Price Bailey’s experts explain the options to businesses who are considering how to respond to COVID-19, and the Government’s support schemes


25-03-2020

These are concerning times for everyone, including business owners and their families. This article provides a single page overview of the support and options available to businesses and their owners. It is compiled by experts from across Price Bailey on a rolling basis as schemes are created and updated.  The firm will also provide updates as it hears news from banks and other agencies executing the schemes, and updates from its teams advising clients through these challenging times.

 

Last updated in the morning of 25 March 2020

An overview of support and options

The Chancellor, Bank of England, British Business Bank and HMRC have created a combination of options for Companies requiring support. In simple terms, the new tools that business owners may be able to use are a combination of the following:

Loans: For smaller businesses this is through the Coronavirus Business Interruption Loan Scheme (CBILS). For larger, potentially, investment grade businesses this would be through Covid Corporate Financing Facility (CCFF)

Whilst these schemes are a relief to many, in our daily conversations with clients, we are observing three gaps. Firstly, in the middle of these two schemes, specifically amongst mid-sized businesses who are too large for CBILS and too small for CCFF. Secondly, amongst those with structurally high levels of existing debt. Thirdly, pre-profit businesses who may struggle to access CBILS and for whom the normal ‘start up’ loan support is not sufficient and also where the shareholder base are not able to deploy further equity funding. We want clients in these three groups to know they are not alone and that we will continue to explore options for them and update this page.

VAT: deferral of VAT should provide positive relief on cash flow for many businesses. More information can be found here.

Job Retention Scheme: As widely reported, the government will support 80% of employment costs up to £2,500 per month through grants. This can also be back dated to 1 March 2020. More detail can be found here. Details on this scheme are still to be released. Grant, rather than debt, funding will be very welcome to many. However, we expect businesses will still need to be able to fund the short term employment costs. We are also awaiting further information on what is included in employment costs, such as national insurance and pension costs.

Use of Time To Pay arrangements: As detailed here Time To Pay arrangements may be beneficial for those who are now struggling to pay amounts owed to HMRC.

Other measures are also in place, such as support with sick pay, and sector specific support. However, for most Companies, the combination of the four tools above are likely to be the most appropriate short term tools from the Government to assist in the response during these challenging times.

Price Bailey is here to talk to you and support you in planning how to put these solutions together. Please feel free to read on and reach out to your Price Bailey contact, or the named individuals.

 

Coronavirus Business Interruption Loan Scheme (CBILS)

The Coronavirus Business Interruption Loan Scheme (CBILS) offers loans of up to £5m. It is effectively a revision of the Enterprise Finance Guarantee Scheme (EFG). CBILS will provide lenders with a guarantee for 80% of the facility issued, therefore making many more lending applications viable in the eyes of the lenders. However, the balance of 20% cannot be personally guaranteed – in other words, the bank has to take some risk. The borrower is always liable for all of the debt and must demonstrate that, were it not for the current pandemic, the they would be viable and creditworthy.

SMEs will need to take prompt action to assess whether a CBILS facility will be required. The scheme is available initially for 6 months, and the amount of funds put aside for the scheme is demand-led.

In conversation with clients since the scheme launched on Monday 23 March, it is clear that many are looking to using a combination of government solutions but are unsure on the time it will take for all schemes to result in cash in the bank. CBILS is further ahead than others but it still may be advisable to consider other immediate sources of cash such as overdraft extensions and payment holidays to manage short term challenges until funding comes through. The British Business Bank (BBB), which facilitates the scheme, has requested that business owners seriously consider the urgency of their cash flow requirement. In other words, CBILS may not be quick.

The lenders will be very busy over the coming weeks and those with a serious urgent need will need to be prioritised. The Price Bailey team are in regularly contact with many of the banks. Just like their clients, bank staff are learning in real time and are under a lot of pressure to deliver. We understand that training is ongoing or already completed in many of the high street banks.  

From our discussion with the mainstream lenders we understand that their priority is to support the UK economy, and businesses, to trade through these difficult times. That being said, they must remain responsible lenders and will therefore only be looking to lend money to the businesses that they are confident can repay the debt in line with its agreed terms, once trading has returned to normal. Due to the anticipated demand it is likely that the lenders will ask businesses to complete a standard application form prior to approaching their relationship manager. This will likely detail previous years trading, the impact of COVID-19 and how the business plans to return itself to normal trading. Each lender has its’ own lending criteria, but it is understood that the banks will still wish for ‘headroom’ in their serviceability calculations, these may be relaxed slightly to support more businesses and to quicken up the application process. It is likely an average of the last 3 years financial accounts will reviewed and up to date management information, to the point of the virus. We have heard that some of the typical covenant restrictions may be relaxed, but, this is an evolving situation and, until we see term sheets, nothing is for certain.

