Updated regularly
The impacts of Covid-19 are far reaching. Almost every business has been impacted to some degree. So what action can businesses take to weather the storm? There is currently a huge amount of information in the ether to absorb, so to help navigate it all, Moore South have compiled a user friendly list of measures to help businesses trade through.
Since the March Budget, the Government have announced a series of support measures to help businesses overcome the disruption caused by Coronavirus. The Government has also left the door open to announce further measures as and when required to support businesses suffering the effects of Coronavirus. We will be monitoring ongoing developments and can help businesses navigate their options.
During this difficult time there are a number of practical measures that businesses should seek to employ. These measures should be in place in the ordinary course of business, but are even more important in the current climate:
Business trading measures
- Cash Flow Forecasting - However large or small your business is, in conditions such as these, all need a short-term weekly cash flow forecast (CFF), ideally 13 weeks forward, to identify critical receipts and outgoings. Your business’ immediate critical cash-flow pinch-point will likely be end of month with rent and payroll outgoings. Your business needs a CFF to gauge the working capital headroom for it to navigate the pinch-point. We can help your business prepare a realistic CFF; working capital management support is standard part of our toolkit.
- Focus on debt collection – Businesses can improve their cash flow by ensuring robust credit control functions are in place. Prioritise larger debts and those with larger customers as these will likely be better placed to continue on-time payment in the short-term. Consider offering small discounts for early payment, providing this does not inhibit profit margins.
- Renegotiate supplier terms – Similarly to help with cash flow, businesses should seek to negotiate extended credit terms with its suppliers. This should cover all suppliers including HP/Leasing. This should be managed carefully to avoid being placed on stop with suppliers.
- Review customer relationships – Review the quality of your customer book. If customer contracts do not contribute a profit or are poor payers, consider the impact on the business and whether to renegotiate contracts or worse case, terminate. Poor customers often drain management time and can be a distraction
- Negotiate a rent holiday or switch from quarterly to monthly rent payment – Many landlords will be expecting a call from their tenants to request a rent holiday or change in payment terms. It is usually in the landlords interests to ensure ongoing occupancy in order to avoid empty property rates. Businesses should ensure they can demonstrate a business case with supporting financial management information.
- Focus on cost cutting measures – Businesses should seek to eliminate non-essential overheads. Examples include reducing staff costs (where possible), reducing discretionary marketing spend, seeking alternative suppliers and reducing opening hours.
- Reduce stock levels – Cash flow can be improved by only purchasing essential materials and running down existing stock holdings.
- Review insurance policies – Whilst reports suggest most insurance policies don’t insure against Covid-19, it is worth checking by contacting your insurance broker who can advise. Covid-19 has officially been named by government as a “notifiable disease” which will potentially improve the chances of qualifying for an insurance claim.
- Assess impact on supply-chain – The pandemic may lead to disruption to your supply chain. Speak to suppliers to establish what impact you can expect and assess whether alternative suppliers can be used to mitigate these impacts.
Rishi Sunak has been delivering a series of government measures to help businesses combat the impact of Coronavirus. We set out below (with links to useful web resources) these measures as at 26th March 2020 and will be continuingly updating the Moore UK website as and when material announcements arise, for your future reference.
Help with finance
Coronavirus Business Interruption Loan Scheme (“CBILS”) - £330b of government backed (up to 80% government guaranteed) loans will be made available to encourage lenders to give loans to companies that would otherwise be deemed too risky. Loans are to range from £25k to £5m. The scheme will delivered by the British Business Bank with more than 40 lenders providing funds as terms loans, overdrafts or asset based lending secured on invoices or equipment. To be eligible business have turnover of no more than £41m per annum, operate within an eligible sector and have a sound borrowing proposal but unable to get access to finance via lenders normal requirements. A business must be able to demonstrate a viable business proposition but who have insufficient security to be able to access funding in the ordinary course of business. Businesses should ensure all other government relief packages have been utilised wherever possible and have a 3 year forecast for profit & loss, balance sheet and cash flow.
