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

We are aware that 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. We will also provide updates as we hear news from banks and other agencies executing the schemes, and updates from our teams advising clients through these challenging times.

Last updated in the afternoon of 02 June 2020.

Jump to a section

  1. An overview of support and options ≫
  2. Coronavirus Business Interruption Loan Scheme (CBILS) ≫
  3. Coronavirus Large Business Interruption Loan Scheme (CLBILS) ≫
  4. Job Retention Scheme ≫
  5. Supporting the payment of sick pay ≫
  6. Support for the self employed ≫
  7. Bounce Back Loan Scheme ≫
  8. Small Business Grant Funding ≫
  9. Covid Corporate Financing Facility (CCFF) ≫
  10. The Future Fund ≫
  11. Time To Pay support with your taxes ≫
  12. VAT deferral ≫
  13. Transfer pricing ≫
  14. Insurance concerns ≫
  15. Late filing at Companies House ≫
  16. IR35 delayed for private sector ≫
  17. Breach of contract implications ≫
  18. Retail, hospitality and leisure sector ≫
  19. Nursery sector ≫
  20. Charities sector ≫
  21. Wrongful trading ≫
  22. Recovery, turnaround, insolvency support and debt recovery ≫
  23. Price Bailey’s response to COVID-19 ≫

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) and the new Coronavirus Large Business Interruption Loan Scheme (CLBILS)

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; whilst the new Large Business scheme may fill the void, we are awaiting details that are to be released later in April 2020. 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, thecovi 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 will provide lenders with a Government-backed guarantee for 80% of the facility issued, therefore making many more lending applications viable in the eyes of the lenders.

The package continues to be revised following feedback from business owners and lenders but as of 3rd April 2020, all businesses that meet the criteria below can apply for a CBILS loan.

There is no longer a requirement for applicants to have had a normal commercial loan applications rejected. It is currently expected that any applicants which have applied and received funds on normal commercial terms in response to COVID-19, will have these facilities retrospectively “rebooked” as CBILS loans. Applicants should of course confirm this with the lenders at the earliest opportunity.

Personal Guarantees (PGs) will not be required by the lender for loans below £250k, and some of 40 accredited lenders on the scheme are waiving this requirement altogether.

For loans above £250k, PGs may still be required, at the lenders discretion, however, they will be capped at 20% of the outstanding loan value (to account for the government guarantee). Further, CBILS does not allow a lender to take a security over the Principal Primary Residence of the business owner.

The borrower is always liable for all of the debt and must demonstrate that, were it not for the current pandemic, they would be viable and creditworthy.

The government will also make a Business Interruption Payment to cover the first 12 months of interest payments and any lender-levied fees, so smaller businesses will benefit from no upfront costs and lower initial repayments.

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 are and will remain extremely busy over the coming weeks, businesses with a serious urgent  need will need to be prioritised. The Price Bailey team are in regular contact with many of the banks. Just like their clients, bank staff are learning in real time with significant operational constraints 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.  

Timescales from application to drawdown are currently unknown.. Due to demand they are likely to be slower than normal, however Lenders have increased staff numbers and relaxed internal procedures to support. They are stating anything from 3 – 8 weeks depending on the security required. If charges are required on property / debtor book / leases, and legal support is required then this will delay proceedings.

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.

The majority of lenders are suggesting that applicants speak with their relationship manager in the first instance. Some lenders are asking businesses to complete an 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.

Our advice is to undertake a detailed assessment of short term liquidity and speak to a relationship manager in the first instance.

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

There is not currently a consistent approach from Lenders regarding the eligibility of businesses which meet the above criteria but which have overseas or Private Equity ownership (whole or part). Our expectation is that a broad approach will be adopted, but applicants should be aware Lenders are reviewing each business on an individual basis and it is at their discretion how they will appraise each scenario.

Several lenders have also stated that they will not offer CBILS loans to new customers.