Eligibility criteria

To be eligible for support via CBILS, the business must:

  • Be UK based, with turnover of no more than £45 million per annum
  • Generate 50% of turnover from trading activity
  • 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
  • Operate within an eligible industrial sector
  • Have not received “de minimis State Aid” beyond €200,000 equivalent over the current and previous two fiscal years

The table below summarises the key features of available products under CBILS.

Key Facility Features

Security

At the discretion of the lender, the scheme may be used for unsecured lending for facilities of £250,000 and under. For facilities above £250,000, the lender must establish a lack of security prior to businesses using CBILS. If the lender can offer finance on normal commercial terms without the need to make use of the scheme, they will do so – this will be an important nuance to many businesses that are still stable – Consequently, approvals for facilities under £250,000 are expected to be quicker.

 How to apply?

CBILS applications must be made directly to a British Business Bank (“BBB”) accredited lender and in the first instance, they should approach their own provider as this will prove the quickest way to access funds. Many of the mainstream banks will only supply CBILS facilities to their current clients. If we hear of exceptions to this then we will comment on this where we can.

The team at Price Bailey also have good relationships with banks so please do ask us.

Some lenders have already agreed that no arrangement fees or early repayment charges will be applied for successful applications under the CBILS scheme to support the Government.

Almost all sectors are eligible – with the exception of; Banks, Building Societies  Insurers, The public sector including state-funded primary and secondary schools; Employer, professional, religious or political membership organisation or trade unions. There may be caps for certain other industries.

A business will only be eligible where they are able to confirm that they have not received “de minimis State Aid” beyond €200,000 equivalent over the current and previous two fiscal years. Most State Aid is notifiable and will be carved out from this, for example EIS and R&D tax credits.

However, some grants and other government assistance received by typically innovative businesses which are not notifiable state aid can be classed as de minimis (this is often specified in grant documentation) and an example of this is funding under the Horizon 2020 scheme.

 How do I evidence I have a viable business? 

You must show in your borrowing proposal that were it not for the COVID-19 pandemic, your business would be considered viable by the lender, and for which the lender believes the provision of finance will enable your business to trade out of any short-to-medium term difficulty.  The process of proving serviceability is built from understanding the fundamentals from the previous year’s financial accounts, and bridging the gap between these and the projections / budgets.

We are experienced in raising different types of funds for many different situations and demonstrating viability is something we often get asked to support in.

To find out more, please contact Stephen ReedSimon Blake or Chand Chudasama from the Strategic Corporate Finance team. 

 

Job Retention Scheme

Under the Coronavirus Job Retention Scheme, all UK employers will be able to access support to continue paying part of their employees’ salary for those employees that would otherwise have been laid off during this crisis. All UK businesses are eligible.

In order to access the scheme, Directors will need to:

  1. Designate affected employees as ‘furloughed workers,’ (a temporary but specified suspension of employment without pay, often due to a foreseen or unforeseen downturn in performance) 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 and agreement
  2. 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)

To furlough employees, our legal services team advise that employers get their employees to sign an agreement. There are two reasons for this:

  1. To protect against breach of contract
  2. Employers may also need to agree an effective pay cut with employees so that they do not need to pay more than can be reimbursed from HMRC

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. This support is for employees on PAYE only. We are awaiting notice on how the scheme will handle Directors, national insurance and pension costs, amongst other things.

We expect this facility to be in place during April for a minimum of 3 months, though we understand it to be retrospectively applied from 1 March onwards.

Once available, our current expectation is that this is to be a grant scheme administered by HMRC. We expect the grant to be recognised in most clients’ P&L statements, most likely on the basis set out in FRS 102.

Further, giving the likely timings of the scheme we expect many clients to still have a ‘timings’ issue around cash flows. Our advice is that this is appraised as soon as possible as part of short term forecasting.

Our Employment Law team can draft furlough agreements at a set cost on a per company, rather than per employee basis. Please note that until details of the grant scheme are released we cannot advise on reimbursement.

For more information, please reach out to your Price Bailey contact, Joanna Smye from our Employment Law team, or our Payroll teams through Will Wilson.

 

Supporting the payment of sick pay

For small and medium-sized businesses with less than 250 employees, two weeks Statutory Sick Pay is able to be reclaimed per eligible employee absent due to COVID-19. Employers should maintain records and wait for the Government to announce the mechanism to reclaim SSP. Employees will not need to present a GP fit note but can be supplied an isolation note from NHS111 online to satisfy their employer.

