Although the UK currently remains in lockdown, planning and preparation should begin for businesses to manage the inevitable change that will take place when the coronavirus (Covid-19) lockdown is lifted.

There will be a number of potential concerns for those returning to work in the post-pandemic environment. Many people have been subjected to social isolation, confronted possible illness, and/or bereavement, and many will be experiencing financial problems. Some employees may be returning to work after having been furloughed during the lockdown.

There may also be relationship concerns for some, with couples spending more time together than usual, which can put an additional strain on their home life – resulting in possible break-ups, incidences of domestic violence, as well as increased divorce rates. Each of your employees’ home lives will be considerably different. It’s vital that employers support employees’ mental wellbeing and make it a priority.

Effects of social isolation

The social isolation experienced by many people during lockdown can have debilitating effects on their minds and bodies. These can include:

• Social anxiety
• Low morale
• Change in working and behaviour patterns
• Impact on communication
• Low self-esteem
• Reluctancy to return to an office environment
• Problems integrating
• with others
• Low mood
• Possible depression

As a result of social isolation, some individuals are less likely to deal with stressful situations. They may encounter problems in processing information, which can lead to difficulties in decision making. Memory storage and recall can be impacted, as anxiety and isolation take a physical toll on the brain’s circuitry by triggering high blood pressure and heart rates, stress hormones, and inflammation. This can make individuals more susceptible to illness, as the body responds differently to fighting viruses. Some may also face symptoms of PTSD.

Working from home can feel like an isolating experience, which can create additional issues, such as employees being less productive.

Losing confidence 

If you have furloughed employees for any length of time they will most likely be experiencing some anxiety or uncertainty. Employees who have been furloughed from their roles may lose confidence in the management or the business. This low morale can lead to inadequate job performance, counterproductive behaviour at work, and higher employee turnover. Individuals may also experience stress and burnout.

That’s why it is important that you are honest and transparent with your team, and that they understand the reasons behind your decision to implement a furlough.

As responsible employers, these are some of the concerns we should be prepared for in the post-lockdown period. There are a variety of implications for organisations and employees if these concerns are not acknowledged and supported.

Managing a smooth transition

An organisation’s culture, behaviour and values should be focused on their ability to support their workforce and clients, in order to manage a smooth transition back to the workplace with the appropriate strategies, tools and support systems in place.

It is imperative that planning begins now, so that organisations are ready to drive the change and tackle the challenges that will be faced – supporting and integrating employees smoothly into their roles, while being able to manage eventualities with utmost sensitivity. 

The culture change will cover all aspects – psychologically, emotionally, mentally and physically – for everyone from graduates to leaders; no one is excluded. There will be anger and frustration, all of which need to be confronted. What we know about change in models and practices needs to adapt, as this is a vastly different transition we are facing. 

As this health crisis was unforeseen and not in accordance with many organisations’ plans for 2020, strategies need to be re-thought and we need to focus on what is important – building morale and supporting the transition of returning to work. Redefining our principles for this moment and our business expectations.

The way forward

Training, support and flexibility are some of the ways forward – focused on different areas of mental, physical and emotional health. Also the provision of forums where people can express how they feel in a nurturing environment. 

One-to-one coaching can be helpful, as well as having access to a variety of information. Be prepared to accept that things will not be the same, as we have entered a new cycle.

The provision offered will enhance and accelerate productivity, reduce absenteeism, improve communication among team members and management, provide leadership tools, and support the change processes. As well as provide the necessary intervention required, due to the variety of implications that will be experienced by the knock-on effect of Covid-19.

Further reading:

• Coronavirus help and information
• 5 ways to thrive in times of crisis
• Part-time furlough will create challenges for agents and the gig economy

The Chancellor has announced that the Coronavirus Job Retention Scheme (CJRS) will continue until the end of October to give businesses more breathing space.

But he also announced major changes to the scheme, which could add to its complexity for those managing payroll.

Until the end of July, the Government will continue to pay furloughed workers 80% of their current salary, up to a maximum of £2,500.

However, the level of Government support will be reduced from August until the end of October. Employers will be asked to pay a percentage towards the salaries of their furloughed staff for the first time.

Another major change is that from the start of August, furloughed workers will be able to return to work part-time.

Kirsty McGregor of the Corporate Finance Network commented:

“The extension to furlough is welcomed for businesses although the calculations will be more complicated for accountants and I hope HMRC will consider changing the application process.”