Key Facility Features

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

 

Product

 

Max value

 

Max term

 

Other features

 

Overdraft & revolving facilities

£5m 3 years

Loans limited to 25% of 2019 Turnover or 2 x annual wage bill, whichever is greater

Interest-free period of 12 months paid for by the Government, some leaders are also providing capital payment holidays of up to 12 months

No guarantee or arrangement fees for SMEs

Incorporate limits – 10k – £5k

Sole trader and partnerships – £25,001 – £5m

Invoice finance facilities
Asset finance facility 6 years
Term loans

 

 

 

 

 

 

 

 

 

 

 

 

Security

All banks on the CBILS scheme offer unsecured lending for facilities of £250,000 and under.

For facilities above £250,000, the lender can decide what it needs for security however this cannot be the PPR of the borrower. 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 via their relationship manager or relationship director as this will prove the quickest way to access funds.

The majority of the mainstream banks will only supply CBILS facilities to their current clients. Businesses ability to “shop around” may be limited, however we do know lenders that will look at new business.  

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.

The team at Price Bailey has good relationships with banks as well as a list of questions that are useful to answer before approaching a lender. Please do not hesitate to contact the Price Bailey team if you have any questions or believe we may be able to assist you.

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. 

According to UK Finance, the benchmark for assessing viability or profitability for within a CBILS Application is 31 December 2019.

There will be many viable businesses that may be unable to show this (for example, through recent investment for growth, higher R&D expenditure or a turnaround and restructuring plan). Such applications will need to clearly set out the underlying reasons within their applications to enable the individual underwriter to take a fully informed view.

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.

Pre-profit or loss-making businesses are less likely to be successful in a CBILS application and may be better suited to raise equity finance, rather than debt.

Price Bailey is experienced in raising funds for many different situations,  demonstrating viability is something we often get asked to support in.

To find out more, please contact Simon Blake who leads our Strategic Corporate Finance team.

Coronavirus Large Business Interruption Loan Scheme (CLBILS)

On Friday 3rd April 2020, the chancellor detailed a new scheme, much like CBILS, but for larger businesses that did not meet the requirement of CBILS nor COVID-19 Corporate Financing Facility.

The new Coronavirus Large Business Interruption Loan Scheme (CLBILS) will provide a government guarantee of 80% to enable banks to make loans of up to £25 million to firms with an annual turnover of between £45 million and £500 million. This scheme can only be accessed if an applicant has been unable to secure regular commercial finance and so it is advisable to contact your lender in the first instance to see what packages are available and suitable.

Much like the CBILS scheme, the government expects the scheme to be delivered through commercial lenders. The government will provide lenders with an 80% guarantee on individual loans for businesses that would be otherwise unable to access the finance they need.

Lenders will still be expected to conduct their usual credit risk checks. This scheme allows lenders to specifically support businesses that were viable before the COVID-19 outbreak but now face significant cash flow difficulties that would otherwise make their business unviable in the short term.

The new scheme will launch later in April and will support a wide range of businesses to access finance products including short term loans, overdrafts, invoice finance and asset finance.

Businesses would remain responsible for repaying any facility they may takeout.

Eligibility

 To be eligible, a business must:

  • be UK-based in its business activity
  • have an annual turnover between £45 million and £500 million
  • be unable to secure regular commercial financing
  • have a borrowing proposal which the lender:
  • would consider viable, were it not for the COVID-19 pandemic
  • believes will enable you to trade out of any short-term to medium-term difficulty

Businesses from any sector can apply, except for banks and building societies; insurers and reinsurers (but not insurance brokers); public-sector organisations, including state-funded primary and secondary schools.

We would assume, like the CBILS scheme that any borrowing proposal would need to include a viability test. That is, were it not for the COVID-19 pandemic, would your business 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 Simon Blake who leads our Strategic Corporate Finance team.

Job Retention Scheme

Under the Coronavirus Job Retention Scheme, which is now open, all UK employers can 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.

The Furlough scheme eligibility cut-off date has been extended from 28 February 2020 to 19 March 2020, to enable more employees to benefit from the scheme. Therefore, if you have made employees redundant on or after 28 February 2020, or they left for another reason on or after this date, or new employees who were due to start on or after 28 February 2020 and subsequently let go, employers can now re-employ them and put them on furlough and gain support through the scheme.

