How Businesses Can Survive Coronavirus – Approved Accounting
We understand that a huge number of businesses will have very real problems and concerns in terms of getting through this period of economic uncertainty which in some sectors has caused demand (and therefore income) to fall off a cliff overnight.
The situation and the Government response is moving almost hour-by-hour, so we’ve put together this guide and will continue to update it.
We have tried to explain each issue as simply as we can in order to cut through the complexity and give you, as a business owner, something you can understand easily and hopefully help you to make quick and correct decisions.
Approved Accounting and our sister business, Approved Recovery are here to support our clients in these challenging times, and we will do everything we can for anyone who asks for our help.
Please contact us if you would like to talk about how we can help your business get through the implications of COVID-19, but in the meantime we hope this guide is useful.
Initial Business Strategy – Assess Your Situation
Firstly, we recommend you think about the level of cash flow and reserves in your business, and plot scenarios (eg best case, worst case, and something in the middle).
Some businesses will be able to cope for a period of time, and others will feel pressure almost immediately. Determining how exposed you are is crucial. Once you have done that, you can start to take steps to reduce that exposure where possible.
Ask yourself questions such as:
- With little or no income, how long can you survive?
- What costs can you reduce or remove?
- At what point will you need an injection of cash flow?
- Should you close for a period of time to minimise costs, or stay open and earn what you can?
You may need a forecast to look more closely at your cashflow – talk to your accountant if you need to do this as forecasts need to be prepared carefully to be correct and give you the right information.
Coronavirus: Government Grants/Subsidies
The Government have announced two main subsidies for small businesses with premises. The aim is to provide a cashflow boost to the smallest businesses who still have rent and fixed costs to pay, and those in sectors hardest hit by the sudden drop in demand.
The measures are:
- £10,000 to be paid to all businesses who have premises with a rateable value under £15,000.
- £25,000 to be paid to businesses in the leisure/hospitality sector who have premises with a rateable value over £15,000 and less than £51,000.
We understand both of these will be paid as a single credit to the bank account of the business, but will need to be claimed by the business. Details on how this will work and how to claim have not yet been announced but we will update this page as soon as they are.
Employees and PAYE
Staff costs are a big issue for many businesses, as well as the likelihood of absence due to illness and/or isolation.
There will naturally be a very difficult trade-off here between protecting the business and doing everything possible to look after staff from both a health and financial point of view.
Welfare of staff and customers is paramount, and employers of course should ensure they are not putting anyone at risk. Working from home and limiting contact with others is advised in order to follow Government guidance.
Employers should review contracts and options for reducing staff costs, engaging with employees to find arrangements that will suit both the business and the employees wherever possible.
If employees are off work with sickness or due to isolation, SSP (Statutory Sick Pay) can now be paid from day one, and the employer can reclaim the cost of that SSP from HMRC. Details of how to do this have not been announced yet however, and payroll software naturally does not reflect this yet.
So watch this space, and we will provide an update when HMRC announce how it will work.
Paying SSP will therefore have to be funded by the employer in the first instance, and while that will be less than normal wages, if business income has reduced, this could still prove difficult. The grants mentioned earlier and loans mentioned later on this page may help with this if needed.
Business Interruption Insurance
For pubs, clubs, theatres etc who have lost most or all of their customers because of Government advice for the public to avoid them, the situation is as serious as it can be.
However, if you have an insurance policy including business interruption cover, the Government advice to avoid your premises should be sufficient for a claim to be covered. So speak to your insurer as soon as possible.
Other businesses may also have cover that might help, for example key man insurance covering someone who is ill or has to be in isolation for an extended period. So always review your cover to find out if there is help available.
Mortgage Payments / Holidays
What is available?
Mortgage lenders have been asked to allow 3-month repayment holidays for borrowers whose income has been affected by Coronavirus.
This does not mean a discount, just a postponement, so the mortgage will be paid off 3 months later than planned. But nonetheless this could be very helpful to a lot of people whose income has fallen or stopped.
It is important to say that a lot of mortgages include a facility for a payment holiday anyway, and lenders will often listen to borrowers and try to help if they are in difficulty anyway. So in a way this is not new.
Working together with your staff
It might be that employees and employers can work together to perhaps reduce hours or wages if the employee can reduce their costs by taking a repayment holiday. Obviously not all employee-employer relationships will allow for this sort of arrangement, but in many small businesses this could be an option.
Commercial lenders may also be open to allowing payment holidays to affected businesses. We suggest talking to your lender as soon as possible, and don’t allow payments to be missed as that will rack up penalties, affect credit rating and run the risk of repossession.
Business Rates and Rent
All businesses in retail, hospitality and leisure will not pay any business rates for the next 12 months. Grants are available to businesses with premises, and in certain sectors (see grants section above).
