Key FAQs for businesses and professionals affected by the Coronavirus (COVID-19)

The Government has announced an array of measures to help support employees during the COVID-19 crisis. 

UK workers of any employer who is placed on the Coronavirus Job Retention Scheme can keep their job, with the Government paying up to 80% of a worker’s wages, up to a total of £2,500 per worker each month. These will be backdated to 1 March and initially be open for three months, to be extended if necessary.

Eligibility: All UK businesses are eligible.

How to access the scheme
Businesses will need to:

• Designate affected employees as ‘furloughed workers’ and notify your employees of this change. Changing the status of employees remains subject to existing employment law and, depending on the employment contract, may be subject to negotiation.
• Submit information to HMRC about the employees that have been furloughed and their earnings through a new online portal (HMRC will set out further details on the information required).

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. At the moment, existing systems are not set up to facilitate payments to employers. 

In addition, a series of measures has been announced to assist affected individuals with mortgage and rent payments for an initial period of three months.

The British Property Federation (BPF) has published a statement, on behalf of the commercial property industry, to urge any business in financial distress ahead of the first rent quarter day of 2020 to speak to their landlord as soon as possible.
    
The first rent quarter day is on 25 March and the commercial property industry is committed to supporting its customers who are concerned, through no fault of their own but due to COVID-19, about rent liabilities.

Businesses will have immediate relief measures available to them – flexibility around rents and other lease terms could include moving from quarterly to monthly rent payments and providing rent deferrals or payment holidays, depending on individual businesses’ financial circumstances.

Property owners however, are similarly facing the impacts of COVID-19 on their own businesses and will need further intervention from the Government – including measures such as rent subsidies to tenants – if they are going to help as many businesses as possible come through the next few weeks.     

The retail, leisure and hospitality businesses at the heart of our high streets are at the sharp end of the unfolding global health pandemic and property owners are already working with these customers who are in temporary distress.

As the disruption continues, the challenges facing these businesses will spread to other types of property occupiers and to all parts of the economy. Property owners will stand ready to support those that need it, to create workable solutions that protect their future as well as the 45 million savers and pensioners around the country whose money is invested in commercial property.

The British Property Federation welcomes the actions the Government has taken so far to support businesses affected by Coronavirus and its willingness to take further action as this fast-moving situation continues to develop and hits all parts of the economy. We expect further measures to be announced urgently both to support and underpin all actors within the economy to play their part and maintain supply chains, and to support individual household incomes so that the country can recover as quickly as possible.    

The retail, leisure and hospitality businesses at the heart of our high streets are at the sharp end of the crisis and property owners are already working with their retail, leisure and hospitality customers who are in temporary distress in the run-up to the first rent quarter day of 2020, to be more flexible on rent and other lease terms, including for example by moving from quarterly to monthly rent payments and providing rent deferrals or payment holidays.

As the disruption continues, the challenges facing these businesses will spread to other types of property occupiers and property owners will stand ready to support those that need it.

Our members take seriously their responsibilities to their customers and to the communities in which they provide a safe built environment that underpins all of our lives. Our members are committed to working with their customers at this difficult time to find solutions that protect both retail and hospitality businesses in distress, and the 45 million savers and pensioners around the country whose money is invested in their buildings.

Any business in financial difficulties due to the impact of the Coronavirus, should already be speaking to their funders as well as their landlords to agree a plan to sustain their operations wherever possible. If not, we urge them to do so as soon as possible. Our members will work with all their tenants constructively during these immensely difficult times.

Melanie Leech, Chief Executive, British Property Federation comments: “Property owners are already working with their retail, leisure and hospitality customers to be more flexible on rent and other lease terms, understanding they have a responsibility to sustain businesses in temporary distress and the communities where they are invested. Property owners are committed to working hand in hand with their customers through this very difficult time and will balance support for their customers with their duties to investors, who represent the savings and pensions of 45 million people around the country.

