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Lifelines to Businesses affected by Covid-19

Published on:March 27, 2020Author:darcey

Thankfully the government has listened to the business community and has come up with lifelines which will help businesses look after their teams and make sure they can put food on their table and pay the rent/mortgage, etc and ultimately this will save lives.

The Lifelines

Coronavirus Job Retention Scheme

Furlough employees – current information on this scheme is as follows:

  • 80% of salary of the retained worker will be paid by the Government up to ceiling of £2.5K per month
  • Applies to workers on payroll as at 28/02/2020
  • Can be backdated to 01/02/2020
  • Annual leave still continues to accrue during furlough
  • Currently scheme is running for 3 months with possible extention
  • Employer pays salaries and then reclaims money from HMRC
  • This scheme is for those who are not working but kept on payroll
  • Employers can “furlough” employees if they have a contractual lay off clause in their employment contracts.  If not, they will need to comply with employment law.
  • Employers must comply with employment law when designating employees as “furloughed workers”. This means that employers will need to consult with employees and seek their consent unless there are special circumstances.
  • Holiday entitlement will continue to accrue while employees are “furloughed”.
  • Contractual benefits appear to continue while employees are “furloughed” unless otherwise agreed.

Coronavirus Business Interruption Loan (CBILS)

According to British Business Bank (government owned) the loan scheme should be available this week (commencing 23 March 2020). The loans will be provided by the British Business Bank through participating partners. For example in the North West there are 20 partners who can provide term loans which includes the main banks, asset backed lenders, investment funds plus secondary lenders such as Newable.

The scheme provides the lender with a government-backed guarantee against the outstanding facility balance, potentially enabling a ‘no’ credit decision from a lender to become a ‘yes’. NB – the borrower always remains 100% liable for the debt.

The Government will also cover the first 12 months of interest payments, so businesses will benefit from lower initial repayments. The business remains liable for repayments of the capital. The maximum value of a facility provided under the scheme will be £5 million (the original announcement suggested a maximum value of £1.2 million.)

Eligibility for CBILS

To be eligible for CBILS the small business must be:-

  • Be UK based, with turnover of no more than £45 million per annum
  • Operate within an eligible industrial sector (a small number of industrial sectors are not eligible for support or subject to limitations – see below)
  • Be able to confirm that they have not received de minimis State aid beyond €200,000 equivalent over the current and previous two fiscal years
  • Be unable to meet a lender’s normal lending requirements for a fully commercial loan or other facility, but would be considered viable in the longer-term

Full eligibility criteria will be published when the scheme goes live w/c 23 March 2020

Finance terms are from three months up to ten years for term loans and asset finance and up to three years for revolving facilities and invoice finance.

To apply for an CBILS-backed facility, businesses may wish to consider approaching one or more participating lenders to discuss their borrowing needs. More information is available at smallbusiness.co.uk

Eligibility Restrictions

There are sectors such as banks, primary and secondary schools who are not eligible. Other sectors will have restrictions such as growing or crops, fishing, mixed farming and transport who will have restrictions on the amount they can borrow. This appears to be work in progress.

Cash Flow support through tax system

All businesses will have the next quarter’s VAT payments will be deferred. That means no businesses will have to make any VAT payments which fall due in the quarter to end of June 2020. They will then be able to pay the arrears that have accrued over the next 9 months to 5 April 2021.

Abolishing of business rates

Businesses in the hospitality, leisure and retail sectors will have no business rates to pay for the 20/21 rates year.

Cash Grants for Small Business Properties

On 17 March, the chancellor announced an increase in the small business coronavirus cash grant of up to £10,000. Those who qualify for Small Business Rate Relief (SBBR) or Rural Rate Relief will be able to get the funding.

The Department for Business, Energy & Industrial Strategy will be working with local authorities to outline the scheme and encourage local authorities to prepare.

However, once up-and-running, your local authority will contact you rather than having to apply yourself. Grant money will not be available until early April. There is helpful information on small business.co.uk about the grants. This only applies to businesses in England.

There will be a £25,000 grant available to retail, hospitality and leisure businesses operating from smaller premises, with a rateable value between £15,000 and £51,000. Properties that will benefit from the relief will be buildings that are wholly or mainly being used:

  • as shops, restaurants, cafes, drinking establishments, cinemas and live music venues
    for assembly and leisure
  • as hotels, guest & boarding premises and self-catering accommodation

You won’t need to take any action – the relief will be applied to your next council tax bill in April 2020. However, the government warns that the local authority may have to reissue your bill immediately to exclude the business rate charge. They’ll do this as soon as possible.

Help for Self Employed

There are 5 million self employed workers who desperately need financial help. Rishi Sunak, the Chancellor announced on Thursday 26 March 2020 that self employed businesses and partnerships who have suffered a loss in income, will be eligible for a taxable grant a taxable grant worth 80% of their profits up to a cap of £2,500 per month.

Initially, this will be available for three months in one lump-sum payment, and will start to be paid from the beginning of June.

