With many businesses unable to trade, forced to close temporarily, or operating on a reduce scale at present, preserving cash flow is one of the most important strategies that a businesses should be focusing on to ensure they can weather the Covid-19 storm. Although businesses may have cash available now, they must consider how long cash reserves will last, especially now that the lockdown measures have been extended for a further three weeks. It’s time to take a leaf out of the stockpiler’s book, and start stockpiling some cash (rather than toilet roll!).
There are a number of measures that the government has introduced to help businesses managing their cash flow, and some other options that businesses could consider.
Time to Pay Arrangements
One of the measures the government announced early on is the ability to negotiate a Time to Pay (TTP) arrangement with HMRC for tax liabilities such as PAYE and Corporation (see below for advice on VAT payments). This is done on a case by case basis, but in our experience so far it has been a straightforward process to ask for a deferral of PAYE for the next 3 months, with a payment plan starting in July.
This is one of the most straightforward cash preserving methods that you can put in place straightaway, and although HMRC charge interest at a rate of 2.6%, when you consider the time it can take to obtain commercial financing and the fees that could be payable, a TTP is a very quick and easy way of extending your cash resources straightway. As an example, a PAYE debt of £20,000 that is deferred for 3 months would cost approximately £130 in interest. Although in usual circumstances, businesses quite rightly want to make sure that all their tax payments are up to date with HMRC, these are not usual circumstances, and we would recommend that all businesses consider taking advantage of this easy financing solution as soon as possible.
HMRC have a dedicated phone line (0800 015 9559) that businesses can call to discuss a TTP and we suggest that this should be done as soon as possible by all businesses.
VAT Deferral
All VAT payments due between 20 March and 30 June 2020 are being automatically deferred, so businesses do not need to apply for this help. It is important however that businesses that usually pay their VAT by Direct Debit, log on to their government gateway account or contact their bank to cancel this Direct Debit for the time being.
Any VAT payments deferred will need to be settled by 31 March 2021, but HMRC will charge no interest or penalties on outstanding liabilities up to this date.
Self- Assessment Payment on Account Deferral
HMRC previously announced that self-assessment payments on account, due on 31 July 2020, could automatically be deferred to 31 January 2021. Although initially this was aimed at only those with self-employment profits, they have now updated their guidance and confirmed that this deferral is available for all self-assessment tax payers.
Coronavirus Business Interruption Loan Scheme (CBILS) – Small and Medium-sized Businesses
The government previously announced that financial support would be available for small and medium sized businesses (SMEs) with a turnover up to £45 million, with finance available of up to £5 million for loans, invoice finance and asset finance, and covering periods of up to 6 years. The government are covering the first 12 months of interest payments and any related upfront costs and will provide lenders with a guarantee of 80% of each loan that is granted to provide lenders with reassurance to continue lending during this time.
We understand that term loans qualifying as CBILS are currently predominantly available from a business’s own bank, however other lenders are hoping to bring loan products to the market soon. This delay is largely due to a change to the rules laid down by the government so that lenders are now not allowed to ask for a personal guarantee for loans under £250,000. Asset and invoice financing is however available from alternative lenders. We understand that the lead time from application stage to receiving funds is likely to be 4-6 weeks, so it is advisable to start the process now if businesses would like to take advantage of the loan scheme.
Businesses do need to have a viable business plan, and also a plan of how they will trade out of the short to medium term business interruptions faced due to Covid-19. They will also need to self-certify that the business has been adversely impacted by coronavirus.
Applicants are likely to need to provide some or all of the following information:
- 2017/18 and 2018/19 accounts
- Management information for 2019 or up to date if available
- Personal asset and liability statement (likely only needed if personal guarantee required, i.e. for loans over £250,000)
- Latest payroll figures
- 3 months of bank statements
- A plan of where the funds will be used
- Details of what the business has already done to help manage its cash flow (e.g. time to pay arrangements, furloughing staff, rent reductions, finance payment holidays)
- 12 month cash flow (to evidence ability to repay the CBIL in future)
If any businesses need help presenting this information, please get in touch.
Coronavirus Large Business Interruption Loan Scheme (CLBILS) – Large Businesses
This scheme will be launched on the 20 April 2020 to support large UK businesses, with a turnover of over £45 million. Businesses with this level of turnover will be able to apply for up to £25 million of finance, and those with turnover of over £250 million can apply for up to £50 million.
Similar to CBILS, the government will provide lenders with an 80% guarantee on loans, and will be offered at commercial rates of interest.
Again, businesses do need to have a viable business plan, a plan of how they will trade out of the short to medium term business interruptions faced due to Covid-19 and need to self-certify that the business has been adversely impacted by coronavirus.
Other considerations
Businesses could consider furloughing employees if they are not required to work, and receive reimbursement from the government for a proportion of the salaries paid. Please see here for further information on the Coronavirus Job Retention Scheme.
For those that are Self-Employed, please see here for information on claiming a grant through the Self-employment Income Support Scheme.
Although it is not a situation that businesses want to find themselves in, there may be situations where there is a concern that your business may not survive the impact of the coronavirus pandemic. If you are facing a difficult decision about the future of your business, our advice here may be of some help.
Please do not hesitate to contact a member of the team should you wish to discuss any of the above measures in further detail, or your business in general.