"We urge those businesses who find themselves in financial difficulties, through no fault of their own but due to the impact of the coronavirus, to contact their landlord to discuss payment plans as soon as possible.”

It is a crucial time for businesses, especially those in customer-facing sectors. This week has been one full of uncertainty and diluted messages as we all try to fight our way through this global pandemic, quickly adjusting business models to safeguard as best we can. 

As far as HMRC goes, on Friday 20 March, the Chancellor announced that the next quarter of VAT payments will be deferred, meaning no business will pay any from now until the end of June. This is set to free up £30 billion worth of cash to employers, equivalent to 1.5 percent of GDP. 

This announcement follows the HMRC plans set out by the Chancellor in Budget 2020, to create a dedicated helpline to provide information and advice in response to the crisis. Agreements to date have included instalment payments, suspending debt collection or stopping penalties and interest if they demonstrate difficulties paying immediately.

The idea of setting up a deferred tax system for all businesses is to provide the much-needed flexibility when it comes to cash flow in the short term, presenting them with the opportunity to restructure their business accordingly.

Management will need this cash to meet critical short-term payments to enable ongoing trading and meet the costs associated with restructuring or mothballing businesses to adapt to the current circumstances. 

What’s more, HMRC has outlined its immediate plans to withhold any further actions against any businesses where they have outstanding liabilities to HMRC. It is not yet clear how long this will stand for, but we can only presume it will last for the next few months at least. 

The message from HMRC to date has been one of leniency and unprecedented support, giving businesses the ability to free up immediate capital funding to reduce impact. However, it is important to remember that any money falling due in tax, in this time, will have to be repaid in the future – the Chancellor has given businesses until the end of the financial year to repay the bills.    

There is no doubt that there is further guidance from HMRC to come imminently, but I would advise businesses that are feeling the impact of COVID-19 to seek advice as well as support on how best to use the extra cash to secure the future of their business.

As the effects of COVID-19 are witnessed throughout the UK, businesses are facing more and more challenges. Management of cash is fundamental to successfully running a business at the best of times but now, it is even more important.  Here are some tips to help you manage your cash flow successfully:

1. Plan ahead. If you have never prepared management accounts and produced a cash flow forecast, now is the time to do it. This will help you look at your business bank account history and see what funds have historically left the account. Are they automatic monthly items such as wages or are they variable payments such as suppliers? Work out when you need to make payments and put them in your cash flow.
2. Work out those payments that are critical to your ongoing business in the short term and those payments that, if you didn’t make them, would mean that your business couldn’t survive. For example, if you have employees who you need to pay to keep the business running, they must be paid on time. If you have payments which can be delayed, then identify which those payments are. 
3. HMRC has provided support to businesses by delaying payment of the next tax quarter and recognising that businesses will need time to pay where income has dropped. Use this opportunity to delay tax payments and preserve cash for those critical payments that keep your business going over the next few months. Remember though that HMRC are only deferring their tax and it still needs to be paid at some point.
4. Preserve cash even if you have reserves. Don’t think that because you have the money now, you can afford to make payments which do not fall as critical. The landscape may change so plan for the worst-case scenario.

Directors will be familiar with their duties to:

• Act within their powers under the company’s constitution 
• Promote the success of the company for the benefit of its shareholders
• Exercise independent judgement
• Exercise reasonable care, skill and diligence
• Avoid or manage conflicts of interest which may affect their objectivity

However, if a company is insolvent then the directors’ duty becomes to the creditors, not themselves nor their shareholders. If a company is insolvent or in danger of becoming insolvent, it is essential that directors are aware of the duties they owe to creditors, and of the things they should and should not do.

The precise details of what factors they should take into account to discharge those duties varies from one case to another,and they should seek professional advice if in any doubt. In certain circumstances, personal liability can be imposed on directors of companies which go into insolvent liquidation, and so it is crucial that directors act correctly to minimise such risks. 

