The coronavirus pandemic and the relative containment measures are providing for a challenging environment for many small businesses. We are here for you, our clients. Now more than ever, it’s important to be on top of your cash flow.
We updated this page on 29 May.
We’re here to help
If you want to speak to a member of our team and be advised on how to best cope with the challenges from a financial point of view, please contact your account manager or Ben, Seema or Adam.
We know that many businesses are being affected by the COVID-19 outbreak and so they are concerned with their cash-flow.
Here we’ve outlined some options which can help you find funding quickly to support your operations through this critical time.
Director and shareholder loans are the easiest and quickest way to inject funds into your business.
Typically these are recorded as short term loans rather than equity, and they can be repaid once the company is in a better cash-flow position. It’s important to check your articles/shareholders agreement for any approvals required at board or shareholder level.
Note: Care needs to be taken with loans specifically made to the company by SEIS/EIS investors.
Generally, for existing SEIS/EIS shareholders not looking to make any further SEIS/EIS investment into the company, a shareholder loan is a viable option – interest payments (which do not exceed commercial rates) and the loan principal can be repaid without adverse SEIS/EIS implications.
On the other hand, for investors looking to make a future SEIS/EIS investment into the company, generally, we would not recommend a shareholder loan.
- HMRC Time To Pay – Businesses affected by the coronavirus that have outstanding tax bills they cannot pay because of the outbreak may be able to agree bespoke payment terms through the HMRC Coronavirus Helpline.
At the moment HMRC can agree to defer the payments for PAYE and NICs with no penalties for late payments. However, the official line from HMRC is still that the interest charge of 2.75% per annum will still accumulate on late payments. This has been updated on 30 March, as the interest rate was previously set at 3.25%.
It is very important that, if you’re having difficulties paying HMRC, you get in touch with them as soon as possible. Don’t just not pay, make sure you call them first and agree new payment terms.
- Existing customers – Can you offer customers early payment discounts?
Otherwise, consider invoice discounting or invoice factoring to get paid outstanding invoices quicker for a fee (typically 2-3% each time).
We’ve set up a webpage with our partner Swoop that can match you with suitable invoice financiers.
- New customers – Can you negotiate payment in advance or at least payment in instalments?
The Scheme, announced on 20 March 2020 is meant to enable employers to retain staff during the COVID-19 pandemic. The Government will refund 80% of each furloughed employee’s wages as a grant administered by HMRC, up to £2,500 per employee per month.
- Eligible Businesses – all UK businesses with a PAYE payroll as of 19 March 2020 are eligible for the Scheme.
- Eligible Employees – all employees that were on payroll as of 19 March 2020 are eligible for the Scheme, including full-time and part-time employees, agency workers and zero-hour/flexible workers.
This includes those who were on payroll as of 28 of February and were made redundant prior to 19 March 2020 as a result of the COVID-19 outbreak, as long as they are then re-hired. In order to qualify for the grant, employees must be furloughed and stop working for the employer.
- Furloughing – the Scheme is targeted at employees that cannot carry out any work for the company and would therefore be laid off without the Government’s support. This means that these employees have to be designated a ‘furloughed’ in writing and need to stop doing any work for the company in order to be eligible. The furlough has a minimum period of 3 weeks, and is subject to normal employment law.
- Part-Time Furlough – from July, employers will be able to take furloughed staff back on a part-time basis. They will only pay for the hours that their employees are working, with the Government still covering 80% of wages for the remaining hours.
- What you can claim – the grant will cover, per month, whichever is lower between the following two:
- 80% of each furloughed employees’ wages,
- £2,500 per month.
- Plus the grant will cover employer’s NIC and the minimum automatic enrolment employer pension contributions.
- What period does the Scheme cover? – as of 12 May 2020, the Scheme is available in its current form from 1 March to 31 July 2020.
It will continue to operating until October, granting furloughed workers 80% of their wages, although a top-up from employers might be required:
- In August, employers will be required to pay for the National Insurance and minimum pension contributions for their furloughed employees. The Government will still pay 80% of their wages up to £2,500.
- In September, on top of NI and pension contributions, employers will be required to pay 10% of their furloughed employees’ salaries, with the Government covering the remaining 70% up to a £2,190 cap.
- In October, the employers’ contributions to their furloughed workers’ wages will increase to 20%, while the Government will still provide 60%, up to £1,875.