Where a company is furloughing fewer than 100 staff, agents and payroll staff have to apply for grants manually. HMRC has resisted calls to make the bulk upload of applications available to smaller employers.

AAT understands this is due to the disappointing quality of data uploaded by larger employers. Rather than compound the problem by making this feature more widely available, HMRC decided to put development resource into bringing forward the Self-employment Income Support Scheme.

“The flexible furlough from 1st August will mean that only part of the 80% may be claimed from HMRC under the CJRS scheme as the remaining payment will be topped up by employers. This could mean that an accountant (or payroll clerk) is calculating a different amount of grant for each employee.”

Rosie Berridge, FMAAT, and head of AAT’s Edinburgh branch commented:

“I’m cautiously pleased – but I will wait for the technical guidance to be issued by the end of May.  That is when we accountants will need to be doing our homework and advising clients.”

Berridge, who is director of Edinburgh practice Accountability, adds:

“For now – it’s a case of reassuring clients measures are in place until the end of July and trying to make sensible comments in respect of how employers bring staff back in due course.

Paul Donno FMAAT and AAT Council member commented:

“The [CJRS] scheme has been great and the extension will be good for business. But there needs to be a more flexible approach to get the economy back to work in my opinion.

“A degree of flexible working may be needed.  People will be needed part-time [initially] and then [will need to] work up to full time as business picks up.”

“For example, a restaurant client of mine is doing takeaways Friday and Saturday only and would like to use staff on two days.  They are also looking at takeaway coffee and cake at reduced rates again staff needed for reduced time. 

“The staff are on zero hours contracts but earn more on Furlough than they do by returning on an ad hoc basis to see if things work.

Meanwhile, there is no extension to the Self-Employment Income Support Scheme (SEISS).

The scheme has been designed to provide the self-employ with a level of support matching that for furloughed workers. It is currently scheduled to expire at the end of June.

Kirsty McGregor commented:

“The self-employed have always had the additional benefit of being able to continue working and earning a living whilst still being eligible for SEISS, so I understand why the Chancellor hasn’t sought to extend that scheme.

“However I do believe he should bring in some support for landlords who have been excluded from virtually all of the schemes to date.”

Previously good businesses are now under stress – here’s what’s needed to regain control over the future. By Rick Gomez.

“It’s only when the tide goes out that you learn who’s been swimming naked.”

This famous quote was made by legendary investor, Warren Buffet, CEO of Berkshire Hathaway.

It formed part of his chairman’s statement when addressing the impact of Hurricane Andrew on the insurance leg of his conglomerate. Despite the category 5 storm, Berkshire Hathaway reported negligible losses whilst many other insurers went bust.

The premise behind Buffet’s quote is simple. When disaster strikes, it exposes those businesses whose performance was simply a by-product of the trading conditions around them, not one of sound decision-making.

However, in the coronavirus (Covid-19) pandemic, it is not just the reckless that have been found swimming naked. The sudden tide of events has left even good companies exposed.

Importance of Budgeting and Financial Controls

Let’s consider a few well know businesses that have hit the rocks: Carillion. Debenhams. Northern Rock. BHS. Laura Ashley. Barings Bank.

Whilst they each faced different pressure points which contributed to their failings, they seem to all have one thing in common:

These companies all had poor financial controls.

Whether it be high operational gearing, over-expansion, unsustainable levels of debt, gigantic pension plan deficits or poor cash flow, these can all be traced back to poor financial controls.

If companies want to survive now, they will need to have much better controls.

Traditional Approach to Budget Setting

The most well-known financial control is the budget. Most accountants have been involved in helping to set, analyse and/or review them for your respective companies. It is a core role of all management accountants.

For those of you who have had the pleasure, you’ll know by far the most common approach to budget setting is the ‘incremental approach.’ The premise here is simple:

1. Start with the current years actual results as the base for next year’s budget
2. Tack on a desired level of growth (say 5%)
3. Pop in some cost uplifts for inflation (e.g. utility costs, rent reviews)
4. Put in a ‘stretch’ target or two (e.g. say save 2% on staff costs)
5. Presto – out pops next year’s budget.

It is the most common as it is the simplest and quickest way to do it. Particularly if you are a multi-site business like Debenhams or BHS whereby building a ‘bottom-up’ budget on a site by site basis using input from several hundred store managers is likely way too time consuming and you’d end up with a whole lot of ‘budgetary’ slack.

