Mitigation for tapering Government help schemes

Smaller firms will struggle financially between covid support measures ending and final lifting of restrictions eighteen days later, so what are the options?.

The Coronavirus Job Retention Scheme (CJRS) is starting to taper, heading towards the scheme’s closure in September 2021. From 1 July, employers are expected to foot the cost of furloughed wages as follows:

  • 1 July: the Government will pay 70% of wages and employers will contribute an additional 10%
  • August and September: the Government will cover 60% and employers will cover 20%.

The following measures also ended on 1 July.

  • Business exemption rates for retailers and hospitality businesses.
  • Deferred VAT payment scheme – businesses will need to start repaying deferred payments.

Tax clinic and Q&A with Michael Steed

This AAT Future Finance session gives expert answers for the latest taxation issues and common tax problems, giving you the confidence to effectively advise your clients.

Watch now

The Federation of Small Businesses (FSB) recently warned of the consequences of an 18-day support gap between 1 July when existing covid support measures are ending and 19 July when affected businesses can restart trading.

John Rozenbroek, COO/CFO at Capify adds:

“The combination of changes to the furlough scheme, business rates exemption coming to an end and VAT deferred from 2020 being due back has created a triple whammy for many small businesses this month.  

“The impact on cash flow for small businesses will be huge and we are now entering a dangerous ‘make or break’ period. There is an urgent need for finance to help businesses navigate this period and we’re already seeing an increase in demand from SMEs connected to all of these issues.” 

We spoke to several accountants for their advice on how businesses should navigate the 18-day period and beyond.

Make use of existing support schemes such as Recovery Loan or Restart Grant

Kat Wellum-Kent, director, MHA Monahans

Eighteen days may not sound like a long time, but with absolutely no money coming in, this time period can make or break of a business, especially SMEs.  For businesses that are completely closed, there will be no cash flow at all. We are undoubtedly going to watch many businesses enter the red and accrue avoidable debts.  

For those operating a reduced capacity, the removal of a secure lump sum from the Government will see many unable to continue maintaining a safe cashflow. The need to purchase supplies, such as food and drinks in the hospitality sector, may see numerous companies only just managing to break even with little to no money left to pay staff or other suppliers.

Next steps: where possible, ask for a 50% upfront payment from customers to secure at least some money during this 18-day period. Or, if you are unable to operate at all, make use of the other schemes currently on offer. Furlough is still an option, and the Recovery Loan scheme is still available, which will allow businesses to borrow up to £10 million, as is the Restart Grant.  

Verdict: Many businesses could struggle during this period, so either ask for a portion of upfront payments from customers and/or make use of existing schemes such as the Recovery Loan scheme and Restart Grant.

Talk to HMRC as early as possible and consider alternative bank-funded schemes

Bev Wakefield, Vibrant Accountancy 

The delay to ‘freedom day’ has meant that expected revenues haven’t been generated and worse: some people will have had to pay back deposits generated for this period resulting in budgets being ripped up and amended.

For some, this will now put an even larger strain on cash. Businesses will find themselves having to dig deep, put expenditure on hold, increase their borrowings, and go cap in hand to HMRC for a delay in their collections.

Next steps: Seek out time to pay arrangements with HMRC and talk to them as early as possible if HMRC liabilities can’t be met. Speak to your bank and look for funding if it’s needed and discuss the pay-as-you-grow scheme with your bank if you’ve got the bounce back loan. Keep an eye on those costs and keep communicating during this difficult transition period. Re-budget and continue to seek new ways of generating income.

Verdict: Talk to HMRC as early as possible, keep communicating with staff during this period and discuss pay-as-you-grow schemes with your bank.

No quick fix, yet certain measures may help some – but not every – business

Andy Carey, partner, McBrides Chartered Accountants

A lot of businesses, especially in the hospitality sector, had budgeted to be open from 21 June and this additional month will put a burden on some that will make their business unviable.

This is likely to be having a major effect on cashflow, which in many circumstances is already at breaking point. From 1 July, measures such as business rates exemption, and deferred VAT payments will end, while there will be increased contributions required from employers for continued use of the furlough scheme. It is likely that some businesses will go further into debt just to stay afloat whilst others will, unfortunately, succumb to the financial pressures and cease trading meaning further job losses.

Next steps: Many businesses who have managed to cling on during the past 15 months may have run out of available cash. There are still some support measures, however:

  • Restart grants worth up to £18k per business
  • Lower VAT in some sectors
  • Business rates relief.

Verdict: There is no quick fix. Restart grants and/or benefiting from business rate relief can help. But, alone, they cannot save a company in financial distress.

Webinar: making decisions with confidence

Two seasoned finance professionals take you through the practical steps you can take to become a more confident decision-maker.

Register to watch

Planning is key – be prepared to revise in response to changing market

Sara Whitton (AAT qualified), client services director, My Management Accountant

If businesses are reliant on support to survive those 18 days, then they really are in a tight situation and should take advice urgently as their situation will not improve a great deal in the short term. Businesses also need to bear in mind that although restrictions are due to lift on 19 July, some grey areas still exist and they need to keep up to date with developments.

Next steps: planning is absolutely key, both in the short-term and at a strategic level. Look at how your cash flow will be affected and consider how you can promote your business to new customers – through pricing, for example. Identify opportunities but ensure that you meet all necessary safety standards when you do reopen. Once you’re over the short term, look ahead and have a strategic plan for the future.

Verdict: Planning is key. Be prepared to be agile and adaptive – keep revising your plan as the market can still change rapidly.

Annie Makoff is a freelance journalist and editor.

Related articles