9th April 2020
This article was last updated on 9 April at 10:40.
COVID-19 is having a significant effect on many businesses and the full impact it will have is unknown, although there has been much speculation.
Businesses are continually evaluating short-term and medium-term liquidity and to do this effectively, it’s useful to understand what government schemes are available to you and consider other options that could be beneficial in the current environment. It’s worth noting the difference between those government schemes that will assist your cashflow, and those schemes that are temporary cost savings or grants (i.e. P&L impact). In addition to the COVID-19 related government announcements, we have also considered other beneficial actions that a business can take.
Preserving cashflow in the short term is positive but be mindful that delayed payments will need to be made at some point in the future. Measures taken to reduce costs will have a permanent impact on your cashflow as these costs will not need to be paid down the line.
We have identified which financial, tax and accounting measures will be relevant to your Creative, Media and Technology (CMT) businesses.
Coronavirus Business Interruption Loan Scheme (CBILS)
It was recently reported that out of 130,000 applications only 1,000 loans had been made; clearly not the intention of the Chancellor. Changes have since been announced to bolster the CBILS to SME’s.
The CBILS has been extended so that it is not just businesses unable to secure regular commercial financing that are eligible, and personal guarantees cannot be requested for loans under £250,000. To successfully apply for a CBILS, a business must have an annual turnover of no more than £45m and a borrowing proposal which the lender would consider viable, were it not for the COVID-19 pandemic. We have spoken to a number of businesses which have applied for the loan and we understand that if, prior to the COVID-19 outbreak, your business was an EBITDA loss-making business, then it’s unlikely that the business will be eligible for the CBILS. Where the CBILS is relevant to your business, the advice is to contact your current lender first (banks are telling us they’re prioritising their current clients), be prepared with a pre and post COVID-19 cashflow forecast, and expect the process to take longer than you perhaps hope for – other measures may need to be taken in the short-term whilst you’re waiting for approval. We strongly recommend only submitting an application if you have all the requested information ready as this will undoubtedly decrease the response time. More details can be found here.
Coronavirus Large Business Interruption Loan Scheme (CLBILS)
On 2 April the Chancellor announced a new scheme for larger businesses (turnover between £45m and £500m), the CLBILS. The CLBILS will be similar to CBILS (80% government guarantee) and is available for loans up to £25m. Interest is to be charged at a commercial rate. Further details of this scheme are due to be announced this month (April).
Time to Pay (TTP)
HMRC have setup a dedicated COVID-19 helpline (0800 024 1222) to discuss and agree bespoke TTP arrangements – our advice is to get in quick as there will be many businesses requesting these arrangements and expect to be on hold for a while.
For many growing CMT businesses, we expect the biggest impact to be in relation to PAYE/National Insurance (NI). We are seeing clients negotiating six to twelve month delays or payment plans, and these delays will be particularly helpful for creative and digital media agencies, which are staff intensive and therefore have high PAYE/NI liabilities each month. More details here.
HMRC have announced that no business is required to pay VAT from 20 March 2020 to 30 June 2020, although VAT returns should be submitted as normal. We would advise you cancel any direct debits in relation to VAT immediately. A final tip to consider is bad debt relief, which enables companies to recover the output VAT on any unrecovered debts that are not paid within six months. More details here.
VAT returns that provide for a repayment should be completed and submitted as soon as possible. These are unaffected by the temporary changes and will be processed by HMRC as normal.
Deferred finance and rental payments
We understand that banks and other lenders are open to discussing loan repayment holidays and where you have significant debt in your business this should be considered and discussed urgently. We’re hearing of some businesses receiving three to six month loan repayment holidays from their banks.
Landlords have been taking varied approaches to deferring rent with some being supportive of businesses deferring rent payments and others not budging. We’d advise you have the conversation with your landlord quickly.
Those businesses which are struggling to pay rent because of COVID-19 are being protected and the Government has announced that they will be protected from eviction until 30 June 2020 (which may be extended in due course). Businesses who are likely to miss rent payments should seek legal advice.
If your business operates out of a shared office space, consider the implications of cancelling, pausing or continuing with your current contract. Review the details of your contract for any opportunities to pause it whilst the office space isn’t available and seek legal advice where appropriate.
R&D claims – change of year end
Many innovative CMT companies will be used to making annual R&D claims and receiving rebates from HMRC. It might be worth considering shortening your year end and then filing your accounts and tax return swiftly after the (new) year end. HMRC have recently commented that they are trying to review and pay claims within 28 days of submission, and this could be a huge help to your cashflow. As an example, a company with a 30 June year end may wish to shorten it to 31 March 2020, submit the accounts, tax return and R&D claim swiftly and receive any rebates well in advance of when they could have done this previously, without changing their year end. It should be noted that the claim in this case would only be for a nine-month period so the eligible spend would be lower than a full annual claim but the cashflow impact could be invaluable, particularly if a business has had a period of significant technology development.
Cost savings, rebates and grants
It’s important to first note that furloughed staff are not allowed to do any work for the business whilst in furlough, although training is still permitted. This scheme is not appropriate for staff who you need to work either full or part time. The scheme is only relevant for staff on the payroll (including salaried directors) – contractors/self-employed will not qualify for the scheme.
The arrangement covers 80% of employees’ salaries, up to £2,500 per month, plus employers’ NI and the minimum auto-enrolment pension payments. We’re waiting to hear the details on how the Government will reimburse businesses, and the first grants are expected to be made by the end of April 2020. We do know that businesses will need to submit claims via a HMRC portal (to be created). Businesses must also have enrolled for PAYE online and should therefore check that they have this.
