COVID-19 | Managing your cashflow
COVID-19 | Managing your cashflow
Cashflow is the critical concern of every business owner in the country right now and with many businesses shutting down because of the lack of economic activity we will take a look at a number of measures that are open to businesses to manage their cashflow as tightly as possible including taking a look as the package of measures introduced by the government to assist businesses with cashflow in these uncertain times.
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Hello, and welcome to today's webinar. I’m Lisa Botterill and I'm a corporate and Commercial partner here at Shakespeare Martineau.
A couple of weeks ago I was first asked if I would do a webinar on cash flow and to be honest. I didn't quite know where to start but all of the measures have been pouring in from the government are basically in the main aimed at Tiding companies over through an incredibly tight period where some of them are effectively no longer trading but still have overheads to pay.
When the CBI went in to Lobby government on the measures that they should be introducing helping businesses with their cash flow was the number one priority. And so today I will talk you through a number of those measures and a couple of other ideas for assisting with cash flow.
You will see on your screen that you are able to ask questions. So please do ask along the way and I can answer some of these at the end and for any that we don't have time for or where I might need to consult with a colleague before coming back to you. Rest assured. We will do that and come back to you just as soon as we can.
So firstly I would like to run through some of the tax breaks on the chancellor has brought in. The first one of these is the 80 deferral. So any v80 that was due to be paid between the 20th of March in the 30th of June this year has been deferred.
Businesses won't need to notify hmrc that they want to take advantage of the delay instead all businesses operate in the UK are automatic automatically eligible for the deferral.
And the deferral is till the end of the current tax year there is however no change the deadline for submitting v80 returns.
And these should be filed as normal during the deferral period the 80 refunds and claims will be processed as usual during the same period Secondly for business owners who operate under self-assessment. There is the very welcome use that payments on account of income tax that will do to be paid on the 31st of July 20 20 all deferred until the 31st of January 2021.
The deferral applies to all self-employed taxpayers do to make payments on account on the 31st of July 20 20, and the deferral will apply automatically there will be no interest or penalties charge during the deferral period This will significantly help business owners with their own personal tax cash flow.
Thirdly, there is and always has been hmrc's time to pay system that has existed for any companies struggling to pay their tax.
But hmrc have always been rather difficult to negotiate with the chancellor has now indicated the hmrc will be more sympathetic to request because of the coronavirus out braked and taxpayers are usually allowed to spread the payments that they can't make now over a period of 12 months. Only time will tell how generous hmrc will be in their negotiations with taxpayers in this regard.
Fourthly employers with up to 250 employees and that number of employees is measured as at the 28th of February can reclaim two weeks SSP that has been paid for employees with sickness absence due to coronavirus. The reclaim will be done via a new reclaim mechanism that hasn't yet started. So the cash flow relief from this scheme won't be immediate.
But will no doubt be very welcome in due course to a number of smaller employers.
Fifthly the government has provided rates relief for certain types of businesses and you can see that I've put the detail upon the slide, but just to summarize all retail Hospitality Leisure and Nursery businesses in England have been given a hundred percent business rates holiday for the next 12 months.
The government will make grants to small businesses eligible for small business rate relief or rural rate relief of up to 10,000. It used to only be up to 3000.
And I will also provide a further 25 thousand pounds worth of Grants to retail hospitality and Leisure businesses that operate from smaller premises and those premises have to have a rateable value of over 15,000 but below 51,000.
Moving on then. I'd like to take a brief. Look at the coronavirus business Interruption loan scheme. Now my colleague Adam McGovern has done a whole webinar on this topic and you can go online and download that recording so I won't go into the minut details here, but I thought I ought to at least summarize the headline points for you as it is.
One of the governance key initiatives to help smes through this difficult period So the details of the new scheme are as follows businesses can borrow up to five million pounds and the period for that loan can be for up to six years. Now the only businesses that will qualify for this our businesses that turnover less than 45 million pounds per year. So it won't help larger smes which is unfortunate.
The loan will be in effect interest free for the first Months because the government will cover the interest and the interest rate will be the same as a bank would normally charge before the crisis the bank's processes for deciding the price of the loan would be just in accordance with their usual procedures.