If you have further questions regarding employment law and COVID-19, have a look at our employment law Q&A article.

If you would like to ask one of our Employment Lawyers any questions regarding managing your workforce at this delicate time, please contact Joanna Smye from our Employment Law and HR support team.

 

Support for the self-employed

For Income Tax Self-Assessment, payments due on the 31 July 2020 will be deferred until the 31 January 2021. This should ease short term cash flow pressures on those that were expecting to have to pay a tax bill in 4 months’ time.

The Chancellor has also said the “self-employed can now access in full Universal Credit at a rate equivalent to statutory sick pay for employees”. You will need to provide information about your earnings. All work is taken into consideration for Universal Credit. If you’re expected to look for and be available for work, then it needs to be identified whether you’re ‘gainfully self-employed’. The controversial ‘minimum floor’ looks to be disapplied to those that are newly self-employed and within their first 12 months only.

Further details can be found on the .gov website by searching ‘Self-employment and Universal Credit’ or, by reaching out to the Price Bailey contact who assists with your accounts, or Michael Morter from our Tax team.

We suspect that the tax deferrals and access to universal credit alone will not be enough to ease the worries of many self-employed clients and we recognise that many will still be concerned. The support and contacts described in the rest of this article aim to address these concerns.

 

Covid Corporate Financing Facility (CCFF)

The Covid Corporate Financing Facility (CCFF) will provide funding to businesses by purchasing commercial paper of up to one-year maturity, issued by firms making a material contribution to the UK economy.

This is the vast majority of the £330bn scheme that was highlighted by the Bank of England and the Chancellor. However, The Bank of England has already warned that many retailers will not qualify due to their credit ratings. As at 1 March 2020, Companies must be able to demonstrate that they were investment grade. Financial companies (which we interpret as institutions rather than services businesses) are not eligible to apply. Commercial Paper issued by leveraged investment or private equity funded vehicles or from companies within groups that are predominantly banks, investment banks or building societies will not be eligible. If securities are being issued by a finance subsidiary they should be guaranteed by its parent company.

There is no clear guidance so far on what is considered as a material contribution to the UK economy but we expect it to include significant employment, UK revenue and tax payments, and playing an important part in a vital supply chain.

Commercial paper is an unsecured, short-term debt instrument issued by a company.
CCFF will purchase sterling-denominated commercial paper, with the following characteristics:

  1. Maturity of one week to twelve months
  2. Where available, a credit rating of A-3 / P-3 / F-3 from at least one of Standard & Poor’s, Moody’s and Fitch as at 1 March 2020.
  3. Issued directly into Euroclear and/or Clearstream

Non-standard features such as extendibility or subordination will not be acceptable.

If firms have different ratings from different agencies, and one of those is below investment grade then the commercial paper will not be eligible. We believe that the minimum facility size is £1m.

Businesses do not need to have previously issued commercial paper in order to participate. However, it seems likely at this stage that Commercial Paper will need to be listed (i.e. tradeable), and that any dealing counterparties must be appropriately authorised for the purposes of FSMA 2000. This could create delays, complexity and enhanced compliance requirements for businesses that have not had to manage these type of securities before and therefore be a practical barrier to access.

It was positive to see that the Bank will operate in both the primary and secondary markets, subject to the other side being appropriate.

We see this as an opportunity for businesses to not only inject capital to stabilise, but to also improve corporate governance and the ability to access wider forms of capital in the mid-term. As concerning as these times are, there is an opportunity here for certain types of businesses.

To find out more, please contact Stephen ReedSimon Blake or Chand Chudasama from the Strategic Corporate Finance team.

 

Time To Pay support with your taxes

The Time to Pay (TTP) service, which HMRC has recently injected serious resource (2,000 experience call handlers) into, can be used by businesses to negotiate payment terms for tax and related penalties with HMRC directly. Businesses must bear in mind that there are blanket deferrals in VAT and Income Tax payments due in the coming months for all businesses and individuals. Even so, we expect some businesses will require further help with deferring tax payments and managing the potentially penal outcome of missing tax payment deadlines for example on corporation tax and payroll taxes as well as on CGT for Residential Property sales due within 30 days from 5 April 2020. 

Anecdotally HMRC are struggling to cope with demand for this service and we hear of those waiting hours on hold to get through to that resource which will almost certainly be working from home and not just HMRCs offices. 

While doing so, and ideally in advance of doing so, we have some top tips for TTP.