But to use this approach, you have to make a lot of assumptions.

The key one being that the environment your business operated within the current year will be extremely similar to the one you are going to operate in next year. Fundamentally, this means you are operating under the proviso that there will be VERY little uncertainty that faces your business.

Debenhams – a case study

Let’s apply this thinking to Debenhams back in 2006.

The company is fresh off a floatation and a healthy company valuation. It wants to keep the momentum going and now have the cash flow to do so. Its finance team prepares an incremental budget that spits out a profit figure for the following year. The problem is the company knows it is not incremental growth your shareholders are looking for.

The only way to hit those numbers is to expand.

So, it puts an aggressive plan in place to double the number of your stores. It then goes to the finance team to revise the budget to include your expansion plan.

They are going to need to make some assumptions about those new stores. The only real basis they have is performance of the existing stores. So they apply this. For the sake of argument (and prudency), they revise those numbers down by 5%.

Even with that – the budget looks achievable and certainly enough to satisfy shareholders.

10 years or so later, Debehams is stuck with long 18 year-leases on properties that no one is visiting along with all of the operational gearing (rent, insurance, staff) that comes with it. Throw in the debt obligations needed to finance that failed expansion, and you have got one deadly Molotov cocktail.

How can we learn from this?

I think one of the deadliest mistakes made here was the underlying assumption that the current positive trading conditions would continue indefinitely. How else do you explain locking yourself into an out-dated business model for such a long period of time? Even the most successful businesses need to be prepared for uncertainty. Whilst that may sound like its counter-intuitive, an article written by my colleague, Andrew Booth, details how companies can do so by using ‘scenario planning’ which will enable companies to examine a range of possible futures and ‘rehearse’ for them.

5 steps to better budgeting and financial controls

Whilst all businesses are different, there are some key principles I think most/all would be well to adopt in this current climate to help them to ‘re-establish control over their financial plan:’

1. Produce Multiple Versions of a Budget to Align with Different Possible Scenarios

• The economic conditions in a post COVID-19 world are impossible to predict, which therefore makes the traditional incremental budgeting approach obsolete.  A ‘set-it’ and ‘forget-it’ approach is virtually impossible.

• Several versions of a budget should be produced to coincide with different possible scenarios the company may face post Covid. (e.g. if I’m a restaurant chain I’d be budgeting for a world where no-one is comfortable going out until a vaccine is produced and also for a world where people are going out more than ever as they are sick of being indoors).

2. Adopt Appropriate Financial Controls to Coincide with these Scenarios

This could include:

• Temp Staff and OT freezes
• Preparing for a leaner operational structure (e.g. say reducing the number of wait staff in a restaurant as perhaps diners will be more comfortable collecting their food from the counter)
• Travel freezes and strict expenditure policies (given staff are used to meeting from home)
• Closely monitoring working capital cycles (e.g. making sure receivables days are shorter than payable days)
• All capital expenditure to be authorised by board members. (no operational staff should be spending unless they have pre-authorisation to do so).

3. More Flexibility and Fluidity with Budgetary Reviews

• Move to a Monthly Rolling budget (as even with the best scenario planning, we are in unprecedented times and therefore most of our assumptions are likely to be wrong)
• Increased Focus on Regional Splits (we’re seeing this in America whereby the reaction to lockdown has varied wildly depending on the demographic of the population)

4. Regular Cash Flow Forecasts

• Cash was always King – but in a post-Covid world it is a dynasty.
• Adopt soft capital rationing internally
• Immediately seek additional finance if a cash flow forecast reveals you are expected to fall below this threshold

5. Repeat/Review

• Some of these controls/actions are a bit extreme to implement indefinitely. Care will need to be taken as to the appropriate point for some of these to be relaxed.

Conclusion

The actions a company should take to ‘re-establish control’ over its financial plan post-Covid-19 aren’t that much different to the usual types of controls a company should operate.

These are techniques, tools and actions that sound companies should always be adopting (cash flow forecasts, monitoring working capital cycles, considering alternative scenarios when budgeting) or at the very least have up their sleeves in case things take a turn for the worse (securing finance, putting hard restrictions on expenditure).

These are all things a sound business is likely to already be doing.

No matter favourable the business climate may seem, things can change in a heartbeat. But those businesses who have sound practices are far more able to withstand the pressure put on them from factors like Covid-19.