In a statement on 03/04/2020, the government said the move is intended to “maximise the support available” and means that all small businesses will now be eligible “should they need finance to keep operating during this difficult time” – not just those unable to secure regular commercial financing. New rules will prevent lenders from requesting personal guarantees for loans under £250,000, and the government has also stated that it will make operational changes to speed up lending approvals and continue to cover the first twelve months of interest and fees.
Coronavirus Large Business Interruption Loan Scheme (“CLBILS”) - For companies which previously fell into the gap between CBILS and CCFF, CLBILS has been announced to enable bank to make loans of up to £25m for businesses with turnover between £45m and £500m. The scheme otherwise operates in the same way as the CBILS scheme i.e. delivered via 40 accredited lenders.
Covid-19 Corporate Financing Facility (“CCFF”) - A facility designed to support liquidity among larger companies, helping them to bridge coronavirus disruption to their cash flows through the purchase of short-term debt in the form of commercial paper.
We recommend eligible businesses to contact their bank in the first instance to establish if these options are available. Businesses should ensure they have robust financial information available including a cash flow forecast. Lenders are typically requiring details of the impact Covid-19 has had on the business and what plans are in place to mitigate these impacts. If required we have a network of finance brokers who could also help identify your finance options.
Government Grants – Small business grants of £10k for all business in receipt of small business rate relief or rural rate relief. Grant funding of £25k per property, for retail, hospitality and leisure businesses with property rateable value between £15k and £51k. You do not need to do anything. Your local authority will write to you if you are eligible for this grant.
Help with employment/staff costs
Coronavirus Job Retention Scheme –
All employers can use a HMRC portal (expected to be available by the end of April) to claim for 80% of furloughed employees’ (employees on a leave of absence) usual monthly wage costs, up to £2,500 a month, plus the associated Employer NI contributions and minimum automatic enrolment employer pension contributions on that wage. Directors can also apply providing they can demonstrate continued compliance with their statutory fiduciary duties but not carry out any revenue generating work. Furloughed employees must have been on the PAYE payroll on 28 February 2020 and includes all contract types including part-time employees, employees on agency contracts and employees on flexible or zero-hour contracts. Furlough workers cannot undertake any work whilst on leave and the employee’s wage will be subject to usual income tax and other deductions. If redundancies have been made after 28/02/2020 but before announcement of CJRS, employees may be reinstated and placed on Furlough but we recommend this is done before 6th April. We recommend employers take legal advice with regards to placing staff on furlough leave. More information can also be found on the ICAEW website here.
Government announced on 03/04/2020 that the scheme will also apply to off-payroll contractors working for public sector organisations.
Self-employed assistance for coronavirus - The self employed can recover up to £2,500 per month to the self-employed for those with trading profits of up to £50,000 per annum and who have submitted their 2019 tax returns. It will be calculated using the average of the last three years profits (up to 5 April 2019) and the government are allowing those who have outstanding tax returns another four weeks in which to submit them to be able to make a claim under this scheme. For those with less than 3 years of accounts the government will use whatever information is available. For those who have not yet submitted any accounts, they will not be able to utilise this scheme. The government hope to make the first payments under the scheme in June, which will be backdated to 1 March.
Statutory Sick Pay Reimbursement – For employers with fewer than 250 employees, the government will reimburse statutory sick pay costs for up to 14 days, which is just under £200 per employee.
Help with tax liabilities
VAT and self-assessment payment deferral – All UK businesses can defer VAT payments from 20 March 2020 until 30 June 2020. Businesses that have a direct debit mandate in place will need to cancel it, but should remember to re-instate after 30 June 2020. Businesses have until 31 March 2021 to pay any liabilities accumulated in the deferral period. Businesses should continue to file their VAT returns by the due date and any VAT refunds will be paid by HMRC as normal.
Income tax deferral - Applies to the second payment on account for 2019/20 due on 31 July 2020 which is deferred until 31 January 2021. This is an automatic offer and no application is required. No penalties or interest of late payment will be charged during the deferral period. It is optional and applies to all tax payers, not just the self-employed. Self-assessment returns should still be filed by their due date.
HMRC Time to Pay (“TTP”) – Following the March budget the Treasury have been encouraged by government to support impacted businesses via the TTP scheme. Businesses facing cash flow pressure can seek to defer payment of tax bills (PAYE, NI, VAT and Corporation Tax). Businesses should ensure robust forecasts can be made available to support their request and demonstrate ability to repay deferred tax HMRC Coronavirus Helpline number - 0800 0159 559.