Directors need to ask themselves on a regular basis whether their company remains solvent

There are two tests: 

1. The ’cash flow test’, a company is insolvent if it cannot pay its debts as they fall due. 
2. The ’balance sheet’ test, a company is deemed insolvent if it’s satisfied, on the balance of probabilities, that a company has insufficient assets to meet all its liabilities (including contingent and prospective liabilities) as and when they eventually fall due. 

If directors think their company may be insolvent on either test, duties are owed primarily to creditors as a whole.

Directors need to consider whether the company should continue to trade if it is insolvent:

Personal liability can attach to the directors for wrongful or fraudulent trading, such that the directors can be ordered to contribute to the assets of the company. Directors can be liable for wrongful trading where they continued trading at a time when they knew (or should have concluded) that there was no reasonable prospect of the company avoiding an insolvent liquidation and they failed to take every step a reasonably diligent person could be expected to take to minimise loss to creditors. 

Transactions completed in the run-up to insolvency can be challenged by the courts and, in some cases, the courts can overturn them:

Directors should be very careful if they plan to transfer assets out of a company if there is any doubt as to whether it is solvent. If the company enters into a transaction below market value (for example it sells an asset at a knock down price), there is a risk that a subsequently appointed liquidator or administrator of the company may seek to set aside the transaction as a transaction at an undervalue. In addition, care should be taken to avoid doing anything which may put a creditor in a better position than it would be in on an insolvent liquidation. 

Directors should take particular care if a group of companies is involved:

Directors of multiple companies in a group should bear in mind that transactions within the group can be vulnerable too. A director of multiple companies owes duties to each individual company and therefore conflicts may develop.

If a Director is faced with such challenges, the following practical steps should be taken:

• Board meetings should be held regularly
• Full board minutes should be taken and circulated to all directors after the meeting
• Maintain and review up to date management accounts and prepare regular cash flow forecasts
• Take prompt professional advice

The temporary Coronavirus Business Interruption Loan Scheme is designed to support small to medium-sized enterprises with access to loans, overdrafts, invoice finance and asset finance of up to £5 million and for up to six years.

In addition, a Business Interruption Payment will cover the first 12 months of interest payments and any lender-levied fees, so that businesses benefit from no upfront costs and lower initial repayments, plus it may be possible to secure a repayment holiday to help with cash flow on an existing loan with monthly repayments.

The Government is providing lenders with a guarantee of 80% on each loan (subject to pre-lender cap on claims) to give lenders further confidence in continuing to provide finance and all major banks and 40 accredited finance providers are offering access to the scheme. Each lender will review applications on a case-by-case basis and consider your business plan along with historical performance to make an informed lending decision. 

The current climate is unprecedented and it is therefore extremely challenging to predict what the future will look like in three months, twelve months or even six years ahead. 

As a director you are required to exercise reasonable care, skill and diligence as well as independent judgment. The reasonable test is an objective one measured as the knowledge, skill and care reasonably expected of a person in your position. Should you have specialist knowledge, this may be expected to meet a higher standard.

Applying for a loan and accepting an offer of a loan from a lender are as two distinctly different decisions.

In order to make an application, a director should be satisfied that there is a need. In the current economic environment this will be, for many, a simple decision. In making an application the director should have a clear view on both the purpose and the quantum that is desired. Professional advice should be sought, as applicable, to assist in producing a cohesive business plan and/or to consider the rationale and assumptions.

Upon receipt of an offer of a loan, directors should consider its suitability in line with the business plan and the requirements of the business. This is particularly important where the terms offered are materially different to those requested. In the event of entering into such a facility, it is sensible that the directors record their rationale for entering into a facility that may be, by their own assessment, deficient to meet their business needs. Again, professional advice should be sought to consider both its suitability and also, to consider alternative options that may be available.

In any such consideration, the following practical steps would be appropriate:

• Board meetings should be held to review and consider the application, progression and acceptance or otherwise. The basis and rationale of the decision-making process should be recorded.   
• Full board minutes should be taken and circulated to all directors after the meeting.
• Maintain and review up to date management accounts and prepare regular cash flow forecasts so that any additional considerations can be identified, these may inform the decision-making process and can be taken into account.