- How wages are calculated – You can use HMRC’s Job Retention Scheme Calculator to work out how much you can claim based on your employee’s normal wages. You can find full detailed information on HMRC’s calculation guidance.
For full-time and part-time employees, the full salary before tax must be used for the calculation.
Instead, for workers with variable earning or on a hourly rate, employers must use whichever is higher between:
- their average monthly earnings for the 2019/20 tax year; and
- their earnings from the same monthly period in 2019.
- How to make a claim – claims must be made to HMRC through their newly released CJRS portal.
You can make one claim every 3 weeks, although a claim can include multiple employees.
- What you need to make a claim – in order to make a claim through the portal, you will need to prepare the following information:
- your ePAYE reference number;
- the number of employees being furloughed;
- the claim period (start and end date);
- amount claimed (per the minimum length of furloughing of 3 weeks), keep in mind that you’ll have to calculate this;
- your bank account number and sort code;
- your contact name;
- your phone number;
- What happens next? – after HMRC has reviewed your claim, you’ll receive the grant via BACS within 6 working days. Make sure to keep your claim reference number and all records and calculations, in case HMRC needs to contact you about them.
At present time, this Scheme does not extend to dividends, meaning that owner-managed companies where the directors pay small salaries in favour of dividends should not rely on it for covering a significant part of their normal retribution.
1. R&D Tax Credits – The average innovative UK SME claims £45k p.a. back on qualifying R&D spend. We can help you submit a claim, get in touch with us for more information.
Note, there are organisations that will advance R&D Tax Credit monies typically for an overall cost of 3-5% of the borrowed amount plus circa 1% pcm in interest.
2. Innovate UK – The Government announced on 20 April that it will deliver £750m in funding through Innovate UK’s grants and loans program. It’s worth keeping an eye on the Innovate UK competitions page to see if there are grants that could be applied for. Note this is paid in arrears though so won’t alleviate immediate cash flow pressures.
3. £10,000 cash grant for SBRR eligible companies – Small Businesses that operate within premises with a rateable value under £15,000 are eligible to benefit from Business Rate Relief. The Government is going to provide these companies with a £10,000 cash grant, as has been announced on 17 March. This is primarily targeted at brick and mortar retailers. More info on the Gov.UK COVID-19 page.
4. No Business Rates and grants up to £25,000 for small retail, hospitality and leisure businesses – Businesses operating in retail, hospitality and leisure sectors are exempt from Business Rates for the tax year. This applies to properties that are mainly used as:
- as shops, restaurants, cafes, drinking establishments, cinemas and live music venues,
- for assembly and leisure; or
- as hotels, guest and boarding premises and self-catering accommodation.
Among these businesses, those with a rateable value under £51,000 and above £15,000 are also eligible for cash grants up to £25,000. This “Business Rate holiday” kicks in on 1 April.
As per the Gov.uk website, “there is no action for you”. Your council tax bill in April 2020 will reflect the new measures, and businesses eligible for the grants will be contacted by their local authorities. You can find your local authority here, and read the full guidance here.
5. VAT Payments for Q2 2020 are deferred until the end of the tax year, meaning that businesses will have until April 2021 to repay their VAT liabilities from 1 April to 30 June 2020.
Businesses which normally pay their VAT by direct debit should cancel their direct debit with their bank if they are unable to pay.
6. Income Tax Self-Assessment payments due on 31 July 2020 will be deferred until the 31 January 2021.
7. Statutory Sick Pay Refund – For businesses with fewer than 250 employees, the cost of providing 14 days of statutory sick pay per employee affected by the coronavirus will be refunded by the government in full. This is effective from 13 March. For full details on eligibility, you can check the relative Government page.
Per ICAEW, the Scheme “is designed to help fund the cost of the first two weeks of SSP for smaller employers. This includes SSP payments made to those who were self-isolating for two weeks due to living with someone with symptoms, and, as of 16 April, employees shielding from the illness on the advice of the NHS or their GP.”
Claims must be made on the dedicated HMRC Portal, which is being launched on 26 May 2020. To submit a claim employers will need:
- their government gateway user ID;
- their PAYE scheme reference number;
- contact name and phone number;
- UK bank or building society details to receive the payment;
- the total amount of coronavirus SSP paid for the claim period;
- the number of employees being claimed for; and
- the start date and end date of the claim period.