Whereas those businesses who were swimming naked before the pandemic are now stood cold and exposed.

Rick Gomez is a CIMA-qualified accountant and current senior tutor at iCount Training (Manchester). He prefers not to swim naked.

Last week, HMRC sent out notices regarding the Self-employed Income Support Scheme (SEISS), allowing self-employed workers to claim a grant of up to £2,500 a month. Is it enough?

HMRC has accelerated the launch of the SEISS, ahead of schedule, as Government races to provide a lifeline to the self-employed.

Through the scheme, self-employed workers can claim a taxable grant of 80% of their average monthly trading profits, capped at £7,500 and paid in a single instalment covering three months. It’s subject to income tax and self-employed National Insurance.

Three accountants in practice give us their views on whether the scheme is up to scratch, and how the self-employed are likely to be affected by the lockdown in the medium term.

SEISS is generous – but many will miss out

James Abbott, director, Abbott Moore

I think SEISS is certainly helpful. Because it’s based upon you being adversely affected by COVID, you qualify, and in that case, it’s particularly generous.

Take an example of someone that would normally expect profits of £49,000, they’ve missed a couple of weeks of work and they expect their profits to drop by £3,000, they would still qualify for the grant in full.

The issues that we do have with it is the fact that agents, on behalf of their clients, can’t make the application. The second thing is that, because more than half of your profits have to come from self-employment, if they don’t you don’t qualify. What we’re finding is that, where you have a lot of gig economy workers now, who have a portfolio career with several sources of income at one time, if you’ve got self-employment running alongside a buy-to-let portfolio or dividends from a limited company, you could potentially find that you’re below that 50%, and all of a sudden, even though it’s a significant proportion of your income, you don’t get the support.  

This is what’s happening with a lot of government measures: there is criteria laid down that covers the 80%, but we’ve got quite a few clients that don’t fit within any of the boxes. You can understand why the government’s done it that way, but there is a pocket of the business community that don’t quite fit into any of them.

Next steps: Advising clients on how to manage their cashflows, reviewing every month, and identifying if there are any schemes that they might qualify for.

Verdict: As a scheme in itself, SEISS is very generous, but its criteria limits how many people can take advantage of it

Self-employed should focus on liquidity, not grants

David Frederick, AAT Vice President, managing partner, Marcus Bishop Associate

SEISS was always going to have winners and losers, because one cannot satisfy everybody. That is a fact when we are dealing with the perennial economic problem of scarcity of resources.

The scheme that was delivered is not the best, but it does go some way to address some of the players in the self- employment market.

However, the jury is out on whether it covers 95% of the self-employed as the government states, or 62% according to The Institute of Fiscal Studies. The real truth, I expect, lies somewhere in between.

I have been reminding clients the age-old importance of liquidity. The need to know how fast your sales revenue will come in and how long before you have to pay your creditors. Hence helping clients, to embrace the importance of cash flow reporting. The focus is about developing a going concern, not just for the next twelve months, but until the owner decides it is time to leave the market.

Next steps: Continue to advise clients on cashflow and liquidity

Verdict: The focus of all accountants and clients should be away from compliance and towards good financial management – that will help more than government schemes

Farmers and landlords need to be included

Samantha Perkin, director, Zamu

It seems very easy to get it to work. I’ve done the eligibility check for all of my clients, now. HMRC’s information was all clear and correct, which means that if a client isn’t eligible, I can explain to them why.

And if they are eligible, I can give them an idea of what they can expect to get.

For a simple self-employed person, it will work quickly and effectively and they will get their money fairly quickly as well.

Where it’s proving problematic is with people who aren’t eligible but feel that they should be. Farmers, for example – the only support that’s available at the moment is for dairy farmers, but all farmers are struggling. Beef farmers are particularly hard hit.

Furnished holiday lets and property owners are not eligible but are also struggling, and while they can get a holiday from their loan payments, it’s not always working as effectively as it should. I have quite a few landlord clients who are facing real difficulties. This won’t help them at all because officially they aren’t self-employed.

They’ve definitely done what they can for those in the middle, that fit into neat categories, but there are a lot of people around the edges that have been missed.

Next Steps: I’ll keep looking for options for my clients, and helping them manage their cash as best as they can. A lot of it comes down to emotional support.

Verdict: Entire professions, such as farmers, are getting nothing from any of the schemes. Something needs to be done or our food industry will collapse.

How to claim under the SEISS scheme