Businesses of the following nature have been asked to close:

• Food and drink venues for consumption on-site, such as restaurants and cafes
• Drinking establishments, including pubs, bars, nightclubs
• Entertainment venues, including cinemas, theatres, concert halls, and bingo halls
• Museums and galleries
• Spas, wellness centres and massage parlours
• Casinos and betting shops
• All indoor leisure and sports facilities, including gyms

Naturally there are some very worried business owners concerned about the future of their business. 

Businesses that have cover for both pandemics and government-ordered closure should be covered, as the government and insurance industry confirmed on 17 March that advice to avoid pubs, theatres and so on,  is sufficient to make a claim as long as all other terms and conditions (T&Cs) are met.

Insurance policies differ significantly, so businesses are encouraged to check the T&Cs of their specific policy and contact their providers. Most businesses are unlikely to be covered, as standard business interruption insurance policies are dependent on damage to property and will exclude pandemics.

Income Tax:
For Income Tax Self-Assessment, payments due on the 31 July 2020 will be deferred until the 31 January 2021.

Eligibility:
If you are self-employed you are eligible.

How to access the scheme:
This is an automatic offer with no applications required.
No penalties or interest for late payment will be charged in the deferral period.
HMRC have also scaled up their Time to Pay offer to all firms and individuals who are in temporary financial distress as a result of Covid-19 and have outstanding tax liabilities.

With tighter measures around social distancing and isolation, including the closure of a large amount of businesses in the hospitality and leisure industries, we are seeing a rise in queries relating to funding which the Government has promised.

The Government has announced a raft of measures to assist businesses who require funding support through a variety of initiatives. The main one being the Coronavirus Business Interruption Loan Scheme (CBILS). Announced by The Chancellor during Budget 2020, but finalised recently, this new scheme is one that will provide support to small to medium-sized enterprises (SMEs), across the UK, who are experiencing disruptions to their cashflow.

The key features and eligibility criteria of the scheme are briefly summarised below:

• Established for businesses with a turnover of up to £45 million: This scheme allows businesses from all sectors to apply for the full amount if they are based in the UK with an annual turnover that doesn’t exceed the specified amount, and have a borrowing proposal that appears to be viable.
• Between £1,000 and £5 million facility: This lending scheme is via the British Business Bank and covers a wide range of products, including term loans, overdrafts, asset finance and invoice finance. These are available on repayment terms of up to six years.
• 80% government-backed guarantee: The scheme provides the lender with a government-backed guarantee against 80% of the outstanding facility balance. This is useful in terms of the potential to convert a decision from rejection of a loan to acceptance. However, it’s important to note that the borrowing business will remain 100% liable for the debt.
• No guarantee fee for SMEs to access the scheme: The scheme doesn’t require SMEs to pay an access fee in contrast to the lenders who will be required to pay a fee.
• Interest and fees paid by the Government for a year: The scheme allows for smaller businesses to benefit from no upfront costs and low initial repayments as the Government will make a Business Interruption Payment to cover the first year of interest and any lender fees. This will help to reduce the pressure on smaller businesses by giving them a year in which to recover and continue as before.
• Finance terms: The scheme naturally offers different finance terms depending on the product required. For term loans and asset finance facilities, the finance terms are up to six years. Whereas, for overdrafts and invoice finance facilities, terms are up to three years.
• Security: The scheme will, at the discretion of the lender, allow businesses to apply for unsecured lending facilities of £250,000 and under. Anything above £250,000 will require the lender to establish a lack of security prior to businesses using the scheme and if they are able to not use the scheme and instead offer finance on normal commercial terms, they will do so.

Another measure the Government has taken is to introduce a £25,000 grant for businesses operating from smaller units across the retail, hospitality and leisure sectors. Any queries for this should be directed to the relevant local authority. In addition, a 12-month business rates holiday has been introduced for these sectors and businesses should expect to receive new bills form their local authority. 