And in the last couple of days, it has been announced that banks are not allowed to require personal guarantees for any lending that is below 250 thousand pounds since the government will guarantee to the bank's 80% of the amount of the loan, but the banks may still require other Security in the normal way such as debentures and charges.
The loan scheme is only available to companies that carry out a uk-based business activity.
So if it's a UK company, but most of its trading is done abroad then it won't qualify. I'm probably the most subjective criteria to fulfill is that the borrower must fit all of the banks borrowing criteria, but for the coronavirus outbreak and the loan must be repayable in the short to medium term provided that the business can get through the current crisis. Finally. There are a number of exclusions. So Banks insurers, but not Insurance Brokers public sector bodies.
Including schools membership organizations and trade unions don't qualify.
And just to mention briefly in passing that there is also a new lending facility from the bank of England to help support liquidity among larger firms, which the aim is to help them Bridge the coronavirus disruption to their cash flows through loans, but I haven't got time to go into the details of that scheme in this webinar as its larger largely aimed at the very big corporate Borrowers.
And probably the most talked-about measure that the government has introduced so far is the coronavirus job retention scheme.
The scheme involves the rather novel process of furloughing employees rather than making them redundant.
Don't however be persuaded into furloughing employees who are self isolating if they could actually be doing work. The government advice for those employees is that they should be paid SSP and not placed on furlough. The job retention scheme is for employees. Who would otherwise be made redundant a result of the crisis.
So what are the key terms? I want to run through these fairly quickly as I think most people are familiar with this now. Although there are some details that have only come out after the initial announcements were made. So in order to assist with cash flow, the government will pay 80% of pay up to a maximum of two thousand five hundred pounds for furloughed employees for an initial period of three months, which can be back dated to the first of March.
One of the lesser-known details about the scheme. Is it on top of the 80% of pay the government will pay there were also pay the employees basic pension contributions as well as employers.
Ni the key criteria for an employee to qualify for furlough is that during the period of furlough the employees cannot do any work at all now it is possible to furlough people for initial say three-week period And extend the arrangements at the end of that period but what you can't do is have employees drop in and out of the scheme on a rotational basis or work on a part-time basis.
The rules are very clear and they can't do any work at all.
Another detail to point out is that employees need to agree to furlough Arrangements? They can't be furloughed against their will however the alternative for those who don't want to agree to furlough is that they can be made redundant.
Sowing some cases you might say that actually they have very little choice.
Now the scheme was supposed to be up and running by first of April, but now the Gateway through which Claims can be made won't be in place until the 30th of April. So although wages can be reclaimed through the system eventually businesses will still need to have enough cash to get them through the April payroll before money. Can then subsequently be reclaimed.
And one final thing to say is that the scheme comes with quite a health warning. Now the vast majority of businesses will be relying on this scheme. So not everyone can be investigated. However, the government does reserve the right to investigate any claims made so it's important that you get it, right.
So that was a brief and very Whistlestop tour of the government measures that have been brought in to assist with cash flow. I now want to run through a couple of other areas where it's possible to raise some much-needed cash in these difficult times. The first thing that a business can consider is invoice discounting.
Invoice discounting I hear you say don't you need some invoices in order to be taken advantage to take advantage of that?
And if we aren't trading then how could we use this?
Well, if you have a pre-existing data book that remains to be collected in there are providers out there who will take a look at your data book and can offer you financed based on the debts that you have outstanding at the moment. This could give a business a much-needed cash boost based on the value of the current debts.
And this could assist with Tiding business through some very difficult weeks ahead. I have in fact spoken to one of my contacts at bibby's and the message from them is that they have funding lines available and are ready to lend and can turn things around pretty quickly. So this is a genuine option for businesses looking for some cash.
To tide them over in the short term.
Secondly another idea that came to me through one of my business contacts is that if your business has been involved in any sort of research and development development activity at all, and you haven't already claimed R&D tax credits. It might be worth looking at seeing if you can qualify for a claim because if you are eligible to make a claim the tax is refunded in the form of cash. So again, this could give a business a much-needed boost to cash flow at a difficult time.
