Cash is King

The Government has made emergency provisions for reliefs from tax payments and to provide funds to help businesses and employees get through the coronavirus emergency.

The problems emerging in practice are that:

• the eligibility requirements exclude many who need cash;
• for those who are eligible, the repayment and contribution obligations on employers and businesses are making many who need money doubt that they will have sufficient future orders to justify the cost burdens of retaining employees or taking loans to pay suppliers;
• for those that are eligible and want the funds, the money may not be available soon enough.

This article will consider the issues arising by reference to some brief examples of the support available. A list of the sources of information available on the Government websites is provided below. These supply further details about the terms and durations of the support offered.

Examples

Tax payments deferred

The Government has deferred payment by businesses of VAT and other taxes. This has the hallmarks of an effective measure: it is simple and immediate.

Tenant protections

In another clear, decisive move, the Government has provided protection to tenants of both residential and commercial premises by banning evictions for at least 3 months. The decision may be tough on landlords. It does at least protect them from potential rates liabilities and the problems of insecure, unoccupied and uninsured premises – at least where tenants behave responsibly. The rent due will be payable eventually and, of course, landlords will have their own creditors to pay.

Preservation of employment

The support offered with the intention of preserving employment is more complex. In simple terms, the Government has offered grants to employers to keep on employees during the crisis – known as furlough – who were employed on 28 February 2020 so that they will receive at least 80% of their usual monthly earnings, up to a maximum of £2,500. The earnings appear to be taxable. There is no threshold of annual earnings above which employees will be excluded. The employer can claim the grant for a minimum of 3 weeks up to a current maximum of 3 months.

The problems for employers include whether they can afford any NICs that may eventually be due, what work can be found, what duties of care will apply and whether they can afford to pay the ostensibly optional 20% contribution to furloughed employees’ earnings from reserves or cash flow. In many cases, employers are feeling a lack of confidence and feeling that redundancy rather than furlough may be the only option.

We spoke to Paul Davis, a partner and insolvency practitioner with leading national accountancy firm McIntyre Hudson. Mr Davis referred to the many issues that employers need to consider and kindly made available his firm’s briefing note. This is reproduced below.

Help for the self-employed

The Government has also released plans intended to help up to 95% of the self-employed sector. Assistance to this sector has been considered to be difficult and the Government has done well to prepare a scheme in short order. Experts have, however, had to raise concerns over what are perceived to be major problems with the scheme. These include the length of time before funds will reach the self-employed, the lack of support if service companies are used and the “blunt instrument” of a cut-off denying support to those with trading profits of over £50,000 per year. This is a complicated area. Again, McIntyre Hudson has supplied a briefing note, the full contents of which are set out below.

Business loans

It is intended that money will be made available quickly and on advantageous terms through the Coronavirus Business Interruption Loan Scheme (CBILS) offered by the British Business Bank and administered by 40 commercial lenders.

One such lender wrote recently to its customers about the availability of the Government’s intended support:

“To help you understand if you may be eligible, please ensure you answer yes to the following points below:

• Your application must be for business purposes
• You must be a UK-based SME with annual turnover of up to £45 million
• Your CBILS-backed facility will be used to support primarily trading in the UK
• You wish to borrow up to a maximum of £5 million.

Further eligibility applies. If we can offer finance on normal commercial terms without the need to make use of the CBILS scheme, then we will do so.”

This approach has been interpreted as an example of the commercial lenders using the Government’s offer of support to their own ends. Even more so has been the commercial lenders’ requirements for personal guarantees to be provided by the directors of borrowers, including indirect means to take charges over property. The Government had specifically said that directors’ homes were not to be put at risk. It appears at the time of writing that RBS and its subsidiary NatWest are the only lenders apparently projecting the Government’s intent.

Intent of possible changes

It may be felt that the current bundle of offers needs to be simplified to provide a shorter, sharper route to making spending money available. There could also be lower or nil contributions required from businesses and entrepreneurs who are justifiably nervous about their ability to make payments in a frozen economy. It may be that the Government will reconsider these points, perhaps with more comprehensive grants backed up by more general anti-abuse provisions.

The Government could also make immediate cash grants available to consumers on low incomes, such as those receiving Universal Credit. Similar schemes are going into place in other countries, including the US. The expectation is that these payments will both provide relief for the needy and increase demand for goods and services to stimulate faltering markets.

In the meantime, there are critical business decisions to be reached and significant reliefs and potential sources of funding intended to help many businesses survive the crisis. Please contact us using the below details for advice in considering these possibilities or other business concerns that you have.

For advice on restructuring: Mark Parkhouse
For advice on taxation: Michael Fluss or Patrick Elliot
You may also want to contact Paul Davis at McIntyre Hudson

Summaries of the Government’s support are available at:

• For UK employees
• For commercial landlords and tenants
• For residential landlords and tenants
• For employee retention
• For the self-employed
• For businesses