This guide aims to give you tips and advice on what your business can do during the COVID-19 pandemic and as we start to make tentative steps to get businesses back on track.
There are three things that your business should consider:
- Prioritise activities that are going to generate the cash you need (when you need it)
- Make savings where possible
- Analyse long term measures that can be taken
1. Coronavirus Job Retention Scheme – if you have accessed this scheme make sure you have full documentation on how the scheme was implemented and all communication with employees. More information on why this is so important can be found here.
2. Start to plan for the staggered end of the scheme now – how are you going to pay the wages if sales are slow to return?
3. Consider other measures such as reduced working weeks, unpaid leave, accelerated holidays and reduced pay.
4. If changes to the number and working patterns of your employees are required – ensure timelines and legal requirements for redundancies and changes to contracts are adhered to. Read our blog on termination and redundancy payments here
5. Reward and retain those staff you need to get back on track in a tax and cash efficient way. Read more here.
1. Defer VAT and income tax payments to reduce cash outflows and remember to cancel any direct debits set up to pay these bills. Check this blog for updates.
2. Action Time to Pay (TTP) arrangements with HMRC. Further advice can be found here.
3. Review forthcoming tax payments including those already made on account on 31 January for self-assessment or as corporation tax quarterly instalment payments (QIPs), to understand expected liabilities and see if a refund is due.
4. Check to see if your business is eligible for a business rate holiday here.
5. Review VAT on bad debts and see if VAT can be reclaimed. This applies to debts over six months old (from the date the payment was due) and less than four years, six months old. You must have paid the VAT to HMRC and written off the debt in your accounts. Where there is a significant risk of bad debts, eligible businesses might consider moving to VAT on a cash basis.
6. Reduce or reclaim tax for businesses who are projecting short or medium term losses.
- Limited companies can carry back losses 12 months and recover corporation tax payments made in that earlier period
- For LLPs, partnerships and sole practitioners you can carry back losses to the previous year (12 months) which can potentially reduce future tax payments on account or obtain some recovery of income tax paid
- For unincorporated partnerships that incorporate, if losses exist, there is potential to claim terminal loss relief which can enable losses to be carried back for over 12 months potentially enabling income tax to be recovered from earlier years
7. There are reliefs which can minimise tax liabilities including R&D, patent box or a number of creative industry tax reliefs.
8. Undertake a review of capital allowances to make sure the most effective rates are claimed on historic property acquisitions.
1. Check if you are eligible for the small business grant fund and retail, hospitality and leisure grant fund – local authorities still have monies outstanding, don’t miss out! Check here. There is also a new discretionary fund for certain small businesses facing the same issues as those that qualify for the other grants – more information here.
2. If your business is eligible for the 12 month business rates holiday for retail, hospitality and leisure businesses then this will apply automatically to your next council tax bill in April 2020 (local authorities may need to reissue your bill to exclude the business rates charge) – you do not need to contact your local authority
3. Speak to your bank (and other lenders), if additional funding is required. This is where profitability becomes the priority, as businesses need to consider the longer term viability of servicing and repaying the debt and needs to be reviewed alongside the need for other measures to be taken.
If the banks are unable to offer borrowing under normal terms then:
- Apply for a Bounce Back Loan (BBLS) – max loan lower of 25% of business turnover or £50,000. Easy to apply, process is quick – money can be with you in 2 days, more information here
- Apply for the Coronavirus Business Interruption Loan Scheme (CBILS) – max loan is of £5m, some lenders limiting to 2 x annual wage bill or 25% of turnover. The scheme has recently been made easier to apply, but approval process has been slow, but is improving. More information on the scheme is here
Banks have also been offering a mixture of funding to CBILS applicants, from extending overdrafts to deferring capital payments on loans.
- Apply for Coronavirus Large Business Interruption Loan Scheme (CLBILS) – businesses of turnover from £45m – £250m, max loan is up to £25m. Turnover of over £250m, max loan is up to £50m
Remembering in all cases that debt will need to be repaid.