To set the scene, TTP is in our experience commonplace for businesses who may need help with one-off cashflow issues: perhaps those with a large bad debt, or unexpected tax outcomes in an enquiry. Generally TTPs will be agreed one or two weeks before the tax payment falls due which is not appropriate now when businesses may require certainty over payments due in a few months’ time and payments over £100,000 or to be spread over more than one year may require extra sign off internally within HMRC in our experience.

The service is generally beneficial though to those up to date with HMRC and who could make an agreement in advance of incurring late payment penalties which are waived where a TTP arrangement is in place before they are triggered and can be negotiated at that time with relative ease. 

Be aware of the serious limitation of TTP arrangements which is that they are agreed case by case. There is plenty of scope for large variations of outcome even for the same scenario because of the requirement for two sides with inherent biases and differing capabilities ‘striking a deal’. 

TTP is sometimes best agreed with an inspector handling a particular case or enquiry for a business rather than via the TTP helpline and this may also be the case rather than using the specific COVID-19 helpline for HMRC 0800 0159 559.

If TTP is going to be an important part of your financial plan then our top tips are as follows:

  • prepare your cashflow in advance of the call, considering all of the automatic tax deferrals already announced by the Chancellor,
  • prioritise the payment of PAYE and VAT which HMRC have historically considered as being collected for them by business rather than profit based taxes such as corporation tax and income taxes,
  • ensure you understand what’s best for your business in advance, and take advice from your accountant or finance team because you should expect robust questioning,
  • if you have a dedicated customer manager (large corporates and HNWs typically do) then contact those people who will be more familiar with your affairs,
  • having up to date filings with HMRC will always help demonstrate compliance and knowledge of the quantum of tax to have the payment deferral discussion,
  • it’s OK to walk away – no deal may be better than a bad deal is something we have heard a lot in the past years during Brexit negotiations but rings true for businesses who should not accept terms which are onerous as part of TTP it may be worth reconsidering the cashflow forecast and better options for making payment of tax alternatively, and
  • repeat offenders are very rarely given the best terms! If you have a history of late filing or late payment it is unlikely that HMRC will extend those outstanding items and indeed enter into new agreements under TTP willingly. The better option for such businesses may be to look elsewhere.

If you would like to talk to one of our team about Time To Pay services, then please feel free to get in touch with your usual PB contact, or Richard Grimster from our Tax team and Tim Smith from our Recovery and Turnaround team.

 

VAT deferral

The government are deferring VAT payments from 20 March 2020 until 30 June 2020. We expect this to be in place for a minimum of 3 months. All UK businesses are eligible. No application is required to access this deferral, rather, a business will not need to make a VAT payment during this period. Taxpayers will be given until the end of the 2020 to 2021 tax year to pay any liabilities that have accumulated during the deferral period. VAT refunds and reclaims will be paid by the government as normal.

In practice, businesses will not have to bring their VAT payments up to date until 31 March 2021. Businesses will need to cancel their direct debit mandate and will need to remember to set it up again in due course.

Price Bailey expect this to be of significant benefit to many of our clients. If you are looking to understand how this deferral will impact your short or mid-term cash flow, or, to learn more about how the deferral may connect to other elements of your business planning, then please reach out to your normal Price Bailey contact, or Daphne Hemingway or Richard Grimster from the Tax team.

 

Insurance concerns

Businesses that have cover for both pandemics and Government-ordered closure should be covered; the Government and insurance industry confirmed on 17 March that advice to avoid pubs, theatres etc. is sufficient to make a claim.  We recommend reviewing your insurance policy and speaking to your provider for further details.

 

Late filing at Companies House

The government has made an online application available to file accounts late with companies’ house, for two months automatically and a further one month in exceptional circumstances afterwards. 

A further update from Companies House means they will now automatically grant a three month extension to the accounts filing deadline to companies and LLPs etc. if they apply for it. If they do not apply for an extension, the usual deadline and penalties will apply.

Businesses should seriously consider whether this is appropriate and possibly leave filing it until near the deadline. In particular this relaxation on filing will not create a relaxation in filing of tax returns at this stage and so knowing tax liabilities often requires accounts being in a rather final position.

So too will it be important for businesses to have knowledge of their financial performance for agreeing any TTP arrangements with HMRC who may not be as relaxed about late filings for example of tax returns when negotiating deferring the tax payments which fall out from those filing positions. 

Importantly, filing accounts which cover performance for periods which have passed and show good results may be beneficial for ensuring that financing is available and credit scores are emboldened. The reverse of course is also true, and the Institute of Chartered Accountants in England and Wales (ICAEW) is providing some guidance for auditors who will struggle with wording around key matters in audited accounts such as “going concern” at this time of uncertainty; waiting for now may be the best solution.