Please note the following updates:

  • In addition, following the announcement on 29 May 2020, the scheme will be closed to new entrants from 30 Junes 2020, meaning that the final date on which an employee can be placed on furlough for the first time is 10 June. However, the scheme will continue to support the wage costs of those employees in the scheme until October 2020, but employers will have to start contributing to the wage costs of paying their furloughed staff starting from 1 August 2020.
  • All claims to 30 June 2020 must be filed by 31 July 2020
  • Finally, from 1 July 2020, employers can bring previously furloughed employees back part-time and still receive a grant for the time when they are not working.

Further details on what this means can be found in our Job Retention Scheme Article.

To make a claim, you need to meet three conditions:

  1. You need to have created and set up a PAYE scheme before 19 March 2020 (deadline extended)
  2. You need a UK bank account, into which the money will be paid
  3. You MUST have enrolled for PAYE online.

According to businesssupport.gov.uk, “HMRC will pay employers a grant worth 80% of an employee’s usual wage costs, up to £2,500 a month, plus the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on that subsidised wage.” Once HMRC have received your claim and it is eligible for the grant, they will pay it via BACs payment to a UK account. This support is for employees on PAYE only.

Employers can now set up a PAYE online account with immediate access. Removing the need to wait 10 days for an activation code.

The funding is initially available in respect of furlough which takes place during the period from 1 March until the end of October.

Employers will need to make a contribution after 31 July towards the 80% up to £2,500 a month, as set out below:

Breakdown of Government and Employer contributions

March – July

80% of wage costs can be claimed via CJRS (up to £2,500)

Employers NI contribution and pension payable by the Government

August

80% of wage costs can be claimed via CJRS (up to £2,500)

Employers NI contribution and pension payable by the employer

September

70% of wage costs can be claimed via CJRS (up to £2,500)

10% of wage costs paid by employer*

Employers NI contribution and pension payable by the employer

October

60% of wage costs can be claimed via CJRS (up to £2,500)

20% of wage costs paid by employer*

Employers NI contribution and pension payable by the employer

 
* This doesn’t include the optional 20% top-up that some employers will pay to staff to ensure they receive 100% of their pay/salary

More details can be found in our Job Retention Scheme article.

To furlough employees, you need an agreement – The Treasury Direction says that to claim under the furlough scheme, the employer and employee must have agreed in writing that the employee will cease all work (para 6.7). Notification alone is not sufficient. This document also needs to be kept for five years. Further, as stated above, any reduction in salary is a breach of contract without express agreement from the employee.

Furlough agreements are required to include the time period for which the employee will be out of work. This time period will likely be the period that the Job Retention Scheme remains in place, subject to a minimum of 3 weeks. We understand that if an employee comes back to work after the set period and you do not require them to work still, you can ‘re-furlough’ them for a further period of time. 

A furlough agreement is a temporary variation of the contract of employment and the employees will revert to their normal terms following furlough, although some employers are using furlough agreements to introduce and agree permanent changes such as the right to put the employees on short-time working or to temporarily lay them off. This is a complex area of law and legal advice should be obtained before making such changes.

In respect of contractual terms which have not been varied by agreement, the underlying contract of employment continues to apply during the furlough period, as do an employer’s statutory obligations which often override contractual terms, particularly around termination of employment, for example timings of consultation on a collective redundancy process.

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 (SSP) is able to be reclaimed per eligible employee absent due to COVID-19 (this includes both Coronavirus sickness and isolation absence) on or after 13 March 2020. Employees will not need to present a GP fit note but can be supplied an isolation note from NHS111 online to satisfy their employer.

The Coronavirus SSP Rebate Scheme is now open for employers to make a claim. The process broadly follows the same format as the Coronavirus Job Retention Scheme (CJRS) claims, for those also claiming through CJRS.
The information employers will need in order to make a claim is:

  1. Claim period
  2. Number of employees
  3. Amount claimed.

In contrast with the CJRS, you are not required to provide the individual employee’s names or NI numbers. For more information and updates on the application process, see Our Experience article here.

Claims can only be made for periods that have already passed.

