There’s no doubt these are tough and trying times for businesses across the United Kingdom. The effects of COVID-19 on the economy are unprecedented, and businesses are being forced to pivot, to adapt and, in many cases, to seek support on a level never seen before.
Unfortunately many businesses have had to declare insolvency, call in the administrators, or enter into liquidation. Before the worst happens however, there is a range of government packages available to help businesses during the COVID-19 pandemic, so it’s important to know what you could be entitled to.
In this article, we take a detailed look at what support your business could qualify for, and what other steps you can take to seek help during this global pandemic and financial recession.
What Should I Do If COVID-19 Has Affected My Business?
If COVID-19 has affected your business, there are a number of steps you can take to attempt to mitigate your financial losses. As well as there being individual steps you can take as a business owner, the government has also unveiled a range of support schemes to help companies avoid insolvency.
First, we’ll take a look at what you can do as a business owner before seeking government assistance.
Re-Analyse and Reorganise Your Business
An important first step to take during this financial crisis is to reorganise and re-analyse your business.
This means re-evaluating your business costs and expenditures, chasing clients that haven’t paid invoices, and cutting down on unnecessary business expenses. You might have to streamline operations and, in unfortunate cases, close areas of the business altogether in order to save the company as a whole.
Tough decisions might need to be made, but always seek expert advice to see where you could try to avoid job losses and loss of business.
If your business rents shop premises or office space, you can ask your landlord for a rent break. The government is encouraging rent breaks across the board, as well as encouraging mortgage breaks from banks.
Landlords might be willing to help your business out in the short term, as it’s in their long-term interests to keep their properties occupied.
While many businesses have insurance to cover them in extenuating circumstances, some insurance companies will be unwilling to pay out because this is an unprecedented pandemic.
If you are struggling however, it’s always worth checking with your business insurance provider to see if they can help to cover any costs.
Banks are under government pressure to authorise bank loans for companies in dire straits. You can approach a bank yourself to organise a loan to help you through the virus, but seek expert advice first.
As you’ll see, there are lots of government-backed loan schemes that will probably prove to be more appropriate and better value in the long term.
What Help Is the Government Providing to Businesses During COVID-19?
The government has unveiled a variety of financial schemes designed to help businesses during the COVID-19 crisis. For many businesses these have proven to be a lifesaver, and the government is offering an incredible amount of money to offset the economic effects that lockdown has had on the economy.
Business Support Helpline
The first step to take is to contact the dedicated government Business Support Helpline for information on the specific schemes your business might be able to implement and apply for.
Different businesses are able to apply for different schemes, and one may be better than the other for you, so try to take all the available options into consideration and seek help where you need it (and where it might be beneficial to have an outside opinion).
Business Rates Breaks
Local councils are offering many businesses a break from paying business rates during the lockdown period, as many physically can’t trade due to social distancing laws.
This is particularly relevant for businesses on the high street or in the hospitality industry, which have been forced to temporarily close because of the pandemic.
If your business pays business rates to the council, then check if these have already been stopped or if they can be put on hold for the duration of the crisis.
Coronavirus Business Interruption Loan Scheme (CBILS)
Businesses that have been unduly affected by COVID-19 can apply for the Coronavirus Business Interruption Loan Scheme (CBILS).
Backed by the government, British banks are being asked to provide temporary loans of up to five million to businesses that are struggling and have seen losses during the crisis.
No personal guarantees are needed if the loan is under £250,000, making this a great choice for small to medium-sized businesses in need of a quick cash injection to keep them afloat.
The scheme will see the government covering all interest payments and lender charges for the first 12 months of the loan. Remember though, this is money that needs to be repaid; it is not a government grant.
One of the biggest and most touted schemes that businesses can take advantage of during the COVID-19 crisis is the furlough scheme. Officially known as the Coronavirus Job Retention Scheme, billions have already been spent keeping staff on furlough to save businesses from going under.
The scheme allows businesses to furlough their workers, while the government pays 80% of their wages and covers all National Insurance and pension costs too. Whilst on furlough however, staff are no longer allowed to work. They can’t work for your company or in any other capacity.
If your business has halted trading or seen huge downturns, this is the best way to put your business on hold while retaining your staff. The idea is to stop businesses from cutting their staff, although businesses are supposed to pay the 20% deficit if they can, and there’s a cap of £2,500 per month on salaries.
While all staff that are furloughed will see a reduction in their wage, in the long term the scheme could save hundreds of thousands of jobs across the country. The scheme will be in place until October, although businesses are expected to contribute more from August.
