The COVID-19 pandemic has had a huge effect on businesses all over the world. What’s more, GDP figures show that the impact of the pandemic is worse than originally thought, with the British economy suffering from its sharpest decline in more than 40 years. As a result of the pandemic and subsequent economic shutdown, the government, banks and other organisations have had to act quickly to support those affected.
However, with so much information out there that is changing by the day, it can be confusing to know what help and support is available. That’s why in this blog we’ve rounded up the most popular questions we are asked by our clients about COVID-19, from business loan support to cash grants so you can have access to all the information you need in one place.
What government support is available for businesses affected by COVID-19?
There is a wealth of business loan support available to help businesses impacted by COVID-19, including several grants, loans and schemes. These include cash grants of up to £25,000, the Bounce Back Loan Scheme, the Coronavirus Business Interruption Loan Scheme (CBILS), the Coronavirus Large Business Interruption Loan Scheme (CLBILS) and the Coronavirus Job Retention Scheme.
What is the Coronavirus Job Retention Scheme and how does it work?
The Coronavirus Job Retention Scheme was set up to enable businesses to access funding for staff who are not active in the business to help pay their salaries. These employees are designated as ‘furloughed workers’, with HMRC reimbursing 80% of wage costs up to a maximum of £2,500 per month. All UK employers are eligible, and it means that businesses can have help paying employees’ salary for those who would otherwise have been laid off.
What are the latest Coronavirus Job Retention Scheme updates?
The scheme has been extended until the end of October 2020, with 80% support guaranteed until the end of July. After that, companies will begin to pay National Insurance Contributions (NICs) and pension payments from August. They will then pay for 10% of wages from September and 20% from October. Furlough flexibility also began on 1st July, enabling staff to be brought back on a part-time basis while still being able to claim the CJRS grant for the hours not worked.
What can workers do whilst furloughed?
Furloughed workers cannot do any work for a business that “provides a service or generates revenue” - and it’s important that furloughed workers don’t do any work because it could stop businesses being able to claim the grant. As such, employees asked to undertake work for their employer whilst furloughed are encouraged to report this to HMRC.
Employees are, however, able to volunteer for other organisations and undertake voluntary training, provided it doesn’t generate any revenue for the employer, and furloughed workers are also allowed to work for other employers. HMRC reserves the right to recover money from businesses and take criminal action against employers who have intentions to defraud the scheme via asking employees to undertake work whilst receiving furlough payments.
Can you furlough staff and still put a company into administration?
The simple answer to this is yes - however, it only applies to the administration process. The administrator will be able to access the Coronavirus Job Retention Scheme on behalf of the employees, but if/when a company starts a liquidation process, it won’t be possible to apply for or receive furlough payments.
I’m suffering from cash flow issues. Can I apply for a Coronavirus Business Interruption Loan?
The government launched the business interruption loan scheme to help with short term cash flow issues. To be eligible for the Coronavirus Business Interruption Loan Scheme or the Coronavirus Larger Business Interruption Loan Scheme, businesses must be UK-based in activity. They must also have a borrowing proposal which, if it weren’t for the pandemic, would be considered viable by the lender and for which the lender believes the provision of finance will enable the business to trade out of any short-to-medium term difficulty.
How does the Coronavirus Business Interruption Loan work?
The scheme was set up to enable businesses with an annual turnover of up to £45m to access funding of up to £5m if they are experiencing cash flow issues as a result of the pandemic. Firms with revenues of up to £500m can also secure loans of up to £50m via the Coronavirus Larger Business Interruption Loan Scheme. The loan is repayable over a period of up to six years, with interest and fees paid by the government for the first 12 months, and when borrowing up to £250,000, a personal guarantee is not required.
CBILS will be available for most business finance products, such as term loans, overdrafts, invoice finance and asset finance. As part of the scheme, the government is providing lenders with a guarantee of 80% on each loan, giving further confidence to provide ongoing financial support to SMEs. This government-backed guarantee potentially enables ‘no’ credit decisions from lenders to become a ‘yes’.
What is a Bounce Back Loan and how does it work?
Bounce Back Loans are also available in which businesses can borrow between £2,000 and £50,000 and access the cash within days. These loans will be interest free for the first 12 months and have a 100% government-backed guarantee for lenders, and the government will work closely with lenders to make sure the terms are agreed for a low standardised level of interest for the time after the first 12 months of the loan are complete. The idea of this loan is to ensure small companies are protected and can access finance immediately when needed to ensure they can survive the pandemic.