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

On 26th March the Chancellor announced the following:

  • A taxable grant of 80% of the average profits over the last 3 years will be accessible.
  • If you have fewer years accounts they will take the average of the years you have.
  • This will be capped at £2,500 per month and initially for 3 months only albeit the application can be back dated to March 2020.
  • HMRC will approach and pay individuals directly, subject to compliance checks.
  • The scheme will pay lump sums but will not open until June at the earliest – the team developing the Job Retention Scheme need to finish that, due in April, before starting development on the operations for this scheme.
  • The majority of your earnings have to be derived from self-employment.
  • The scheme will be limited to individuals with trading profits up to £50,000 and who are already in self employment, with a tax return for 2019.
  • A grace period of 4 weeks from 26th March has been provided for late filings of self-assessment tax returns for 2018/19 which were due 31st January 2020.

The levelling of £2,500 per month with the Job Retention Scheme may indicate future attitudes toward tax policy, given the similarities with the employer jobs retention scheme.

In addition, Income Tax, payments on account which were 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 July for six further months, interest free.

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.

We believe that the support package is a positive step in bridging the support gap – however there are clear short term cash flow risks to the self-employed that they will need to manage. For some, the other packages of support described throughout this page may provide further relief but we recognise that many may struggle with the timings of payments.

On the basis of what has been released to date, we believe that directors operating personal service companies and/or those business owners on low salaries and high dividends are unlikely to be able to materially benefit from either the job retention scheme of the self-employment grant.

If you have any questions or concerns, please reach out to your Price Bailey contact who assists with your accounts, or Michael Morter from our Tax team.

Bounce Back Loan Scheme

After significant lobbying, the Government has recognised the need to add an extra layer of security to support businesses who were struggling to access the CBILS loan scheme. On 27 April the Chancellor announced that he would establish the Bounce Back Loan Scheme to help small and medium-sized businesses borrow between £2,000 and £50,000.

This scheme provides a government guarantee against 100% of the loan. The loan will be up to 6 years in duration with no repayments during the first 12 months. In recognition of some of the high-interest rates that some banks have quoted small businesses, the Government has said they will work with lenders to agree on a way of reducing the cost of borrowing. Companies can transfer loans of up to £50,000 issued under CBILS to the Bounce Back Loan Scheme.

The loans will be easy to apply for through a short, standardised online application. The money should reach businesses within days.

We expect lenders accredited by the British Business Bank to deliver the loans and the scheme is now open.

For more information on the Bounce Back loan Scheme including the eligibility criteria, read our detailed article here or contact William Wilson.

Small Business Grant Funding

The Government is providing additional funding for local authorities to support small businesses that already pay little or no business rates because of small business rate relief (SBRR), rural rate relief (RRR) and tapered relief. This will provide a one-off grant of £10,000 to eligible businesses to help meet their ongoing business costs.

You will be eligible if:

  1. Your business is based in England and
  2. In receipt of small business rate relief or rural rate relief as of 11 March and
  3. You are a business that occupies a property

Eligible businesses will be contacted by their local authority, though some local authorities have decided to operate an applications process. Any enquiries on eligibility for, or provision of, the grants should be directed to the relevant local authority.

Price Bailey has been made aware that some councils have been expecting businesses to apply for the grant rather than the businesses being contacted directly by the council. Our advice is to check if you are eligible and contact your local authority if you are not already in the process of applying for the grant.

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 Reed, Simon Blake or Chand Chudasama from the Strategic Corporate Finance team.

Future Fund

The government have announced the launch of a £250m Future Fund that will provide matched funding using a Convertible Loan Note (CLN).

To be considered eligible for the fund, businesses must have raised at least £250,000 in aggregate from private third part investors in previous funding rounds over the last five years and have a substantive UK presence.

The scheme will be administered by the British Business Bank (BBB) and will open in May 2020, with more details to follow soon. For more information read our blog on The Future Fund: 10 terms and what to do next.

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.

Corporation tax, freezing debts and deferrals of up to three months on due amounts is also available, but will be reviewed on a case by case basis.