Although this might appear to be more relevant to certain industries (retail where shops are closed, marketing businesses where whole contracts are being cut/reduced, film and media where productions are not taking place), all businesses should consider whether there are opportunities to reduce costs through furloughing staff. Some companies are furloughing staff on three-week rotations, running with skeleton teams in some departments. Employees will need to be furloughed for at least three weeks at a time to be eligible for the scheme. More details here.
Share options as an alternative to furloughing
Some businesses might be finding that they need their staff now more than ever. Research and development companies for example, may not have the opportunity to reduce headcount but might still want to reduce their staff costs. For other businesses, it will not be appropriate to furlough management and senior staff who are in decision making roles. There could be an opportunity to consider implementing a share option scheme for certain employees, as an alternative to paying increased salaries. This would reduce the cash burn in the business and will also retain and motivate staff as well as align them to the company’s objectives. More details here.
Statutory Sick Pay (SSP) refunds
One of the first announcements released by the Government was the proposal to refund SSP to employers where their employees are asked to isolate as a result of COVID-19. It’s unlikely that this scheme will be that relevant or appealing to many after the furloughing scheme was announced, however further details of the scheme can be found here.
Particularly relevant to retail and leisure businesses with physical premises, companies will receive a business rates holiday for the whole 2020/21 tax year. Cash grants of £10,000 or £25,000 will be provided to those businesses that received small business rates relief.
Businesses that do not fall under the retail, hospitality or leisure bracket, or operate from home or co-working spaces, will not be eligible for this relief. If your business is not in this category, but your building is empty it may be worth contacting your council to ask if you are eligible for empty property relief. More details here.
Different grants have been introduced since the outbreak, some of which have already closed for application and others which were announced only recently.
Innovate UK is providing grants of up to £50k in business projects to develop innovative and ambitious ideas to significantly address the needs of society or industry resulting from the COVID-19 outbreak. Applications will close on 17 April 2020 and businesses are being asked to show how they can ‘tackle global disruption such as that caused by COVID-19’, or ‘build resilience to the long-term impact of the coronavirus outbreak’. Innovate have allocated £20m for this scheme. Apply for the Innovate UK grant here.
The Innovate UK grant is the second COVID-19 related competition (the first has now closed) and therefore we expect further competitions/initiatives to be announced. Visit our website regularly for updates on such announcements.
Facebook has announced that they will be providing grants totalling USD$100m to 300,000 businesses worldwide. To be eligible, you need to be a small business and operate on Facebook in some way – the global social media platform has suggested that more information will be released soon. Apply for a Facebook grant here.
Commercial and reporting considerations
Founders and Directors
Business owners will often pay themselves minimal salaries and may be considering cutting their and other Directors’ salaries further in this time where cashflow preservation is key. The Government has announced a three-month mortgage holiday for homeowners struggling to make repayments due to the effects of COVID-19.
Self-assessment Income Tax payments due on 31 July 2020 are to be deferred until 31 January 2021. This means both the 31 July 2020 and 31 January 2021 payments become due on 31 January 2021.
The Government has also announced measures to relax insolvency laws, including the temporary suspension of the ‘wrongful trading’ provisions for company Directors. The Government further announced that they will make changes to allow UK companies to continue to trade whilst undergoing a restructure or rescue. Founders and Directors should continue to focus on their business rather than having to worry about personal liability and this breathing space will hopefully help many businesses avoid insolvency. Further details are yet to be released.
Businesses that have cover for pandemics and government-ordered closure or unspecified notifiable disease and government-ordered closure should speak to their insurers. Insurance policies differ significantly, so businesses are encouraged to check the terms and conditions of their specific policy and contact their providers. Unfortunately, it is expected that most businesses are unlikely to be covered, as standard business interruption insurance policies are dependent on damage to property and will exclude pandemic.
The FCA and FRC released a joint announcement on 26 March 2020, permitting the delay in publication of audited financial statements for main market listed companies from four to six months. AIM Regulation has also confirmed that AIM companies with financial year ends between 30 September 2019 and 30 June 2020 will be able to apply (via their NOMAD) to AIM Regulation for a three-month extension to the reporting deadline for the publication of their audited financial statements.
Companies House have announced that they will grant three-month extensions for filing financial statements if delays are expected as a result of COVID-19. The extension only takes a few minutes but needs to be applied for in advance of your company’s filing deadline. Apply here.
We’ve seen the nation embrace technology to help them cope with physical and mental wellbeing, social interaction and distancing, working remotely and we even saw five million tune into the virtual grand national. Many stakeholders in your business are willing to adapt and embrace new technologies and you should use this to your advantage.
Employees are finding ways to adapt to agile working and it’s important to keep your communication channels two-way. There are many ways to maintain your company culture using technology which is crucial as we adapt to new ways of working.
There may be sales channels that should be considered to compliment your current channels. More people are online now, and it’s expected that social media engagement will increase significantly throughout the lockdown. Your customers, employees, suppliers, investors and other stakeholders will likely all be online and there may be opportunities to communicate with them all through alternative channels.
This is a summary of the numerous initiatives that are available to businesses and include some of the actions we have seen being successfully taken. Whilst these are undoubtedly testing and challenging times, the key certainty to keep in mind is that they will come to an end and we will resume our new normality. Businesses surviving the duration, teams rallying through the adversities led with resolve, will ultimately emerge ready to heal and build.