Covid 19 - My SME is suffering. What help is readily available now?
Updated: Apr 18
COVID 19 has changed our lives in significant ways. Businesses and human lives have suffered in the ensuing economic downturn.
There is no easy way to survive this. Here is a quick summary of what is out there for most SMEs.
Support for employees to retain jobs
The government's "furloughing employee/s" scheme is a clear call to action for most companies - try to retain employees where you can. There are sectors like retail and hospitality that are highly affected. Saas and service sectors have also seen slow-downs outside of the norm. Read more here for the Government furlough scheme.
Here are some quick facts to help
- The meaning of furlough means a "leave of absence" due to reduced operations or the role simply does not exist under new corporate conditions
- An employee on furlough "CANNOT" work or undertake any activity that adds to revenue generation for her employer. This includes training "if" that can be construed as supporting a revenue generation activity.
- Once the emergency status around COVID is lifted, HMRC will conduct for claims processed. So a clear paper trail showing why employees were furloughed would be necessary.
- Be aware of contractual clauses existing for employees under the employment contracts while preparing letter for furlough.
- An employee's consent is required to place him on furlough. This is especially true in the cases where you are only planning to pay employees the 80% being reimbursed by the government
- Furlough and un-furlough can be done as long as one set of furlough is not less than 3 weeks - this should be supported by a strong business case.
- Employees can be furloughed from more than one job and the limit of £2,500 is per job.
- HMRC is currently building the system through which these claims can be processed. This is expected to be in place by end of April, but could take longer. If you are only able to pay employees once the disbursement from HMRC is received, please make sure this is communicated clearly to them
UPDATE - The furlough scheme is now operational and companies can start submitting claims from April 20th. The scheme has also been extended to the end of June 2020.
CBILS Loan Scheme
SMEs can also apply for interest-free loans under the "Coronavirus Business Interruption Loan Scheme". All information and participating entities can be found via this website.
The first port of call should be your corporate bank, they have your financials readily available hence may be able to turn around decisions on a short term loan faster.
Things to watch,
1. Is a personal guarantee required? Though the government has essentially underwritten 80% of the loan value, some financial institutions are asking for personal guarantees from business directors seeking loans. This is not a favorable position as the director would then be putting his personal assets on the line in case of a default. So shop around in this case. You may get a smaller loan from another provider without this restriction.
2. These loans are meant to be free of interest. It could be interest-free for 6 months with a max period lasting 12 months, from what we understand at present. Details of individual bank processes are awaited as we write this.
3. We understand that HSBC has a questionnaire process that is online. You are required to write each answer within 5000 words explaining how the loan would help you bridge the losses due to the pandemic.
UPDATE - A client of ours have submitted a claim to HSBC. They use Xero to manage their numbers and an instant connected with the HSBC portal was possible. This enabled data to be transferred to the required format from HSBC within minutes. No time was spent on preparing the initial set of numbers. Post this, a phone interview took place and the bank asked for 12-month of realistic forward projections. This should show how the loan can bridge the financial gap caused by the pandemic.
VAT Deferrals and businesses that get a VAT refund
Businesses are allowed a VAT deferral period between March and June 2020, so you don't need to pay VAT for these 2 quarters. This is a deferral and not a waiver. HMRC would collect this in batches once these 2 quarters are completed - within the year 2021. You still need to submit your VAT returns but are not required to pay. Make sure your direct debit is canceled so automatic deductions do not take place.
Businesses that usually have a VAT refund, should continue to file their returns on time. HMRC will make refunds as usual.
PAYE and NIC Deferrals
If you need a PAYE and NIC deferrals, make sure you reach HMRC via their live webchat or phone line set up for this purpose. This is "NOT AN AUTOMATIC" entitlement and you need to have express permission to not pay your PAYE dues.
You may be allowed a deferral period. From our experience, a month of leniency was allowed with specific instructions to inform HMRC before the end of this period in case more deferrals are required.
Else a penalty and interest per normal are likely. You can chat with HMRC via their webchat - use this link. This is not always open. If you don't see advisors online, we recommend you keep the tab open and refresh every 10-15 minutes.
Consistent cash flow forecasting
The COVID pandemic has thrown the regular processes usual companies follow around budgeting and forecasting under the bus. Cash is hard to come by in terms of investments and companies are critically assessing their overheads. Now more than ever, you need a robust forecast function. This can be done on an excel sheet - there is no need to subscribe to a software for this purpose.
The most robust companies we work with review cash flows at least twice a week, if not daily. Cut down on expenses that you can live without with fair warning to the suppliers. This is a tough time for everyone, so if you can sustain suppliers even on a lower cost tier, please consider this.
We are working more than normal to keep up with client queries and demands; not to mention homeschooling. Please feel free to reach us if you do have urgent queries and kindly excuse in case of slight delays.