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The coronavirus threat to business

Since my latest two Blogs, ‘Coronavirus: What help can self-employed workers get’? & Coronavirus: VAT Deferment Clients have called and emailed on the various subjects raised and covered in the blog.

So, as promised, as soon as there is some genuine news (not waffle from some self-appointed expert!) or further explanations provided by the powers-that-be, I will post new Blogs, as with today’s missive. The main subjects are the bankers (did I spell that correctly?) and the coronavirus job retention scheme

Are banks neutering the Coronavirus Business Interruption Loan Scheme (CBILS)?

According to British Business Bank, the new loan guarantee scheme announced in this year’s Budget will provide facilities of up to £5m for smaller businesses experiencing disruptions to their cashflow as a result of coronavirus: and today they have published the criteria to be eligible for the scheme.

These loans are provided through one of the 40 CBILS accredited lenders only. Already, however, the scheme is coming under fire from both businesses and their accountants, who say it is just perpetuating the banking sector’s exploitative tendencies when dealing with small business.

For a start, it wasn’t made clear who was eligible? Now we have seen the British Business Bank eligibility checklist, to qualify for CBILS businesses must:

  • Be a UK-based business beneath the £45m turnover cap
  • Have a viable borrowing proposal outside the current pandemic
  • Prove to the lender the loan will enable it to trade out of any short-term to medium-term difficulty

The loans are intended to cover term loans; overdrafts, invoice finance and asset finance facilities and come with an 80% government-backed guarantee to boost loan approvals for struggling businesses, with the banks covering the remaining 20%.

Keen to avoid exposure to any loss, even a maximum of 20% of the loan, lenders have been asking small business applicants to provide additional guarantees. Thus, should the borrower fail to repay the loan, the lender would pocket the 80% government guarantee and then go after the borrower for their personal guarantee to make good the missing 20%

Unfortunately, rather than supporting struggling businesses, the loan guarantee scheme looks like it is turning into a cosy little safety blanket for big banks.

British Business Bank also stipulated, “The Big Four banks have agreed not to take personal guarantees as security for lending below £250,000”. Unfortunately, reports from the field indicate that the majority of banks are still asking for personal guarantees.

I have now learnt that Rishi Sunak will announce very soon, that the requirement for banks to first assess whether SMEs are eligible for their other lending options – will be removed and that the scheme, will be interest-free and fee-free for the first 12 months.

Relaxation to CBILS rules

Rishi Sunak must have been a fly on the wall of my office when I wrote the first draft of this Blog, as last night he announced that the requirement for banks to first assess whether SMEs are eligible for their other lending options will be removed; and also that the scheme, will be interest-free and fee-free for the first 12 months.

These are really helpful changes as only 1,000 businesses had been approved thus far, with many being asked to pay interest rates of as much as 30%; but arguably the key change is that banks now cannot by law, ask for personal guarantees from business owners.

Coronavirus job retention scheme

More guidance has been published on the coronavirus job retention scheme (CJRS), although there are still some grey areas, especially who can claim.

The latest news on eligibility is that pretty much anyone or any firm that operates a PAYE scheme is eligible, so whether you have a huge workforce or are a single-parent employing a nanny, you can claim. However, the PAYE scheme must have been in existence on 28th February 2020.

To reclaim a CJRS grant from HMRC, the employer has to designate employees as furloughed (essentially a period of paid leave when they cannot work). Whilst furloughed staff can’t do any work for the employer that furloughed them, they can undertake training, work for other employers; work on a self-employed basis or as a volunteer.

An employee can be furloughed for a minimum of three weeks at a time and for a maximum of three months from 1st March, although the government will probably extend the scheme. 

To decide how much to pay, employers will need to calculate how much the CJRS grant will cover. The £2,500 cap refers to regular wages as at 28th February, excluding bonuses, fees and commission (it’s not yet clear if overtime should also be excluded). For an individual with variable pay ie 28th February was not an indicative week or month, their average earnings over 2019/20 or the period of employment during that year can be used.

HMRC are introducing a standalone portal, probably around 21 April, to allow furlough grants to be reclaimed. It appears that the information required on the portal, will be a simplistic request just to identify the business, grant value, the number of employees, and the period of furlough.

Insolvency law relaxed

Many struggling businesses have been concerned that the wrongful trading rules will force them to file for bankruptcy or appoint a receiver. Trading rules have now been suspended, which will come as a relief to business owners grappling with the impact and uncertainty the coronavirus outbreak has placed their business.

As part of Business secretary Alok Sharma’s insolvency package, he has introduced three new tools to the UK’s insolvency framework: a moratorium for companies giving them respite from creditors enforcing their debts for a period of time whilst they seek to restructure; protection of their supplies to enable them to continue trading during the moratorium; and a new restructuring plan, binding creditors to that plan.

Making Tax Digital changes delayed

At the eleventh hour, HMRC has just announced a one-year delay to its enforcement of rules specifying the digital transmission of MTD for VAT data.

An HMRC spokesperson explained, “We understand that the impact of COVID-19 is creating extremely difficult times for all, and we are committed to helping in every way possible all those businesses facing unprecedented challenges. Therefore, we are providing all MTD businesses with more time to put in place digital links between all parts of their functional compatible software. This means that all businesses now have until their first VAT return period starting on or after 1 April 2021 to put digital links in place.”

David Jones Shrewsbury Accountant and Founder of Morgan Jones

David Jones Tax Accountant

So, there’s at least one thing that businesses don’t have to worry about at the moment.

If you would like more detailed information on some aspect of UK Tax, send me an e-mail and I’ll be pleased to advise further.