Your lenders, shareholders or regulators may require financial reporting as part of your existing covenants, agreements or terms with them which should be reviewed before a decision to defer is made given there is no blanket relaxation on all financial reporting in the UK, just for statutory accounts for the pubic record at companies house. 

We recognise that some businesses will require this service and in appropriate cases the relaxation is welcomed. If you would like to discuss it with us please reach out to your primary Price Bailey contact in advance of your filing deadlines to ensure the appropriateness of a claim to extend. The form must be approved before the filing deadline and can be found here: beta.companieshouse.gov.uk/extensions.

If you would like to discuss this further, please reach out to your primary Price Bailey contact.

 

Retail, hospitality and leisure sector

There is not a sector or industry that will not be affected by the virus, but the retail, hospitality and leisure sectors have been hit quickly; with the Government advising the public to stay away from establishments. A twelve-month business rate holiday has been implemented for the 2020/21 tax year for these sectors. Those receiving the retail discount in the 2019/20 year will be rebilled as soon as possible. Eligibility for the holiday will be that your business is based in England and the business is in the retail, hospitality and/or leisure sector. For properties to benefit they will be occupied hereditaments that are wholly or mainly used:

  • as shops, restaurants, cafes, drinking establishments, cinemas and live music venues
  • for assembly and leisure
  • as hotels, guest & boarding premises and self-catering accommodation

There is a small business grant available of £10,000 to all businesses in receipt of small or rural business rate relief.

Grant funding of up to £25,000 for businesses in retail, hospitality and leisure with property with a rateable value between £15,000 and £51,000.

Enquiries should be directed to your relevant local authority who will be given guidance on the 20 March.

 

Nursery sector

For nurseries paying business rates a business rates holiday will be implemented for the tax year 2020/21. You are eligible for the business rates holiday if:

  • Your business is based in England
  • Properties are occupied hereditament and are:
    • occupied by providers on Ofsted’s Early Years Register
    • wholly or mainly used for the provision of the Early Years Foundation Stage

There is no action required by the business owner. If you have already received your detailed bill this will be revised as soon as possible.

The Coronavirus Business Interruption Loan Scheme (CBILS) will support previously long-term viable businesses with cash flow pressures.

On Wednesday 18 March, the Bank of England reported that unlimited amounts of money could be injected into the British economy through a new commercial paper facility called the Covid Corporate Financing Facility (CCFF). The Bank of England has said this facility will form “funding to businesses by purchasing commercial paper of up to one-year maturity, issued by firms making a material contribution to the UK economy.  It will help businesses across a range of sectors to pay wages and suppliers, even while experiencing severe disruption to cash flow.” 

HMRC will provide support with its Time to Pay scheme if tax bills cannot be paid when they fall due.

 

Recovery, turnaround, insolvency support and debt recovery

We recognise that many business owners will be concerned about cash flow and bridging this period, however long it may last.

If you would like to talk to one of our team about your options in regards to recovery, turnaround or insolvency routes, then please reach out to either Matt Howard or Paul Pittman from our Insolvency and Recovery team. Matt can also provide guidance on bad debt recovery options.

 

Price Bailey’s response to COVID-19

There is no doubt that many of you are concerned about how this pandemic will affect your business day-to-day and the impact on any upcoming strategic decisions. Please remember that we are here to support you with any immediate planning or personnel questions you might have, however small. Your Price Bailey contact will be happy to talk through your concerns and work with you to find the right solution for your business, so do give us a call. 

As a result of the Government’s decision to move the country into a national emergency lockdown to mitigate the impacts of the virus, and the associated advice and restrictions on social contact, we have decided to close all Price Bailey locations from the morning of 24 March 2020.

Our Board, partners and teams were well prepared for this scenario.

You can be assured that we have a robust business continuity plan in place which will enable us to minimise the impact on our service to you. Since the beginning of the outbreak we have been making preparations for our people to work from home, and mobile telephone numbers have been added to the website for most contacts. No matter who you speak to, or what day of the week it is, you can be confident you’ll always get the same experience.

For more information, read our response to COVID-19.

Please take care of yourself and those you hold dear.

We always recommend that you seek advice from a suitably qualified adviser before taking any action. The information in this article only serves as a guide and no responsibility for loss occasioned by any person acting or refraining from action as a result of this material can be accepted by the authors or the firm.

 

Price Bailey is a leading firm of business advisers and accountants with eight offices throughout East Anglia, London and Guernsey serving local SMEs, private clients and regional, national and international businesses.

Price Bailey Chartered Accountants