By Ercan Demiralay, Partner at Wellers.

The health, financial and business implications of coronavirus on the UK are still an unknown, but likely to be enormous. With societies across the globe on lockdown, many aspects of business life have ground to a halt. Whether an enterprise has been impacted by a reduction in footfall, reduced spending on products or decreased demand for services, there are actions that can be taken to protect a business’ and they don’t all involve government assistance.

The Future Fund and support for R&D focussed businesses

The government is setting up, from May, a support package worth £1.25bn aimed at fast growing SME businesses and those that invest in innovative Research & Development (R&D).

The Future Fund is for scaling businesses that have been backed by Venture Capital (VC). The government will match the VC money these organisations have received through state backed loans. This finance can potentially convert to equity ownership if the debt isn’t repaid within 3 years. The fund is being implemented in conjunction with the British Business Bank.

A total £750m will be distributed in grants and loans to smaller businesses with a R&D focus. This will be provided through the non-departmental public body, Innovate UK, from May to September 2020.

Coronavirus Business Interruption Loan Scheme (CBILS)

To help businesses in the private sector, the Government unveiled a £330bn war chest of state loan guarantees. Co-ordinated by the British Business Bank, CBILS has been made available through commercial banks and works by the Government guaranteeing to pay 80 percent of the value of the loans issued, while also covering the initial 12 months of interest payments. This reduces the banks’ exposure, in theory allowing them to be more willing to lend money to businesses that need it.

However, this doesn’t mean an enterprise can borrow money without merit. As with any loan, there must be a sensible borrowing proposal made and enough security to meet the lender’s requirements.

The Coronavirus Job Retention Scheme

Currently available for four months, with the potential to be extended, the Coronavirus Job Retention Scheme (CJRS) is a grant from the Government to help keep employees on the payroll to avoid businesses making redundancies.

The scheme covers 80 percent of an employee’s salary, up to £2,500 a month, and can be backdated to 1st March. The changes to payroll need to be made through HMRC’s new online portal, which is now up and running.

Not only does the job retention scheme mean that employees are guaranteed an income, it ensures employers are less likely to lose valued talent, as they will still be on the payroll when restrictions are lifted and businesses have the opportunity to operate at full capacity again.

Deferral of VAT payments

This is a scheme that does not need to be applied for and is available to all VAT registered traders. It works whereby businesses are able to defer their VAT payments for three months, between 20th March and 30th June.

Accumulated payments are then settled by the end of the 2020/2021 tax year.

Business Rates

For organisations operating within the retail, leisure, and hospitality sectors, that have a rateable value less than £51,000, a 12-month business rate holiday has been announced. This includes B&Bs, gyms, museums, night clubs and sports clubs. For pubs, an increased discount from £1,000 to £5,000 will be applied where the rateable value is less than £100,000.

In addition, the Small Business Grant Scheme has been set up for those that pay little or nothing in business rates because they qualify for either Small Business Rate Relief (SBBR), Rural Rate Relief (RRR) or tapered relief. This funding is available through local authorities and is a one-off grant of £10,000 to help firms meet their ongoing financial commitments. Similarly to the VAT deferral, this does not need to be applied for.

Non-Government Actions

Whilst this time of uncertainty can be worrying for company owners, it is important to remember that even without a global pandemic, many businesses experience cash flow challenges at some point during the business lifecycle. The good news is that there are ways of managing credit to alleviate the situation:

  • Review the sales ledger to asses any outstanding payments and send out invoices promptly
  • Check for any unpaid or overdue invoices
  • Offer discounts on invoices to anyone that could potentially pay early
  • Consider offering payment plans to anyone struggling to pay their invoices, that way at least some cash is flowing through the books
  • Look into invoice factoring to collect cash in advance for a percentage of any outstanding invoices or debt owed to the company
  • Also consider invoice discounting, this allows businesses to draw money by way of a loan against sales invoices, then when the invoice is paid the loan can be paid back
These methods are ways of freeing up cash within a business to allow for outgoings, such as payroll. If a business is still struggling to make payments to suppliers, it is important to communicate this as early as possible. Explaining any cash flow difficulties will allow them to either offer a credit extension or implement a payment plan. However, if they are not aware of the situation, they cannot offer help.

No matter the individual circumstance of the business, it is important that you speak to your accountant to get individual and personalised advice on navigating a financial world impacted by coronavirus.