Chancellor unveils latest rescue plan

The Chancellor on Friday evening announced a significant rescue package for businesses struggling with the impact of the coronavirus (COVID-19) pandemic.

The latest measures build on the announcement earlier in the week of £330 billion in loans, business rates holidays and grants. 

At the time, we pointed out that businesses urgently needed more information on how to access the loans and stronger financial incentives to retain employees at a time when their trading outlook was deteriorating rapidly.  Friday’s announcement goes some way to addressing these issues.

SUPPORT FOR WORKERS & BUSINESSES

The Chancellor has been in discussions with business groups and trade unions for the past few days to agree measures to help struggling businesses pay wages amid the coronavirus pandemic.  We understand that a number of ideas were considered, including the introduction of a universal basic income.  

In the face of widespread criticism from the business community, the government has repeated the mantra ‘we will stand by you’.  Friday’s announcement was billed as ‘unprecedented’ (at least five times!) and ‘one of the most comprehensive in the world’.  We would not disagree - although businesses with no income in the coming months may well need to find the residual 20% of the salaries of those employees they are being encouraged to retain.  

As part of the ‘Coronavirus Job Retention Scheme’, the government will subsidise part of an employee's salary for those employees that would otherwise have been laid off during this crisis.  This will be funded by a Government grant of up to 80% of salaries, up to a maximum of £2,500 per employee per month.  Although the announcement was initially unclear as to what extent the scheme would apply to those sectors beyond retail, leisure and hospitality (where the government has in many cases mandated closure of businesses), further guidance was subsequently issued that confirmed that the measures would apply to all UK businesses.

To access the scheme, businesses will need to designate affected employees as ‘furloughed workers,’ and notify the employees and HMRC of the change.   HMRC is working to have the scheme operational ‘in weeks’ and to make the first payments before the end of April. The scheme will be backdated to 1 March and open initially for three months. 

The announcement will have an impact on the usefulness of HMRC’s Time To Pay (TTP) scheme, which enables businesses to defer their tax liabilities.  PAYE is normally a significant element of the tax liability of many businesses, but the support for salaries may mean that the liability is substantially reduced for many businesses.

The obligation to pay VAT liabilities due in the next three months has been suspended (no business will pay VAT for the next quarter with all VAT payments deferred until end of June).  Businesses will be given until the end of financial year to repay any liabilities - this represents a £30 billion cash injection by the Government.
 
The 31 July Self-Assessment payments have been automatically deferred to January.  This will surely ease the forthcoming burden - but has enough been done to ease the immediate cash flow needs for those that are self-employed?

For the self-employed, the minimum income floor will be suspended. This is calculated by considering the level of national minimum wage and the number of hours you would be expected to work. Instead, individuals will be able to access in full Universal Credit at the rate of Statutory Sick Pay for employees. 

The Universal Credit allowance will be increased by £1,000 a year and £1 billion of support will be provided to renters by increasing Housing Benefit and Universal Credit.

The ability for a business to defer payments will help with cashflow issues, but these problems may still not be fully mitigated by the deferral and salary subsidy measures introduced by the Chancellor today.   Which brings us to the government-backed loan schemes...

LOANS

On 17 March, the Chancellor unveiled £330 billion of government backed and guaranteed loans on ‘attractive terms’ for any business that needs cash to pay rent or salaries etc. This funding will be available in two main schemes.  Although no additional details were released, the terms of the scheme for SMEs have been tweaked slightly to make them more attractive:

Under the ‘Covid-19 Corporate Financing Facility’, the Bank of England will buy short term debt from larger companies.  Full details of this facility will be made available on the Bank of England’s website on Monday 23 March.

A ‘Coronavirus Business Interruption Loan Scheme’ - delivered by the British Business Bank and available from 40 accredited providers - will provide loans of up to £5 million.  The loans will now be interest free for the first 12 months (previously six months) to support lending to small and medium sized businesses (defined as those with turnover of no more than £41 million per annum).  The scheme will be available from Monday 23 March.

We welcome the scale and ambition of the schemes (and yesterday’s emergency interest rate cut by the Bank of England may potentially make them more attractive, depending on how they are priced) and we are pleased to hear that the scheme will be available from Monday.  Based on the conversations that we have had with clients over the last few days, we expect significant demand for the lending.

It is also clear from our conversations with many business owners that the measures announced on Friday evening, extensive as they are, may still be insufficient to bridge the working capital shortfall resulting from significantly reduced turnover.   Trade suppliers and utilities will still need to be paid and therefore restructuring or additional working capital funding may still be required. Businesses will need to constantly review their operations and see where efficiencies can be made. 

For more information about business funding and restructuring options, please contact Stephen Goderski (stephen.goderski@geoffreymartin.co.uk; +44 (0)207 495 1100) or Peter Hart (peter.hart@geoffreymartin.co.uk; ++44 (0)207 495 1100).

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