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Rishi Sunak announced four keys measures to help businesses all of which are welcome news but there are some more practical matters businesses should be aware of.
Refund of Statutory Sick Pay; any business with 250 or fewer employees will have the cost of an employee being off work with coronavirus covered for 14 days in full. This will include those who are advised to self-isolate.
This is good news for businesses but it is unclear how the system of reclaiming the SSP from the Government will work – given that up to a fifth of the workforce could be off of work at any one time it is vital that the process of claiming is simple and quick.
Scale up of Time to Pay (TTP) arrangements; TTP arrangements have long been available to businesses who are struggling with tax debts. The Government is gearing up for an increase in applications for TTPs and is setting up a dedicated helpline for businesses.
This is also welcome news for businesses who will struggle to pay tax debts due to loss of income. However, a TTP simply defers the liability. Income lost by businesses due to Coronavirus is unlikely to be made up once the virus is contained, so businesses will then have to deal with paying current and historic debts to HMRC which could be problematic.
This also does not apply to general trade creditors, so whilst a TTP would free up some funds to pay creditors, it will not protect a business from any other creditor taking enforcement action. Creditors who may themselves be struggling financially may not take as sympathetic view as HMRC.
Coronavirus Business Interruption Loan Scheme (CBLIS)
Loans of up to £1.2m are to be made available to small and medium sized businesses. It is unclear what terms the loans would be – hopefully the interest rate will not be punitive.
The primary concern of banks with any lending at the moment is that most customers are at much higher risk. 80% of any losses to the bank will be guaranteed by the Government which may encourage lending.
Businesses need to think longer term here: they will need to generate sufficient cash when the virus subsides to be able to repay the loan, otherwise the problem is just deferred. Directors will need to be aware of their personal position: if the business is simply taking out new finance to meet existing liabilities but there is no reasonable prospect of the loans being repaid then there is potential personal risks for directors. Reasonable financial projections are key.
Cash grants for small businesses.
Small businesses that pay no business rates under the existing relief system (before taking into account the new business rates holiday announced today) will be eligible to receive a £3,000 grant.
This will provide a much needed boost to small businesses, but how quickly will businesses be able to claim this grant?
Overall, these measures will be welcome news to businesses faced with disruptions from COVID-19 but when you drill into the detail there are some further concerns outlined above which can limit the effectiveness of these measures.
Businesses facing disruption from Coronavirus need to consider their longer term prospects. If a business is going to lose money during the crisis, directors need to be clear who is going to fund those losses and, if by borrowing, is there a reasonable prospect of enough cash being generated to relay the borrowing when things pick up.
An Insolvency Practitioner can help you asses these risks and advise on processes that can be put into place now to manage creditors in appropriate circumstances. Contact Scott Bebbington today to discuss how we may be able to support you.