in cyber-attacks from hackers purporting to be HMRC, or offering advice and assistance on the virus. Under the increased pressure, more businesses are likely to fall for scams.