The coronavirus is providing a challenging environment for many small businesses. Now more than ever, it’s important to be on top of your cash flow.
We updated this page on 26 March.
We’re here to help
If you want to speak to a member of our team and be advised on how to best cope with the challenges from a financial point of view.
We know that many businesses are being affected by the COVID-19 outbreak and so they are concerned with their cash-flow.
Here we’ve outlined some options which can help you find funding quickly to support your operations through this critical time.
- New customers – Can you negotiate payment in advance or at least payment in instalments?
- Existing customers – Can you offer customers early payment discounts? Otherwise, consider invoice discounting or invoice factoring to get paid outstanding invoices quicker for a fee (typically 2-3% each time). We’ve partnered with Swoop that can match you with suitable invoice financiers.
- HMRC Time To Pay – Businesses affected by the coronavirus that have outstanding tax bills they cannot pay because of the outbreak may be able to agree bespoke payment terms through the HMRC Coronavirus Helpline.
- At the moment HMRC can agree to defer the payments for PAYE and NICs with no penalties for late payments. However, the official line from HMRC is still that the interest charge of 3.25% will still accumulate on late payments.
- It is very important that, if you’re having difficulties paying HMRC, you get in touch with them as soon as possible. Don’t just not pay, make sure you call them first and agree new payment terms.
Coronavirus Business Interruption Loan Scheme
- The Coronavirus Interruption Loan Scheme – Launched by the Government in response to the COVID-19 pandemic, the scheme allows companies with a turnover up to £45m to borrow up to £5m with the first 12 months interest free, with repayment terms up to 6 years.
- How does it work – The Government will back 80% of any losses, allowing companies affected by the emergency to access extra liquidity in a time of need in the form of loans or other facilities such as overdrafts. The borrower remains 100% liable for the debt.
- The facilities are delivered by the British Business Bank. A list of available lenders is available on the British Business Bank’s website. Lenders may use the scheme to provide unsecured facilities under £250,000 at their own discretion.
- Who is eligible – In order to be eligible for support via the Coronavirus Business Interruption Loan Scheme, applicants must:
- Be UK-based with annual turnover of no more than £45m;
- Have a borrowing proposal which, were it not for the current pandemic, would be considered viable by the lender, and for which the lender believes the provision of finance will enable the business to trade out of any short-to-medium term difficulty;
- NOT operate in one of the sectors that are not eligible, including banks, building societies, insurers and reinsurers, the public sector, membership organisations or trade unions.
- What you need to apply
- Last 6 months’ bank statements;
- Latest management accounts
- Full annual accounts (last 3 years ideally);
- Business plan including cash flow forecast.
- See full requirements on our Coronavirus Business Interruption Loan Scheme page.
- EIS & SEIS – As announced on 23 March, the scheme is fully compatible with EIS and SEIS. This means that companies that raised funding under EIS and SEIS are eligible to apply and, viceversa, companies that receive funding through the Interruption Loans Scheme will still qualify for SEIS and EIS.
- Young companies – As suggested by the British Business Bank, early-stage businesses in their first 2 years of trading may be better off applying to the StartUp Loans Program.
- Our advice – First, go to your shareholders and directors for working capital loans. It might be quicker, and some tech companies may not qualify for government support if they have raised large investment or have large backers, as the scheme targets struggling businesses.
As of 26 March 2020, the full details of the scheme are still to be published, therefore the following is to be considered as an indication based on the information available to the public so far.
The Scheme, announced on 20 March 2020 is meant to enable employers to retain staff during the COVID-19 pandemic. The Government will refund 80% of each furloughed employee’s wages as a grant administered by HMRC, up to £2,500 per employee per month.
This measure will be retroactively effective from 1 March 2020.
In order to access the scheme businesses will have to:
- Designate affected employees as ‘furloughed workers,’ and notify employees of this change;
- Submit information to HMRC about the employees that have been furloughed and their earnings through an online portal (details are not available yet, we will keep you posted as soon as the portal goes live);
- HMRC will reimburse 80% of furloughed workers wage costs, up to a cap of £2,500 per month.