Employers can claim a maximum of £191.70 per employee under the scheme – two weeks at the current rate of SSP (£95.85 per week). For claims dating back to between 13 March and 5 April 2020 the SSP rate was £94.25 per week.
- The Coronavirus Interruption Loan Scheme – Launched by the Government in response to the COVID-19 pandemic, the scheme allows companies with a turnover up to £45m to borrow up to £5m with the first 12 months interest free, with repayment terms up to 6 years.
On 3 April, the Government has announced a new Scheme aimed at larger businesses with annual turnover between £45m and £500m, the Large Business Interruption Loans Scheme (CLBILS).
- How does it work – The Government will back 80% of any losses, allowing companies affected by the emergency to access extra liquidity in a time of need in the form of loans or other facilities such as overdrafts. The borrower remains 100% liable for the debt.
The facilities are delivered by the British Business Bank starting in week commencing 23 March 2020. A list of available lenders is available on the British Business Bank’s website.
As of 3 April, lenders are banned from taking personal guarantees for facilities under £250,000.
For facilities above £250,000, personal guarantees may be taken, excluding the borrower’s Principal Private Residence and capped at a maximum of 20% of the outstanding balance of the CBILS facility after the proceeds of business assets have been applied.
- Who is eligible – In order to be eligible for support via the Coronavirus Business Interruption Loan Scheme, applicants must:
- Be UK-based with annual turnover of no more than £45m;
- Have a borrowing proposal which, were it not for the current pandemic, would be considered viable by the lender;
- Self-certify that they have been adversely impacted by COVID-19;
- NOT operate in one of the sectors that are not eligible, including banks, building societies, insurers and reinsurers, the public sector, membership organisations or trade unions;
- The Scheme previously required applicants to NOT be eligible for a standard commercial facility, this requirement has now been removed.
- What you need to apply
- Last 6 months’ bank statements;
- Latest management accounts (YTD 28 Feb 2020 P&L and 28 Feb 2020 Balance Sheet);
- Full annual accounts (last 3 years ideally);
- Business plan including cash flow forecast.
- See full requirements on our Coronavirus Business Interruption Loan Scheme page.
- EIS & SEIS – As announced on 23 March, the scheme is fully compatible with EIS and SEIS. This means that companies that raised funding under EIS and SEIS are eligible to apply and, viceversa, companies that receive funding through the Interruption Loans Scheme will still qualify for SEIS and EIS.
- Young companies – As suggested by the British Business Bank, early-stage businesses in their first 2 years of trading may be better off applying to the StartUp Loans Program.
- Large Companies – Companies with an annual turnover above £45m and under £500m can now borrow up to £25m under the CLBILS.
A Government guarantee for 80% of the borrowed amount will be provided, and the loans will be offered at commercial rates.
More details are set to be announced in the coming weeks.
- Insider Intel – We know from conversations with participating banks, that lenders have been willing to provide facilities equivalent to 2x total salaries, or 25% of annual turnover.
We also know that that he 3 main metrics that banks are looking at in applications are:
- EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation) for the 12 months ending 31 December 2019, to assess viability.
- Coverage Ratio (12 months EBITDA divided by 12 months of capital and interest repayments) must be at least 1.0x.
If yours is between 1.5x-1.75x, you should be fine.
- Cost commitments over the next 12 months.
- Our advice – First, go to your shareholders and directors for working capital loans. It might be quicker, and some tech companies may not qualify for government support if they have raised large investment or have large backers, as the scheme targets struggling businesses.
- Convert to Bounce Back Loans – Loans under £50,000 obtained through CBILS can be converted into Bounce Back Loans as long as this is arranged with your lender by 4 November 2020.
- The Coronavirus Business Interruption Loan Scheme – Allows companies with a turnover up to £45m to borrow up to £5m with the first 12 months interest free. See our dedicated page for full details, or check the British Business Bank’s official website.
- Bounce Back Loans – Announced on 27 April, these Loans will allow businesses businesses to borrow 25% of their annual turnover, up to a maximum of £50,000.
The Government will be paying interest on the loan for the first 12 months, and will also guarantee 100% of the borrowed amount.
Bounce Back Loans are available through accredited lenders of the British Business Bank.
- SME Loan Search – We’ve set up a webpage with our partner Swoop that can match you with suitable debt products. The number of options for debt products available to SMEs has grown quite considerably recently.