As you would expect there are long delays on HMRC’s helplines. However, our recent experience indicates that  call wait times have reduced significantly and the HMRC team are very supportive once your through.

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.

Deferral does not apply to any business paying VAT under the MOSS scheme. Any MOSS payments due still need to be paid by the usual deadlines.

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.

As well as retail and hospitality and leisure sectors; estate agents, lettings agencies and bingo halls that have closed as a result of COVID-19 will be exempt from business rates in 2020-21.

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.

Charity sector

On the 8th April the Chancellor announced a specific cash pot for charities worth over £750m. This funding will support frontline charities across the UK – including hospices and charities helping domestic abuse victims. Of the total £360m will be directly allocated by government departments, while £370m will go to smaller charities, including through a grant to the National Lottery Community Fund, and £60m of that will go to Scotland, Wales and Northern Ireland. This is a significant boost to charity funding and as soon as more information is available we will have all the details.

Wrongful trading

On 28 March 2020, Business Secretary Alok Sharma announced further measures designed to support businesses experiencing distress as a result of the COVID-19 pandemic. These included the temporary suspension of wrongful trading provisions for an initial period of three months (from 1 March 2020 to 31 May 2020).

What is wrongful trading?

A business can be classed as insolvent if it can’t pay debts as and when they fall due (cash flow basis) or if the value of its liabilities exceeds its assets (balance sheet basis).

When a company is insolvent, the directors must continue to discharge their duties, but have an overriding duty to act in the best interest of the company’s creditors.

If a business continues to trade whilst insolvent, it risks making the position worse for creditors, who may continue to supply goods/services on credit with no prospect of repayment.

Wrongful trading is a provision of UK insolvency law that is designed to deter directors from continuing to trade an insolvent business by making them personally liable for certain debts of the business.

If a director knows, or ought to have concluded that there was no reasonable prospect the company would avoid going into insolvent liquidation, the Court may order them to make a personal contribution to the Company’s assets.

What does that have to do with COVID-19?

COVID-19 has had two notable impacts for directors in respect of wrongful trading:

  • The immediate shock of the COVID-19 pandemic may have already created an immediate cash flow insolvency in some businesses.
  • There is no certainty as to when the effects of COVID-19 will end, nor what their eventual impacts may be (prolonged staff illness, supply chain disruption, loss of customers, bad debts, etc), thus bringing medium-term viability into question.

As a result, directors may already be questioning whether they ought reasonably conclude that the business is, or is likely to become, insolvent.

  • Newly introduced Government support schemes themselves may also increase a Company’s liabilities at a time when the business might arguably be insolvent (such as CBILS loans, VAT Deferral and Time To Pay arrangements).

Given the level of ongoing uncertainty, is it possible for a director to reasonably conclude that the business will be able to recover and meet these in full post-pandemic?

As a consequence, trading on and incurring further debt to do so, carries significant personal financial and reputational risk for directors.  

What does it mean?

It is logical that wrongful trading provisions have been relaxed temporarily given that much of the government support in response to COVID-19 will necessarily mean the Company increasing its liabilities.

This will provide comfort to directors acting in good faith and in creditors’ interest, and help them access emergency Government funding without personal liability (save for any personal guarantees) as they navigate the coming months.

Helpful – but not carte blanche

The measures above are intended to help directors and businesses that are trying to do the right thing in exceptional circumstances.

However, it is possible to see how a relaxation of wrongful trading and a longer moratorium might be open to potential abuse from unscrupulous directors, stymieing creditors reasonable expectations of payment, for example.

All other statutory obligations and fiduciary duties of directors remain in force. The temporary “relaxing” should not be seen as carte blanche to act without due consideration or reasonable skill and care; or to take on additional debt without fully understanding the potential consequences to:

  • them (personal guarantees)
  • the business (such additional debt service costs and a weaker balance sheet) and
  • creditors (who may be put in a worse position).

A failure of a director to do so will still carry significant risk as there remain many potential actions through which creditors can seek financial recourse.

Creditors (including employees, key suppliers and lenders) will be hard pushed to support any restructuring proposal if they suspect they are being disadvantaged in some way.

