Christian Mancier, Partner at Stockport based Gorvins, gives an update on the support available for businesses during the Coronavirus outbreak.
The pace at which things are moving in response to Covid-19 is simply staggering and almost impossible to keep track of. Since my last piece on Wednesday last week major chains such as John Lewis, Ikea and Primark have announced the closure of all their UK based stores, 1.5m people have received advice from the government to stay indoors for the next 12 weeks with accountancy firm KMPG UK’s latest quarterly economic outlook forecasting a 2.6% decline in growth which they predict could increase to 5.4% if we end up with a protracted outbreak of Covid-19 – a more severe impact than the 2008-09 downturn.
In response the Government has launched an unprecedented set of measures to support UK businesses of all shapes and sizes. This is a government coming up with major new policies and initiatives on an almost daily basis and as such technical details are sparse with civil servants no doubt burning the midnight oil to backfill the detail and new systems needed to operate these schemes. Details from Government on its Covid-19 support packages can be found here https://www.gov.uk/government/publications/guidance-to-employers-and-businesses-about-covid-19/covid-19-support-for-businesses
So what initiatives have been announced to date, how do businesses access those and what other practical tips should be borne in mind.
Coronavirus Job Retention Scheme
The early part of last week saw a business bailout package worth over £350 billion announced to help tackle the economic fall-out from Covid-19, yet Friday evening saw the announcement of the Coronavirus Job Retention Scheme offering grant support to cover 80% of salary costs of anyone not working due to Coronavirus whose job has been retained, up to a maximum of £2,500 per month.
Technical details are not yet available but this is what we know so far:
- All UK businesses (including charities and not for profit organisations) irrespective of size are eligible
- Employees must be designated as “furloughed workers” and notified of this change to status (where any change of status remains subject to existing employment law and contracts of employment) instead of being made redundant. Criteria for a “furloughed worker” has yet to be published.
- An HMRC online portal will be developed where information on furloughed workers and their earnings can be submitted.
- HMRC will reimburse 80% of furloughed workers wage costs, up to a cap of £2,500 per month via a new system to be set up as existing Government systems (PAYE etc) are not set up to facilitate payments from HMRC to employers.
- The ambition is for the first grants to be “paid within weeks” with a full scheme “in place” by the end of April 2020.
- Wages backdated to 1st March 2020, for an initial period of 3 months, extendable by the Government if necessary beyond that.
As always, a new policy introduced in extreme circumstances at breakneck speed will throw up lots of unanswered questions such as:
- Will employers have to make up the additional 20%. The Chancellor in his statement said “employers may top-up the wages of workers should they choose to do so” implying the grant may not be conditional on topping-up from the employer.
- How does this work for those employees on zero hours contracts or similar arrangements where there is no reference point to salary/hours worked beyond historic pay slips.
- What about those who are self-employed and have perhaps remunerated themselves via a mix of nominal salary and dividends.
- Does this apply to those employees put on reduced hours rather than being “furloughed” in full.
- How do things such as pension contributions, NIC, grants and levies such as the Apprenticeship Levy affect the scheme?
Coronavirus Business Interruption Loan Scheme (CBILS)
It was announced last week that a temporary Coronavirus Business Interruption Loan Scheme delivered by the British Business Bank will launch in a matter of weeks to provide businesses with a turnover of up to £45m access to bank lending and overdrafts.
This is what we know so far:
- Lending will be made via the British Business Bank with loans ranging from £1,000 to £5m.
- Loans will be interest free for the first 12 months.
- The loans can take the form of a term loan or asset finance arrangement (in each case over periods of 3 months to 10 years) or a revolving facility or some form of invoice discount (in each case over periods of up to 3 years).
- Under this scheme the government will provide lenders with an 80% guarantee on each loan (subject to a per-lender cap on claims), however the borrower will always remain 100% liable for the debt – a very important point to note.
- The loans can be accessed via accredited lenders (see https://www.british-business-bank.co.uk/ourpartners/coronavirus-business-interruption-loan-scheme-cbils/accredited-lenders/) who should be approached initially with the lender then applying to the scheme for the funding.
- The loans are not available to certain sectors (see https://www.british-business-bank.co.uk/wp-content/uploads/2020/03/Ineligible-and-Restricted-Eligibility-Sector-2017.pdf )
- Proposed borrowers must show that they have not received state aid above €200,000 in the prior 2 years and have a sound borrowing proposal but insufficient security to meet the lender’s requirements.
- The scheme should be available during the week commencing 23rd March 2020 onwards.
The process for applying is almost identical for a standard bank loan so if you are thinking of applying you need to pull together the normal information you would pull together when applying for a bank loan e.g. recent accounts (including turnover and profit), cash flows, assets, business plans, measures taken already re Covid-19 etc.
Grants for small companies
Each small business that pays little or no business rates due to eligibility under Small Business Rate Relief (SBRR) or Rural Rate Relief is entitled to a one-off grant of £10,000 (increased yesterday to this amount from £3,000) to help meet ongoing business costs. This will apply from early April onwards and eligible businesses should be contacted direct by their local authority in relation to this.
Retail and hospitality sector Grants
Businesses in the retail, hospitality and leisure sector operating from smaller premises with a rateable value over £15,000 but below £51,000 may also be eligible for a grant of £25,000. This is in addition to any grant referred to in the paragraph above.
All property occupiers in the retail, leisure and hospitality sector will receive 100% rates relief between 1st April 2020 and 31st March 2021. This includes bars, restaurants, shops, gyms, small hotels, nurseries and sports clubs. This process will be run and administered by Local Authorities and as such occupiers don’t need to take any action. However, if you are unsure whether or not your business qualifies for this relief advice should be sought.
Time to Pay
HMRC have extended their Time To Pay service where HMRC may be willing to grant time to pay tax liabilities otherwise due to HMRC by converting settlements to instalments over a 3-12 month period. HMRC have a dedicated hotline for this which can be contacted on 0800 0159 559. Anyone taking this up should have relevant information to hand before speaking to HMRC. This includes basic information such as details of the business, turnover, annual tax liability, reasons linked to Covid-19 for the request, what other action the business has taken to work on cash flow etc.
Statutory Sick Pay
Any company with less than 250 employees as at the 28th February 2020 can recover up to 2 weeks’ statutory sick pay (SSP) for each employee who is off work because of Covid-19. Employers will need to maintain appropriate records but employees won’t need to provide a fit note. There is no existing system for recovering SSP and the Government is working on the relevant mechanism. Until this is developed businesses will need to keep records of sickness and sick pay.
Covid Commercial Financing Facility
This is a new scheme to be launched by the bank of England to help companies that make a material contribution to the UK economy to assist with Coronavirus disruption to their cash flows. This is applicable to those business who prior to the outbreak of Covid-19 had a rating of “investment grade” or financial health equivalent to “investment grade” rating.
Should you need any help, please do not hesitate to contact the team at Gorvins Solicitors and we would be more than happy to help guide you through these highly unusual but worrying times.
Christian Mancier, corporate/commercial partner, Gorvins Solicitors
(Information correct as per announcements made up to and including 22nd March 2020)