Help with Business Rates
VAT and self-assessment payment deferral – All UK businesses can defer VAT payments from 20 March 2020 until 30 June 2020. Businesses that have a direct debit mandate in place will need to cancel it, but should remember to re-instate after 30 June 2020. Businesses have until 31 March 2021 to pay any liabilities accumulated in the deferral period. Businesses should continue to file their VAT returns by the due date and any VAT refunds will be paid by HMRC as normal.
Income tax deferral - Applies to the second payment on account for 2019/20 due on 31 July 2020 which is deferred until 31 January 2021. This is an automatic offer and no application is required. No penalties or interest of late payment will be charged during the deferral period. It is optional and applies to all tax payers, not just the self-employed. Self-assessment returns should still be filed by their due date.
Business Rates – have been abolished for one year for small firms (with a rateable value of less than £51k) in the retail, leisure and hospitality sectors. This includes hotels, restaurants and coffee shops. There is also a £5,000 business rates discount for pubs with a rateable value below £100k in England.
Small Business Rates Relief - The 700,000 smallest businesses who are already exempt from paying rates are now eligible for £3,000 in grants to help meet business costs.
Where eligible, the above measures will provide short-term financial assistance to businesses. However, robust financial management information to include cash flow forecasts are essential for businesses to access the CBILS/CCFF schemes and identify the businesses future cash flow position/needs.
Business finance measures
A pre-requisite for accessing finance is the provision of financial information, In particular lenders will want to know what actions the business is taking to mitigate the impacts of Coronavirus. This information will need to be tailored to the current circumstances and almost definitely will need to include a cash flow forecast to demonstrate 1) the cash needs of the business and 2) the businesses ability to continue trading during the Coronavirus pandemic. The British Business Bank lists one of the criteria that an applicant business must have as: “a borrowing proposal which, were it not for the COVID-19 pandemic, would be considered viable by the lender, and for which the lender believes the provision of finance will enable your business to trade out of any short-to-medium term difficulty.” We recommend that you utilise your accountant to help compile the necessary information.
• Extending existing bank facilities - Businesses should consider approaching their existing bank to explore opportunities to extend existing facilities or if appropriate, re-organise facilities. Whilst such discussions can be difficult, your bank are likely to be encouraged that you are actively reviewing and managing finances. Robust financial management information will be required to assist discussions so ensure this is available before approaching the bank. Banks are offering holidays on loan repayment and are encouraging customers to get in touch to discuss options.
• Invoice Financing – Invoice Finance, where cash can be borrowed against sales invoices raised, can help ease short-term cash flow pressure. Invoice finance will not be suitable for all businesses but can provide a one off cash injection to help cash flow. In the case of factoring it can also provide an ideal credit control mechanism. Invoice Finance does come at a cost so businesses should ensure it can absorb the cost in the medium to long term.
• Asset Finance. Whether it be through an existing or new lender, clients should establish if there is the ability to raise finance on unencumbered or existing part financed assets including property, chattels, stock, machinery etc.
• Third party investment. Notwithstanding recent events, some sectors remain very popular with investors and clients can secure additional finance in the form of equity or additional borrowing.
• Alternative Finance Providers - Consider emergency funding from alternative finance providers. Peer to peer borrowing has become very popular, but usually comes with strings attached, such as high interest rates, short repayment terms and the need for personal guarantees. Clients should be cautious about the ease with which such borrowing appears to be easily available and should probably consider this as something of a last resort. Using a reputable Commercial Finance Broker will provide appropriate access to such funds and they will assist in finding the right type of finance for your clients.
It's important to note that whilst many of the above measures can help to ease cash flow pressure, if the future viability of the business is in doubt, we recommend seeking professional advice to protect Directors against potential criticism and personal liability.
This article will be updated when needed on this page of our website. If you would like further information on any of the contents within this article, please call your local Moore South office.
Chichester: 01243 531 600
Isle of Wight: 01983 825 000
Guildford: 01483 538 881
Salisbury: 01722 335 182