Flames take about four to six weeks for hmrc to deal with although this time scale may slow down if HMR hmrc staff are off sick. So the sooner a claim is made a further towards the front of the queue for payment. You could be for some cash.
The next thing I would say is check your contract terms. The virus has led to a huge number of orders that had been placed in advance being canceled.
while a lot of businesses are in the same position with the economy on hold some contracts may have a force majeure Clause allowing for cancellation in exceptional circumstances, but some also most definitely won't On that basis there may well be a remedy for loss caused due to breach of contract while it may take some negotiation and possible legal action further down the line to recover losses. The legal advice will exist should a business wish to pursue them. The next point is a word of caution. Really, you might just think that you'll get on and sue people who owe you money in the ordinary course. However, the advice here would be to think very hard before.
Legal proceedings and don't throw good money after bad. Currently, the courts are reducing their opening times and enforcement agents aren't carrying out very much work. So it may be that money would be better spent spent elsewhere rather than chasing bad debts at the moment. That isn't to say that the government has stopped debt collection proceedings from taking place, but the process is much slower because of the current crisis and so the advice is to proceed but only with caution.
Ian, of course, however, if someone is just taking advantage of the current difficulties and not paying then by all means go ahead and pursue them.
And finally, although it doesn't necessarily fit in as a cash flow measure. I just wanted to briefly speak about the changes. The government has introduced just in the last week in relation to wrongful trading the normal position is that if a business is trading with no Prospect of continuing the directors can be held personally liable for any debts incurred after that point.
The government has removed that personal liability from Says for the duration of the crisis. So if company directors can't see a way out of things because the order book has dried up and there's no cash to pay creditors. There will be no personal liability. If the directors don't put the company into some sort of insolvency process and keep it afloat until the current crisis is over.
So while this won't help necessarily with cash flow, it will provide directors with some much-needed comfort in a time where they have to make some very difficult decisions. Thank you very much for listening to today's webinar. I've had a few questions in so I will deal with a couple now before we run out of time.
The first question is you haven't mentioned anything on the government's plan to help the self-employed. Do you think that will help cash flow?
So today I've tried to focus on cash flow for smes rather than individuals and the scheme is very welcome for those with profits under 50,000 pounds per year. It will help a number of people or not those earning a more substantial living from being self-employed. It also doesn't go live until June by which time the self-employed will have potentially had three months with very little or no income.
So in terms of being a cash flow measure, it won't really help in the short term for those people who are self-employed.
The next question is I have heard about the relief from forfeiture Provisions that the government has brought in can people not pay their rent to save cash?
Well just on this one what the provisions provide is a three-month period during which a tenant can't be evicted for non-payment of rent. What it doesn't mean is that the rent isn't payable at all if rent isn't paid and there is a risk of storing up more trouble with a bigger rear spill at the end of the three month period that will almost certainly mean that a landlord takes action for eviction as soon as the moratorium is over.
The most sensible approach in these circumstances might be to speak to the landlord and see if a temporary rent reduction can be negotiated or potentially move to monthly rather than quarterly payments to stop the rent having to go out in court early chunks.
And finally a question that I've actually had a number of had a number of people asked this week already is does the coronavirus job retention scheme apply to company directors from all the guidance that has been given there doesn't seem to be anything that exempts company directors from the scheme as long as they can genuinely fit the criteria that provides that they can't do any work while they're on furlough as long as someone is paid through the payroll the scheme appears to apply to them.
Remember, however that a lot of company directors only pay themselves a some equivalent to the minimum wage and then take the rest as dividends. The job retention scheme will only apply to cover the basic salary and of course is subject to a limit of 2,500 pounds per month.
That brings the webinar to a close. Thank you very much for watching today for All Our advice and guidance on coronavirus. Please contact our dedicated resource Hub at shma.co.uk, or you can contact me on Lisa dot bottle at shma.co.uk and for all those that have registered for the webinar today, we will send a copy of the slides in due course and any further answers to any questions that have been asked that I haven't managed to cover during today's webinar Goodbye, and thanks very much.