We have already seen landlords offering periods of grace or discounts to business tenants whose business is suffering. In a lot of cases, you would expect landlords to be receptive to at least discussions on whether any support can be offered, if for no other reason than having rent arrears and possibly having to deal with defaults, business failures or evictions would introduce unwelcome cost, hassle and loss of income.
Therefore we recommend you speak to your landlord and ask if they are prepared to help you. A pragmatic approach by landlords to support their tenants is certainly a good possibility, and that is the advice we are giving our landlord clients.
Tax and HMRC Time to Pay
In the Budget, the Chancellor announced a new HMRC team set up to help businesses affected by Coronavirus to agree payment plans for their VAT, Corporation Tax, PAYE and CIS.
Details of the line are here: https://www.gov.uk/government/news/tax-helpline-to-support-businesses-affected-by-coronavirus-covid-19
Before calling, make sure you know what your liabilities are and how much you can afford to pay in order to have the best chance of coming away from a call to this line with a time to pay arrangement that will help your business. HMRC generally only agree to 12-month payment plans as a maximum, but we have seen 18 months agreed in exceptional circumstances.
We would never advise just failing to pay a tax liability when it is due as this can lead to penalties, collection procedures and problems multiplying. It is always best to speak to HMRC and try to agree something, in order to avoid any action being taken against your business, and give you some certainty and a degree of peace of mind. Having said this, there was an announcement in the budget that in some cases HMRC will waive late payment penalties and interest where a business experiences administrative difficulties contacting HMRC or paying taxes due to COVID-19.
Business Interruption Loan Scheme
The largest part of the Government support package is a scheme to allow businesses access to lending to help them through this period.
This could provide priceless cash flow to allow you to pay wages, rent and other committed costs while income is reduced.
We understand the loans will be provided via the banks, will be interest-free for 6 months, and the Government will guarantee 80% of the amount borrowed. This means if the business later defaults on the loan, 80% of the debt will be settled by the Government.
Details on how and when to apply have not yet been announced, but again we will update this page as soon as they are.
If income falls dramatically, some businesses may be due a VAT refund on their next return. If so, make sure you or your accountant complete and submit as quickly as possible, in order to get the repayment from HMRC to help your cash flow.
Some small businesses, particularly those who sell to the public could consider de-registering for VAT if turnover has dropped below the threshold of £85,000 in the last 12 months. This would mean you could either reduce your prices to create more demand for your product or service, or increase your margins by keeping prices the same but removing VAT as a cost. Remember though, this would mean you wouldn’t be able to reclaim VAT on your expenses, so it is not a 20% gain!
Turnover falling below £150,000 may also open up access to the Flat Rate Scheme, which could yield a VAT saving.
Also think about customers who owe you money – obviously the best solution is to be paid, but if you do have any bad debts then remember that there may be VAT relief to be claimed.
Losses and Tax Refunds
If your business makes a loss, it is possible to offset that loss against previously-paid tax, so talk to your accountant about whether for example your year end should be changed, or your accounts prepared quickly in order to claim a repayment and help your cash flow.
Other Sources of Funding, and Areas to be Careful!
You may find that everything above is not enough, and you need to look for another source of funding. Whilst this may work in some cases, in others it only serves to increase pressure on the business because of high borrowing costs.
So be careful when taking on debt if your business is already under pressure. You should always consider and be realistic about whether the business is fundamentally sound, and only invest further in it if it is justified. Borrowing to prop up existing debts is never a good idea!
Also remember that if your business is insolvent, directors have a responsibility to act in the best interests of creditors and must avoid making the situation worse. If concerned about this, please contact Approved Recovery, our sister practice, who specialise in scenarios like this.
Also, be very careful about giving personal guarantees on business lending. Many times we have seen business owners sign guarantees without fully considering the implications or taking the proper advice, and ending up with personal debt putting their home or other assets at risk.
Some more positive thoughts:
If you have an overdraft with the bank, talk to them about how they can help, for example turning an expensive facility into a more structured term loan with fixed repayments and lower borrowing costs.
Always look at whether any Government Grants are available in your sector. Many people are amazed by what is available to support innovation, create jobs, subsidise business in deprived areas, and so on.
Contact Approved Accounting
We have been working tirelessly with our clients to actively provide support at this most difficult of times, talking to them about all of the issues discussed in this guide.
Whether you work with us or not, we hope every business in the UK receives the support needed to weather this storm.
Of course, if you do not currently work with us and would like to, please contact us and we’ll be happy to discuss your needs, but most importantly we hope this guide helps you.
All the best to every UK business – we can get through this!
The team at Approved Accounting and Approved Recovery, 18 March 2020.