4. If you are a ‘start-up’ business in need of additional funding you can, if eligible:
- Apply for a start-up loan – the programme offers loans (from £500 to £25,000, at 6% interest) alongside free mentoring and support to individuals who are starting a new business or who have been trading for less than two years.
- Look out for the launching of the Future Fund (see further here).
1. Realise cash from customers by considering faster invoicing, chasing debtors and reviewing credit terms to convert work done or sales into cash sooner. One idea is to try offering discounts linked to upfront or prompt payment.
2. Reduce credit limits to clients by discussing upfront payments to give you more certainty over cash receipts and reduce exposure to bad debts. Credit limits for these purposes should include work in progress or order levels as well as outstanding debts.
3. Safeguard cash levels by managing other payments such as:
- Change payments that you receive and pay from annual and quarterly payments to monthly payments For key suppliers decide if it is important to continue with prompt payment, increase settlement times or potentially maintained in return for a discount
- Review direct debits and automated payments and consider whether the basis needs to change
- Explore what repayment holidays your banks and lenders are offering.
1. Do your financial forecasting as this will allow your business to quickly adapt to changing positions and help you make more informed decisions. Read our article on tips on preparing projections here.
2. Prepare a detailed monthly cash flow for the next 12 months. Stress test any assumptions to highlight the exposure to risk and the impact of measures.
For businesses with multiple activities or revenue streams, understand which areas will and won’t be profitable. Factoring in the available Government support will be key.
Assess stock or work in progress. There may no longer be the same level of demand for stock and work in progress, depressing its value and the prospect of generating this into cash. For businesses such as professional firms charging on a time basis, the productivity of workers should also be considered where there has been disruption or reduction in efficiency.
3. Make accounting provisions for future costs and impairments including redundancies or onerous contracts. Getting tax relief a year earlier or to recognise impairments to stock, WIP, goodwill etc, will reduce your current tax liabilities.
4. Consider changing your financial year end as it might make sense to have the period of Covid-19 covered by one accounting period, rather than straddling two. A change in financial period end could impact on tax liabilities, reliefs and payment dates.
5. Safeguard your assets taking into account insolvency legislation as decisions made now could be subject to later scrutiny. Where a business is exposed to significant risk, consider whether assets (e.g. freehold property) could be moved out of the trading business into a parent or personal ownership, via a holding company or extraction through a loan account. A de-merger may be relevant where different elements of a business have different risk profiles, in order to reduce the risk of one business line’s failure affecting the others.
6. Consider incorporation as a limited company, this was popular after the financial crisis of 2008 as it changes the risk exposure to business owners and may provide tax or cashflow benefits. However, if you are receiving self-employed income support – it may not be sensible to incorporate currently.
1. Look to preserve cash such as reductions to your own cash drawings and remuneration.
2. Consider capitalising balances into shares if there are significant director loan account balances due from the business and insufficient cash in the business. This could then provide protection from inheritance tax via business property relief and possibly income tax loss relief in the event of a business failure.
It is important for business owners to remember that their decisions and measures taken now could be scrutinised in the future.
3. If you are self-employed – or a member of a partnership, there is help. Your self-employed trading profits must be less than £50,000 and more than half of your income come from self-employment. More information on the scheme can be found here.
The portal is open on 13 May and payments are due in June. You can access our online calculator to see if you are eligible.
You will have to apply, your accountant can not do this for you. You will need a Government Gateway account in order to apply. If you do not have one, access this now – so you are ready to go!
WE’RE HERE TO HELP
Running a business with the uncertainty of how long this will continue is a big challenge. Our specialist team is continuously monitoring the situation and updating our dedicated webpage. Find out the latest news and advice at https://www.pkf-francisclark.co.uk/coronavirus-updates/
Also, please do get in touch if you need to discuss any issues raised here or indeed any other business advice.