- HMRC are working urgently to set up a system for reimbursement, existing systems are not set up to facilitate payments to employers, so it might take a while for the new systems to be up and running, but the Government announced that the first payments will be processed before the end of April.
This Scheme is subject to existing employment law. This means that, unless your employees’ contract states differently or the contract is redrafted, you will still have to pay the remaining 20% of their existing salary. Additionally, employers are expected to pay their furloughed staff regularly through payroll until the grants are administered.
At present time, this Scheme does not extend to dividends, meaning that owner managed companies where the directors pay small salaries in favour of dividends should not rely on it for covering a significant part of their normal retribution.
Grants and R&D Tax Credits
1. £10,000 cash grant for SBRR eligible companies – Small Businesses that operate within premises with a rateable value under £15,000 are eligible to benefit from Business Rate Relief. The Government is going to provide these companies with a £10,000 cash grant, as has been announced on 17 March. This is primarily targeted at brick and mortar retailers. More info on the Gov.UK COVID-19 page.
2. No Business Rates and grants up to £25,000 for small retail, hospitality and leisure businesses – Businesses operating in retail, hospitality and leisure sectors are exempt from Business Rates for the tax year. This applies to properties that are mainly used as:
- as shops, restaurants, cafes, drinking establishments, cinemas and live music venues,
- for assembly and leisure; or
- as hotels, guest and boarding premises and self-catering accommodation.
Among these businesses, those with a rateable value under £51,000 and above £15,000 are also eligible for cash grants up to £25,000. This “Business Rate holiday” kicks in on 1 April.
As per the Gov.uk website, “there is no action for you”. Your council tax bill in April 2020 will reflect the new measures, and businesses eligible for the grants will be contacted by their local authorities. You can find your local authority here, and read the full guidance here.
3. VAT Payments for Q2 2020 are deferred until the end of the tax year, meaning that businesses will have until April 2021 to repay their VAT liabilities from 1 April to 30 June 2020.
Businesses which normally pay their VAT by direct debit should cancel their direct debit with their bank if they are unable to pay.
4. Income Tax Self-Assessment payments due on 31 July 2020 will be deferred until the 31 January 2021.
5. Statutory Sick Pay Refund – For businesses with fewer than 250 employees, the cost of providing 14 days of statutory sick pay per employee affected by the coronavirus will be refunded by the government in full. This is effective from 13 March.
6. R&D Tax Credits – The average Innovative UK SME claims £45k p.a. back on qualifying R&D spend. We can help you submit a claim, get in touch with us for more information.
Note, there are organisations that will advance R&D Tax Credit monies typically for an overall cost of 3-5% of the borrowed amount plus circa 1% pcm in interest.
7. Innovate UK – Worth keeping an eye on the Innovate UK competitions page to see if there are grants that could be applied for. Note this is paid in arrears though so won’t alleviate immediate cash flow pressures.
Loans and Debt
- The Coronavirus Business Interruption Loan Scheme – Allows companies with a turnover up to £45m to borrow up to £5m with the first 12 months interest free. Check the British Business Bank’s official website but be mindful that this could impact your R&D tax credits claim: Check out the impact this could have on R&D tax credits.
- SME Loan Search – We’ve set up a webpage with our partner Swoop that can match you with suitable debt products. The number of options for debt products available to SMEs has grown quite considerably recently.
- Start-up Loan Scheme – The government operates a start-up loan scheme where the business can borrow up to £100k (up to £25k per director, max 4 directors) as a business loan repayable over 4 years with an interest rate of 6%. There’s no personal guarantees, but if the business does not succeed, then any outstanding payments are repaid by the directors personally over the remaining term of the loan. If you think you are eligible, we recommend applying through Startup Direct.
If you have existing investors then it would make sense to approach them. You can get the funds in now using an Advance Subscription Agreement. It’s a very straightforward 2-page letter, generally EIS/SEIS compliant for investors.
Note, under an ASA it is common to offer a discount of 10% on the final investment share price.
Remember, we’re here to help
If you want to speak to a member of our team and be advised on how to best cope with the challenges from a financial point of view, please contact us.