The Covid-19 crisis has caused thousands to tragically lose their lives, and while every employer's priority should be protecting the health and safety of their employees and customers, there are financial considerations too. By now we're well aware that the pandemic is likely to negatively impact businesses of every size, as well as their suppliers and clients, in ways as yet unimagined. But there are measures that employers can take to protect themselves - and their employees - against the predicted difficulties.
The £350bn package of financial support promised to UK businesses by Chancellor Rishi Sunak to deal with the effects of the coronavirus pandemic, includes plans to pay employees 80% of their salaries, capped at £2,500 per month, as well as an interest-free Business Interruption Loan Scheme for SMEs and a separate finance option for bigger businesses. So how can employers access government-backed support and what else can businesses do to help themselves?
Move employees to part-time hours or furlough
In the hope of avoiding millions of redundancies, the government’s Job Retention Scheme aims to help employers keep their staff in jobs, ready for when the economy picks up and people can return to work. Under the scheme, employees put on furlough are still paid by their employer, who is then eligible to claim 80% of their salary, capped at £2,500 per month, from HMRC. The sum is subject to tax and NI. The scheme was originally planned to run until the end of May but has recently been extended until June 30th. It applies to all employees who were employed on 28 February 2020 or before and includes those on full-time, part-time, fixed-term, casual or zero-hours contracts. The main condition is that employees cannot work while furloughed, but could spend their time volunteering. Another option may be to ask employees to temporarily move to part-time working hours during the crisis. Employers should remember that employees are still protected by employment and contractual rights. Employers who are furloughing staff can apply for their grant from 20 April 2020 through the dedicated HMRC portal. Two million employers have already been emailed with details, and payment has been promised “within six days".
Apply for the Coronavirus Business Interruption Loan Scheme
Open to SMEs with a turnover less than £45m, the government’s Coronavirus Business Interruption Loan Scheme is access to interest-free loans, overdrafts, invoice finance and asset finance of up to £5m to help businesses through Covid-19-related difficulties. Businesses will need to prove that they had been trading successfully but now need extra support to deal with short-term difficulties caused by current disruptions. The government-backed scheme, with loans provided by more than 40 lenders including Barclays, HSBC, Lloyds and NatWest, will initially run for six months, offering borrowing terms of six years. The government will provide a grant payment to cover interest and initial fees for 12 months and will guarantee 80% of the loan. The British Business Bank, operating the scheme, started offering loans on 23rd March. It is also open to self-employed, sole traders, freelancers and limited partnerships. Applicants are encouraged to approach their own bank in the first instance.
Finance facility for large firms
Offered by the Bank of England for companies with turnover more than £45m, the Covid Corporate Finance Facility is a cash-flow scheme to boost the short-term funds of companies which are in sound financial health and have a very high credit rating. It is a facility for the government to promise to buy IOUs,which can be for a period from a week to one year.
Defer VAT payments
HMRC is providing an option for businesses to defer VAT payments for three months. All UK VAT-registered businesses with payments due between 20 March and 30 June 2020 have the option to defer payments to a later date.
Time to pay
For companies struggling to pay corporation tax, VAT and PAYE on time, HMRC has already announced it will waive late payment penalties and interest for missed payments, but it is also offering Time to Pay (TTP) – a scheme that allows businesses to arrange to officially defer tax payments while times are tough. A TTP arrangement allows for debt to HMRC to be paid back in monthly instalments, typically over a period of up to 12 months. Although depending on business circumstances and affordability, it says some arrangements can be agreed over longer periods.
Request a rent payment break
Consider asking your landlord for a break if you’re experiencing a drop in trade which is impacting your ability to pay the rent. Landlords may take a generous approach, due to extenuating circumstances, by providing rent breaks or payment discounts. The government has provided protection for commercial tenants who cannot pay their rent because of Covid-19, which means that no businesses will automatically forfeit their lease and be forced out of their premises if they miss a payment up to 30th June. However, the government is at pains to point out that this is not a rent payment holiday and companies that can still pay their rent remain liable for it.
Streamline business needs
This is the time to examine outgoings such as memberships or extra space that is going unused. Reorganisation and a slimming down of costs will help when the economy picks up and business starts to move forward again.
Speak to your clients
Try to get a picture of what work will continue to come in. Managing clients’ expectations during this time needs effective communication and client management. If some of your clients are in real trouble, you should consider asking them to pay your outstanding invoices before undertaking further work for them. For other clients in a stronger financial position, you may be able to agree upfront payment for work.
Chasing outstanding payments
Ask customers to pay the outstanding invoices they already owe. Morrisons has led the way with this, paying 3,000 suppliers instantly, regardless of payment period. Small businesses or the self-employed should use this moment to chase for instant payment. Some blue-chip firms have early payment schemes for accelerated payments. These are still worth investigating even though they may come with a charge, or the requirement to offer a discount. It’s important to ensure that invoicing is still happening as quickly as possible.
Communicate with suppliers
Proactively speaking to suppliers to negotiate extended credit terms, is recommended. Key suppliers may be willing to grant longer terms to pay their invoices. All suppliers would rather agree a payment date rather than simply defaulting on obligations. Those who communicate best with their suppliers may end up receiving the most flexibility.
Check commercial insurance
Unfortunately, as acknowledged by the government, most commercial insurance policies are unlikely to cover pandemics or unspecified notifiable diseases, such as COVID-19. However, businesses whose insurance policies cover ‘government ordered closure and pandemics’ or ‘government-ordered closure and unspecified notifiable disease’ may be able to make a claim, subject to their policy. Some businesses may also have their own business interruption cover in their insurance policies, however, they would need to check for an extension for ‘notifiable diseases’. On 5 March 2020, the government added COVID-19 to its list of notifiable diseases.
Where to go for further information:
London Growth Hubadvice centre, a portal of Covid-19 support resources brought together by The London Assembly, for London-based businesses.
https://listentotaxman.com/for employers and furloughed employees wanting to model earnings and deductions.
https://www.gov.uk/business-support-helplineadvice and financial help from government backed schemes.
Moore Kingston Smith's advice hub designed to help businesses maintain continuity during the Covid-19 crisis and beyond.
Real Business Rescue, a helpline for businesses in distress, was set up by accountancy firm Begbies Traynor in response to the current crisis.