What about recovering Statutory Sick Pay payments?
The Coronavirus Statutory Sick Pay Rebate Scheme allows SMEs to recover Statutory Sick Pay Payments they have made to their employees amid the pandemic. In order to qualify, businesses must have less than 250 employees, and the scheme covers eligible periods of sickness starting on or after 13th March 2020. It is also eligible for employees who have had to take 14 isolation days off due to coronavirus.
Is there any tax relief available?
Support is available for businesses through deferring VAT and income tax payments. HMRC will support businesses by deferring valued added tax (VAT) payments for 3 months. Businesses do not need to inform HMRC if they wish to defer payment; they can opt in to the deferral simply by not making VAT payments due in this period and they will have until 31 March 2021 to pay any VAT deferred as a result of this announcement. Of course, if you wish, businesses can continue to make payments as normal during the deferral period and HMRC will also continue to pay repayment claims as normal.
What about Time to Pay arrangements?
HMRC’s Time to Pay service has been expanded as a result of the COVID-19 pandemic. The Time to Pay scheme provides companies with additional breathing space during which to settle their existing HMRC liabilities. It has been in place since before coronavirus but has been extended to support businesses who have been impacted because of coronavirus. A TTP arrangement allows for your debt to HMRC to be paid back in monthly instalments, typically over a period of up to 12 months.
Which businesses are eligible for a business rates holiday?
Only businesses within the retail, hospitality and leisure industries are eligible for a business rates holiday, as well as nurseries. However, there is other financial support available. For more information, visit the government’s business support website.
What happens if I can’t pay the rent on my premises?
The government announced that no business will be forced out of its premises if it missed rent payments up until 30th June. In addition, some landlords and local authorities have adjusted rent conditions to commercial tenants to provide relief during the COVID-19 pandemic. However, this is ad-hoc and doesn’t apply for all businesses.
Can I get a grant to help get through this period?
There is a £10,000 grant available to registered ratepayers of business premises in receipt of the Small Business Bonus Scheme or Rural Relief. Businesses with a rateable value up to £18,000 can apply. Retail, hospitality and leisure business ratepayers with a rateable value between £18,001 - £50,999 can instead apply for a one-off grant of £25,000. Some categories of property do not apply (e.g. self-catering properties) and you can only apply for one grant, even if your business owns multiple properties. The deadline for applications is the 31st March 2021.
Who is eligible for cash grants?
Cash grants of up to £30,000 have been allowed for small businesses depending on rateable values (The grant for companies with a rateable value of less than £15,000 has been increased to £10k). Be aware though that if you pay your rent with rates included then you will not receive any help, you have to be billed directly by the rating authority. Also, if you do not have a business premises (i.e. you work from home) you are not eligible for a cash grant. The government has published guidance to Local Authorities on who is eligible.
What is a CVA?
If you are still facing financial difficulty, it might be worth considering a Company Voluntary Arrangement. A CVA is a business turnaround tool that gives time and space to companies, giving them a chance to recover. Rather than a terminal insolvency procedure, it is a contractual arrangement between a business and its creditors where the business pays back what it can afford in a sustainable manner over a set period. After the time period is up, the rest of the debt is written off. Benefits of a CVA include: improve cash flow, shareholders can retain control, it’s not publicly announced, it costs less than administration and your creditors have a greater chance of being paid what they are owed.
What is a pre-pack administration?
If your company is struggling to pay its debts but would be viable if it could be re-started, then pre-pack administration could be an option. A legal insolvency procedure, pre-pack administration is a legitimate way of restructuring a struggling company that allows your business to be packaged and sold to a new company that is often controlled by the same directors. A liquidator will be appointed to wind up your company, and a new company will then be set up who can then buy the assets and business from the original business
By buying back assets at market value, you can minimise the loss of assets and staff jobs, and once sold, you can restart without your debts, effectively preserving an insolvent company in a new but essentially unchanged form. Your business can also carry on trading during this process, too. For more information on the pre-pack process, our guide explains everything.
Where can I go for help and advice?
If you are currently facing financial difficulty as a result of the coronavirus, don’t suffer in silence. There are several options available to support business owners and prevent businesses from closing. At McAlister & Co, our friendly and approachable team are experts in insolvency and turnaround solutions for business and individuals.
So, if you need clear, strategic advice about the business loan support options available, including the use of government support programmes, contact us today. Remember - the sooner you act, the more options will be available to you.