Deferral of VAT Payments
Businesses that are struggling to stay afloat can also look at deferring their VAT payments to the government in the short term.
This will help businesses free up a large amount of cash in the short term, which could be spent on other things. VAT payments will likely have to be repaid again in the future, although this could change.
Bounce Back Loan Scheme
Small businesses are able to claim a Business Bounce Back Loan to help them continue trading during the pandemic. The government guarantees this loan, and also covers any interest rates and charges for the first 12 months.
After that, the interest rate remains at 2.5%, making this loan an attractive prospect for small business owners that need money in the short term.
Business can only apply for up to 25% of their total turnover, the idea being that this is a short, sharp injection of cash to help a business bounce back after lockdown.
Small Business Grant Fund
Small businesses operating in England under small business rates are eligible for a one-off, £10,000 grant from their local council.
The money doesn’t need to be repaid to the council and is meant to help small businesses stay afloat and weather the effects of COVID-19 in the coming months.
You need to check with your local council if you’re eligible.
What If I’m Self-Employed?
If you’re self-employed and have submitted tax returns in previous years (prior to the 2019-2020 tax year) then you might be eligible for the Self-Employment Income Support Scheme from the government.
This blanket scheme covers many people in self-employment unless they became self-employed within the most recent tax year. The government will provide a non-repayable grant of up to 80% of your average monthly trading profits. This is capped at £7,500 for three months of trading.
This scheme was implemented for March, April and May but has been extended again to cover the months of June, July and August too. The money is taxed, but you don’t need to worry about paying it back and you can continue trading or working in a self-employed capacity even if you receive the grant.
Self-employed workers can also defer their tax and National Insurance payments if these are owed.
What Other Measures Can I Take During COVID-19?
If you’ve taken these measures to attempt to protect your business but the coronavirus crisis has continued to affect your trading and profits, you might need to start looking at the next steps in order to mitigate the effects of insolvency.
There are ways to soften the damage of insolvency and ways to climb back out of insolvency. In these testing times, this is more difficult than before so you should seek expert advice where possible.
If your company has become insolvent, then the three primary routes open to you are administration, company voluntary agreement (CVA), or creditors’ voluntary liquidation (CVL).
If insolvency has occurred, then your company can place itself under administration. This means the business will be administered from the outside, usually by an insolvency practitioner.
Administration aims to bring a company out of insolvency, and this can be done through restructuring and essentially readjusting cash flow. During the coronavirus crisis however, this is difficult to achieve, because many businesses have been forced to cease trading. This makes recovering cash flow incredibly hard.
Company Voluntary Agreement (CVA)
A common step for companies that have declared insolvency is for them to enter into a company voluntary agreement (CVA) with their debtors.
This agreement aims to help companies recover their cash flow by agreeing certain repayment terms. Some debts might be able to be cut entirely, while many repayment terms can be redrafted and reconsidered.
A CVA can help free up cash and establish a plan out of insolvency. Again, in the current climate this is a difficult process, but it’s certainly not impossible. A CVA could ultimately help a company avoid liquidation, saving jobs and saving the business for the future.
Creditors’ Voluntary Liquidations (CVL)
If all the above steps have failed, the last option might be to initiate a CVL or creditors’ voluntary liquidation.
This can occur when the directors of a company have taken all the measures they can to save the business, but have come to the unfortunate conclusion that their debts can’t be paid and the business can’t be saved.
This is never an ideal situation, but a voluntary winding down of a business is often better than a forced winding down, or preferable to the directors ignoring the problem and continuing to trade.
A CVL is a formal process that leads to a company being liquidated. The company will eventually cease trading, but this can happen over an extended period of time to help debtors recoup some losses.
A CVL is essentially making the best of a bad situation and, unfortunately, during the COVID-19 crisis, more business than ever before have been forced down this route, as the economy has stagnated and trading has become almost impossible in certain situations.
Free Insolvency Advice Is Available
The most important thing to remember is that there is free business advice out there. In particular, if you’re concerned that your business might be approaching insolvency or may need to enter into an insolvency arrangement, it’s best to seek advice in a timely manner.
At Irwin Insolvency, our team are experienced in all aspects of business insolvency. We can offer expert and empathetic advice that could help your company to avoid insolvency, or we can advise and implement the best means of entering into insolvency for your situation.
Contact Irwin Insolvency today to find out more about how we can help you and your business through the difficult and uncertain situation created by the COVID-19 pandemic.