If you fit the criteria for the various schemes, applying for government funding should be relatively straightforward. However, in these trying times, extra help and support may be what you need and if so, please don’t hesitate to contact one of our team of experts who will be happy to help or alternatively, please fill in the form below.

The current impact of COVID-19 is so unprecedented and for many businesses, the speed with which it has played out has left many feeling helpless.

It follows that one of the key questions that business owners are asking is ‘how long can we survive until the worst (hopefully) passes?’ The answer depends on how much cash the business currently has in order to keep current operations as “whole” for as long as possible.

In reality not many businesses, especially in the SME space, will have sufficient cash reserves to simply wait it out and fund inevitable losses, unless they operate in one of the designated essential sectors and may actually experience increased demand.

What we have been seeing at Quantuma is that for most businesses the immediate response to the crisis has been to look to pare back operational cost drivers by furloughing employees; reducing number of shifts etc. but also stretching supplier credit terms (perhaps predictably) even more. 
In many cases the above measures will not be enough and stretching creditor days past breaking point is a risky, if understandable strategy at present, for some businesses.

However, business owners and directors should ensure that as well as looking at the obvious strategies they also explore less obvious avenues. Summarised below are some additional cash preservation strategies businesses should consider:

• Approaching all customers (especially the larger ones) to request that all overdue sales invoices are immediately brought up to date.
• Temporary suspension of the offer of credit terms (i.e. request customers put you in funds first if requiring urgent production or supply).
• Approach financial stakeholders, utilities and landlords to explore payment holidays etc.
• Last but not least ensure that constant attention is paid to the evolving nature of the Government’s raft of announced measures to support UK business and ensure that where your particular business qualifies for help the application process is prioritised.

The above suggestions are clearly not exhaustive and some will only apply to certain situations but we hope that this article will help emphasise that an obsessive focus on cash generation and preservation should be a constant preoccupation for business owners during this period of uncertainty. 

The COVID-19 virus has caused untold disruption across every aspect of our lives. As individuals we are each having to fundamentally adapt our day-to-day behaviours to keep each other safe and try to help flatten the infection curve.

From a business perspective the devastating impact has been all too obvious. One of the consequences of the pandemic for businesses is that any short to medium term financial projections are now virtually redundant. Many businesses of all sizes, operating across a myriad of sectors, have seen their turnover either completely fall off a cliff, or shrink dramatically, with a resulting pressure on profits and most critically, cash.

There might be a temptation for some to take the view that due to the sheer unprecedented nature of the current situation, coupled with the fact that there are currently no reliable estimates of how long the crisis will last, there is no point in trying to prepare financial projections. We believe that this would be ill advised.

Business benefits of preparing realistic financial projections

Preparing and diligently monitoring a set of realistic financial projections during the current period can provide the following benefits:

1. It enables business owners to understand how bad things really are in terms of revenue drop-off and more pertinently, the extent of any resulting funding gap / cash deficit. This should then enable business owners to have productive discussions with their various financial stakeholders around what support can be provided to their business. Without understanding the trajectory of a businesses’ forecast cashflow, for example, it is difficult for a financial stakeholder, such as a lender, to provide appropriate support;
2. It provides useful visibility of the extent to which “self-help” remedies exist (or not) within the business to limit losses and support efforts to preserve cash; and
3. They can form a key part of a business’ application to the Coronavirus Business Interruption Loan Scheme (CBILS): a new set of financial projections anchored to the preceding 2- 3 years of financial statements that demonstrate how COVID-19 has caused a deterioration in an otherwise sound business will form part of any application.

Whilst existing financial projections or business plans have been seemingly rendered obsolete by COVID-19 at least in the short to medium term, we strongly advise businesses to prioritise the preparation of a new set of integrated financial projections (profit & loss, balance sheet and cashflow) as a key tool in helping them navigate the current crisis.