COVID-19 - UK Government Support to Help SMEs

This is certainly a unique time that business owners are facing throughout the UK, and the rest of the world. The Chancellor of the UK Government, Rishi Sunak, has provided UK businesses with unprecedented support to help them through the current economic pressures. However, we have been hearing from SMEs that they are unclear on how they can access these new packages and what they may be eligible for. This article sets out the key options available for SMEs.

For businesses struggling to keep their staff on, they are entitled to furlough employees. This means that employees can be placed on temporary suspension and the UK Government will offer a grant for up to 80% of usual monthly wages (up to a limit of £2,500), plus national insurance contributions and pension contributions. The furlough scheme is temporary and is in place for 3 months from 1 March 2020 (although the Government may extend this). The scheme is available to businesses operating a payroll scheme before 28 February 2020. While employees are on furlough leave, they cannot do any work, but they can undertake training or voluntary work. Employees will also still pay normal taxes out of their wages. The online service for employers to claim is not yet available, but HMRC should make it available by the end of April 2020. 

Self-employed individuals are entitled to claim a taxable grant of 80% of trading profits (limited to £2,500 per month), available for 3 months (although the Government may extend this). The grant is subject to income tax and national insurance contributions, as normal, but is not subject to repayment. This is available to self-employed persons who filed a self-assessment in January this year. For those wishing to take advantage of the scheme, HMRC will be in touch by mid-May and will make payments by early June 2020. Individuals may claim for universal credit while they wait for the grant.

The Government has introduced the Coronavirus Business Interruption Loan Scheme (CBILS) to support SMEs with an annual turnover of up to £45 million. The loans are for up to £5 million, for a period of up to 6 years. There are 40 lenders throughout the UK, including all major banks, and so businesses looking for access to the funding are advised to contact their own bank first. Businesses are eligible for the loan if they have a borrowing proposition which the lender considers ‘viable’. This may exclude certain start-ups that are currently loss-making. For those businesses, the Government is currently considering the option of offering convertible loans to businesses, which could be repaid after this crisis is over or that convert into equity stakes (i.e. the Government would own a stake in the business). The Government is also currently considering whether additional grant funding might be provided by InnovateUK (a body which provides support to innovative businesses).

The Government has proposed a range of tax breaks for SMEs to assist with the effects of Covid-19. For businesses that are VAT registered, and would have a VAT payment due between 20 March and 30 June, they have the option to defer the payment, or pay VAT as normal. However, VAT returns are still required to be made on time. There will be no interest or penalties on any deferred VAT payment. Businesses do not need to tell HMRC that they are deferring their VAT payments. Remember, if you pay your VAT by direct debit, you should cancel your direct debit. The Government hasn’t yet issued information on how deferred VAT will be repaid at a later date. Businesses in the retail, hospitality and leisure sectors will not be required to pay business rates for the 2020-2021 tax year. This is applicable to shops, restaurants, bars, cafes, pubs, cinemas, live music venues, leisure properties and hospitality properties. Businesses do not need to take any action to take advantage of this – the local council will apply the discount automatically. Businesses can calculate the amount they will save by using this calculator: https://www.gov.uk/calculate-your-business-rates Self-assessment payments on account, which are normally due on 31 July, may be deferred until 31 January 2021. No action is required on the part of anyone looking to take advantage of this.

Commercial tenants who are unable to pay their rent because of Covid-19 will be protected from eviction for the next 3 months. We are constantly talking to our clients and partners to see how they are dealing with these unprecedented times, what their thoughts are about this situation and how they are helping other businesses. Our partner, Tom Whitlock, Business Development Consultant at Clifton Asset Management recently said:  “When the Chancellor announced the Government’s CBILS scheme back in March, there was a palpable sense of relief within the SME market. Many business owners are turning to the extensive intermediary network of expert brokers to help them raise the funding they need.

Those who are declined by their main bank are being pointed toward a series of designated funding platforms, such as Alternative Business Funding, to find options they may not have previously been aware of. This is part of the BBB’s Bank Referral scheme that has seen millions of Pounds of funding advanced to firms who may have otherwise stopped looking after being declined by their bank. The alternative funding market has many new options for SME owners, and even some more established ones that have withstood the test of time. During times of uncertainty, some business owners look to take some control and establish a long term funding facility for their business via their own pension funds, a process known as Pension-led funding.

Other facilities available include interest only furlough loans amongst other flexible working capital facilities.” Rasha Khawaja, Founder & CEO of Toucan, added: “At the end of a 12-year bull market, we acknowledge that a process of “creative destruction” will cull from the UK economy many small companies that either were falling behind or do not have the capacity to evolve. However, the conditions of the current economic downturn are already so severe that working capital shortages will force into insolvency many small firms that would be otherwise competitive and promising under any more normal circumstances. It is our goal to keep  viable young companies in the productive economy and prevent their permanent displacement through: Providing working capital as grants and/ or low interest loans, better allowing companies to maintain their workforces and better meet financial obligations Providing business education resources, curated mentorship, business model refining, and network curation to improve the growth prospects of the businesses and their teams When in a more stable position, providing venture capital funds to selected members of the programme who can demonstrate long-term commercial promise.“ The packages provided by the Government are unlike anything we have ever seen before and are intended to protect the economy, as much as possible, from the impact of coronavirus. If you require further assistance on what how are eligible for, and how you can claim, we advise you to visit www.gov.uk Nothing in this article constitutes legal advice on which you should rely.

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The author of this blog post is Barbara Jamieson. Barbara Jamieson is qualified in Scotland, New York and California, and has worked at top Scottish law firms Maclay Murray and Spens LLP and Brodies LLP. Barbara also spent three years working in-house at investment management firm Martin Currie, advising on financial services and commercial contracts