Now more than ever, it is critical for directors with solvency concerns to seek timely advice to ensure they are not exposing themselves and their businesses to undue risk, or putting creditors in a worse position than they would otherwise be.

Other amendments to insolvency law

BEIS is set to announce further measures to provide a life raft to otherwise viable businesses that are struggling to keep afloat.

It is currently expected that these will include:

  • Rules to ensure ongoing supply of critical goods and services to businesses in an insolvency procedure;
  • An extension of the statutory moratorium (currently 10 days) to protect companies from creditor enforcement while the business assesses available options;
  • A new Court-based restructuring tool, akin to a Scheme of Arrangement.

Any new mechanisms or tools which will give businesses, directors and their advisers a framework to deliver a better (ideally consensual) outcome for creditors are most welcome.

However, the devil is in the detail. It is difficult to see how creditors could be forced to supply goods and services if payment could not be guaranteed or at least given priority in any subsequent insolvency process, for instance.

Further detail is expected to be set out shortly.

Our advice to directors and shareholders

Despite the temporary suspension, directors must still be conscious of not increasing avoidable losses to creditors. directors that do not act with due care and skill, or who intend to abuse government support, must surely expect a ‘reckoning’ in due course.

Insolvency Practitioners have a duty to assess the conduct of all directors in the run up to an insolvency process. The Insolvency Service retains effective powers that go far beyond a deterrent and can still disqualify directors.

It is important that good, clear governance and leadership is shown. Our advice is that the following is considered:

1. Be clear with the board on the collective responsibilities

Re-read your Articles of Association, shareholders agreements and even relevant sections of the Companies Act if needed, re read your directors and officers insurance policy. Make sure each board role has clear responsibilities, especially if directors are being placed on furlough.

The Board should meet as often as is necessary – for a mid-sized business this might be multiple times per week or even daily. Take notes of any meeting (record any virtual meetings).  The fiduciary responsibilities of directors have not changed.

Dealing with directors who want to resign should happen quickly.

Ensure that the Board seeks professional advice from relevant experts, including a Licensed Insolvency Practitioner.

2. Document a turnaround plan

It is not sufficient to monitor financial statements and performance – directors will need to demonstrate they exercised reasonable care and took appropriate and informed decisions, to  protect the interest of creditors.

Document what the business must change operationally in order to navigate the coming weeks and months. What is the impact (if any) on creditors?

Support the operational strategy with sound financial planning. A financial model that can handle scenarios is the ideal way to start approaching this, followed by written commentary.

A 13 week short term cash flow should be prepared to identify any short term liquidity problems before they become a crisis. This should be updated for actual performance against forecast as you progress.

Scenario based plans to address changes in performance are advisable – for example if a business expects reductions in cash due to revenue falling and/or slowing debt turn as customers conserve cash, or increasing costs due to foreign exchange risks, knowing what actions to take to cut costs, smooth liabilities and manage working capital, whilst protecting creditors, will be essential.   Notes taken from discussions or emails with key debtors and creditors will help.

Adjust your plan and forecasts as your trading and operational situation changes (adverse or positive), for example, a prolonged “lockdown”, periods of staff illness, or new market opportunities. 

3. Document your decision-making

Make it clear why the decisions you are in the creditors’ interest, and set out a brief rationale if need be:

  • This might include considering the following questions:
  • How will this course of action benefit, or at least not worsen, the position for creditors? How can you demonstrate this?
  • Which creditors are you going to keep informed? Why?
  • Lenders will often have information rights and an expectation to be kept informed as matters progress. They will only be reassured by proactive action and communication from the Board, but consider the message and frequency of communication. Agree this with them, their support may be vital at a later stage.
  • What message will you share to customers, staff, landlords and trade suppliers, especially if you need their help later?
  • Can you continue to take customer deposits?
  • What will you be reporting to shareholders and how frequently?
  • These can be challenging decisions – so it is advisable to keep clear succinct notes of discussions, actions taken and their rationale at the time. This will save time in the long run.

If you would like to know more about how our team can help you through some of these challenges and choices, please contact Tim Smith.

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.

 

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