It will be called the Coronavirus Self-employment Income Support Scheme, and is open to those who were trading in the last financial year, still trading now, and planning to continue doing so this year. Those who are recently self-employed and do not have a full year of accounts will not receive any help under this scheme.

Additional help available to self employed includes:-

  • The deferral of self-assessment tax requirements – June 2020 payments would be deferred for 6 months,
  • Deferral of VAT payments due in the quarter to June 2020 which would then need to be cleared over the 9 months from 1 July 20 to 5 April 2021.
  • Payment holidays for mortgage payers
  • Abolition of business rates for self employed operating businesses in the retail, leisure and hospitality sectors
  • Cash grants as detailed above if self employed businesses qualify Small Business Rate Relief (SBBR) or Rural Rate Relief will be able to get the funding.
  • Plus the strengthening of the welfare “safety net”.

Despite calls for the government to make available SSP for self employed, the Government has decided to support them via the benefits system.

Should they fall ill, they will be able to claim employment and support allowance (ESA) and/or Universal Credit. The weekly payment for ESA is typically £73.10 or £57.90 for people under the age of 25.

However Chancellor Rishi Sunak has said that he is raising the payments for Universal Credit so that the self-employed receive the same amount as someone on statutory sick pay (£94.25 a week).

Universal credit: who is eligible and what do you get?

Universal credit may be available to you if you’re on a low income or out of work. You receive a standard allowance plus extra if you have children or a health condition that prevents you from working or if you need help paying your rent.

The standard monthly payment is £317.82 if you’re single and over the age of 25 and £251.77 if you’re single and under 25.

Couples get either £498.89 or £395.20 between them depending on whether they are over or under 25. The government has provided more information at https://www.gov.uk/self-employment-and-universal-credit

Employment Support Allowance

New style’ Employment and Support Allowance will be payable for people directly affected by Covid-19 including those self-isolating according to government advice from the first day of sickness, rather than the eighth day.

You can apply for Employment and Support Allowance (ESA) if you have a disability or health condition that affects how much you can work.

ESA gives you:

  • money to help with living costs if you’re unable to work
  • support to get back into work if you’re able to

You can apply for ESA if you’re employed, self-employed or unemployed.

If you are not sure about benefits you will be entitled to there are very helpful benefit calculators available.

  • Turn2us– for information on income-related benefits, tax credits, Council Tax Reduction, Carer’s Allowance, Universal Credit and how your benefits will be affected if you start work or change your working hours
  • Policy in Practice– for information on income-related benefits, tax credits, contribution-based benefits, Council Tax Reduction, Carer’s Allowance, Universal Credit, how these are calculated and how your benefits will be affected if you start work or change your working hours
  • entitledto– for information on income-related benefits, tax credits, contribution-based benefits, Council Tax Reduction, Carer’s Allowance, Universal Credit and how your benefits will be affected if you start work

There are also a range of measures that have been introduced to help individuals manage their finances which we have detailed in our blog – Your personal finances and dealing with the affects of Coronavirus

Business Debt Help

There are a range of solutions available to businesses that are struggling apart from the measure outlined above.

Informal Payment Arrangements/Formal Arrangements – Company Voluntary Arrangements, Partnership or Individual Voluntary Arrangements

If you business is able to tick over in terms of covering wages and overheads but is struggling to pay suppliers in full, it is possible to put forward payment arrangements to creditors either in an informal arrangement or using Voluntary Arrangements for companies, partnerships or self employed businesses.

Voluntary Arrangements allow the business to retain its assets and continue trading but allows payments to unsecured creditors to be reduced so the business pays a monthly contribution towards its debt. The payments go into the arrangement and these funds are passed onto creditors by way of periodic dividends – usually quarterly.

Administration

Administration is an option for a company facing financial strain or creditor pressure.  In many cases, a company which enters Administration can preserve the core business, and maintain continuity with its customers, and staff.

A company in Administration is legally protected from the commencement (or continuation) of any action against it.  This protection provides ‘breathing space’ and gives the company’s Board time to put together a plan of action which could include restructuring, assessment of cash-flow and future plans, or even marketing the business for sale.

A sale of the business can be agreed before the Administration.  This is widely known as pre pack administration and involves a sale to (all, or a number of) the existing directors operating a newly formed company. In any case, a sale of the business must be viable and a buyer will need to demonstrate that the newly formed company has a good prospect of success.

Liquidation “CVL”

A CVL is likely to be the most suitable option if a company has debts it cannot afford to repay and there is no longer a viable business to be saved.  Unfortunately there are so many companies at the moment with their businesses struggling with limited trading or shutdown completely. Hopefully, the lifelines strategies detailed above will help you keep your business ticking for the next few months whilst the nation aims to keep themselves safe.

If you have any queries please fill out our Contact Formand we will be in touch.  Alternatively, call our FREE ADVICE LINE on 0800 781 0990.  Our team has extensive experience in dealing with solvent and insolvent businesses and can arrange an initial consultation at no cost, usually on the same day.