- Start-up Loan Scheme – The government operates a start-up loan scheme where the business can borrow up to £100k (up to £25k per director, max 4 directors) as a business loan repayable over 4 years with an interest rate of 6%.
There’s no personal guarantees, but if the business does not succeed, then any outstanding payments are repaid by the directors personally over the remaining term of the loan. If you think you are eligible, we recommend applying either through Outset Finance or Virgin Start-Ups.
- Revenue-Based Loans – Our partner Uncapped provides loans of £10k-£1m to businesses that process payments online with monthly turnover >£25k (e.g. ecommerce, subscription models, D2C, apps, SaaS… One flat fee (6%), no interest, no equity, no hidden charges and no personal guarantees. Check if you qualify.
- Shareholder loans – These are a good option to consider. However, care needs to be taken with loans specifically made to the company by SEIS/EIS investors. Generally, for existing SEIS/EIS shareholders not looking to make any further SEIS/EIS investment into the company, a shareholder loan is a viable option – interest payments (which do not exceed commercial rates) and the loan principal can be repaid without adverse SEIS/EIS implications. On the other hand, for investors looking to make a future SEIS/EIS investment into the company, generally, we would not recommend a shareholder loan.
If you have pledges for investment, then we recommend you get the funds in now using an Advance Subscription Agreement. It’s a very straightforward 2-page letter, generally EIS/SEIS compliant for investors.
Note, under an ASA it is common to offer a discount of 10% on the final investment share price.
On 20 April 2020 the Government announced measures targeted directly at high-growth companies such as start-ups. One of these two measures is a £500m fund dubbed Future Fund, half of which will be funded by the UK Government, with investors in the private sector contributing to the remaining £250m.
- The Government will loan between £125,000 and £5m over a maximum term of 36 months as long as this is matched by a private investor on a pound-for-pound basis.
- The Loan will automatically convert into equity at at least a 20% discount rate at the next qualifying funding round. It will automatically convert into the most senior class of shares in the company.
- If there is no qualifying round, it is up to the investors and the government whether to seek repayment with a 100% premium or to convert the loan into equity at at least a 20% discount rate.
The Scheme will bed delivered in partnership with the British Business Bank and launching on Wednesday 20 May 2020.
To be eligible for a loan from the Government under this scheme, a business must be an unlisted UK registered company that has raised at least £250,000 in funding within the last 5 years, in aggregate from private third party investors in previous funding rounds, and have a substantive economic presence in the UK.
The Scheme allows for a range of eligible investors, including FCA-regulated firms, certified high-net-worth individuals and sophisticated investors.
As of 1 April 2020, the full details of the scheme are still to be published, therefore the following is to be considered as an indication based on the information available to the public so far.
The Scheme, announced on 26 March 2020 allows self-employed and members of partnerships to claim a taxable grant worth 80% of their trading profits, up to a maximum of £2,500 per month.
- Eligibility – the Scheme is open to all self-employed individuals and members of partnerships who:
- have submitted their Income Tax Self Assessment tax return for 2018-19 by 23 April 2020;
- traded in the tax year 2019-20;
- are trading at the time they apply (or would be if it wasn’t for the COVID-19 outbreak);
- intend to continue trading in tax year 2020-21;
- have lost trading profits due to the COVID-19 outbreak.
- make more than half of their taxable income from trading profits or partnership trading profits;
- had trading profits under £50,000 either in 2018-19 or as an average of tax years 2016-17, 2017-18, 2018-19.
- How much you can claim – the grant will cover 80% of the average profits from tax years 2016-17, 2017-18, 2019-20.
When individuals or partnership weren’t trading for one or more of these three years, only the remaining one or two will be considered when calculating the average.
HMRC has now published an online tool to calculate how much you can claim under the scheme.
- How to apply – HMRC started inviting eligible self-employed individuals and members of partnership to apply online as soon as the necessary processes are in place.
HMRC will determine if you are eligible based on your past Self-Assessment returns.
- What happens next? – once HMRC approves an application, they will contact the applicant to communicate the grant amount and will then pay that directly to their bank account.
Many details about this Scheme are still to be defined, but new information is released on a daily basis, so we’ll keep this page updated with the latest.
Remember, we’re here to help
If you want to speak to a member of our team and be advised on how to best cope with the challenges from a financial point of view, please contact your account manager or Ben, Seema or Adam. If you are not a client yet, get in touch here.