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COVID-19 and UK SMEs | Paul Seabridge | #LetsResetNormal

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Author Bio

COVID-19 is unprecedented. Whilst I have lived through the dot-com bubble, 9/11, SARS, 2008 crash and MERS, the current situation is like nothing I have seen before. I think the impact on the global economy and the way many governments around the world have reacted shows the seriousness of the situation.

Before I start, I think it is important to add that whilst this article will focus on the financial support offered by the UK government, we should not forget the number of people affected by this and those who will unfortunately lose their lives. But as a glimmer of hope, there is positive news about the use of the drug chloroquine showing positive signs in treating this virus; the US has just approved a $1.8Tr stimulus package; the UK government has approved £330bn of support to business and many other governments around the world are showing the same. 

This advice is specific to UK-based SMEs:

Business grant scheme

Government grants will cover 80% of the employment costs of PAYE employees who would otherwise have been laid off, backdated to 1 March 2020, up to a cap of £2,500 per month. It is intended that the scheme will run for at least 3 months from 1 March 2020 and this may be extended if necessary. It is at the employer’s discretion whether to fund the difference. Someone already let go can be brought back and the termination in effect reversed.

The scheme will be open before the end of April. HMRC are working to develop their systems to allow payments to be made to employers.

To claim under the scheme employers will need to:

  • Designate affected employees as ‘furloughed workers’ and notify employees of this change. Changing the status of employees remains subject to existing employment law and, depending on the employment contract, may be subject to negotiation.
  • Submit information to HMRC about the employees that have been furloughed and their earnings through a new online portal. HMRC will set out further details on the information required.

An employee furlough is a mandatory suspension from work. Furloughed employees are banned from doing any work on behalf of their employer whatsoever.

PAYE and NIC will continue to apply as normal on payments to furloughed employees. A grant receipt is taxable income for the business, but salary expenses will be offset.

Statutory Sick Pay relief package for SMEs

Small and medium-sized businesses and employers can reclaim up to two weeks’ Statutory Sick Pay (SSP) per eligible employee paid for sickness absence due to COVID-19. The rate of SSP is £94.25 per week.

If you’re a director of a limited company, you can pay yourself two weeks of SSP if you need to self-isolate subject to meeting the minimum salary requirement for SSP of at least £118 per week (£6,136 per annum).

The eligible period for the scheme will commence the day after the regulations on the extension of SSP to those staying at home comes into force and this applies to SMEs with 250 employees or less at 28 Feb 2020.

The method for reclaiming the SSP has not yet been announced at the time of writing. The Government is working to set up the reclaim scheme as soon as possible.

Deferral of VAT payments

The next quarter of VAT payments will be deferred, meaning businesses will not need to make VAT payments until the end of June 2020. Businesses will then have until the end of the 2020-21 tax year to settle any liabilities that have accumulated during the deferral period.

The deferral will apply from 20 March 2020 until 30 June 2020 and applies to all UK businesses.

The deferral applies automatically. VAT refunds and reclaims will be paid by the Government as normal.

HMRC Time To Pay scheme

HMRC have always had the discretion to agree payment terms for taxes where businesses are struggling financially. They are now offering more generous payment terms for taxes.

We have seen businesses being given up to at least mid-June to pay February, March, April 2020 PAYE bills, with the arrears being payable thereafter via a payment plan.

Call HMRC’s dedicated COVID-19 helpline on 0800 0159 559.

Retail, hospitality and leisure businesses – grants and rates relief
  1. No rates are payable for the 2020-2021 tax year.
  2. Grant funding of £25,000 for retail, hospitality and leisure businesses with property with a rateable value between £15,000 and £51,000.
  3. Grant funding of £10,000 for businesses in these sectors with a rateable value of under £15,000.
All businesses in the retail, hospitality and leisure sector based in England.

Properties that will benefit from the rates relief will be occupied properties that are wholly or mainly being used:

  • As shops, restaurants, cafes, drinking establishments, cinemas and live music venues.
  • For assembly and leisure.
  • As hotels, guest and boarding premises and self-catering accommodation.

Grants are only available to businesses with property with a rateable value between £15,000 and £51,000 (businesses with a lower rateable value property may be eligible for the small business rate relief grant).

There is no action required. The rates relief will apply to your next council tax bill in April 2020. However, local authorities may have to reissue your bill automatically to exclude the business rate charge. They will do this as soon as possible. Your local authority will write to you if you are eligible for a grant.

Grant for recipients of small business rate relief
  • A one-off cash grant of £10,000.
  • Small businesses already receiving small business rate relief (generally, businesses with one property with a rateable value < £15,000) and/or rural rate relief, based in England, and occupying property.
  • The cash grants will be administered by local authorities. Your local authority will write to you if you are eligible for this grant.
Business rates holiday for nursery businesses

No rates payable for the 2020-2021 tax year.

Properties that will benefit from the relief will be:

  • Occupied by providers on Ofsted’s Early Years Register.
  • Wholly or mainly used for the provision of the Early Years Foundation Stage.

There is no action required. The rates relief will apply to your next council tax bill in April 2020. However local authorities may have to reissue your bill automatically to exclude the business rate charge which will be done as soon as possible.

Coronavirus Business Interruption Loan Scheme

Loans of up to £5 million, interest-free for 12 months.

 The borrower remains liable for 100% of the debt. The lender receives a guarantee of 80% of the loan amount from the Government to enable more loans to be approved.

At the discretion of the lender, the scheme may be used for unsecured lending for facilities of £250,000 and under.

 As well as loans, there are many other types of finance supported by the programme, such as:

  • Term facilities
  • Overdrafts
  • Invoice finance facilities
  • Asset finance facilities

More information is available from the CBILS website and their FAQs for SMEs.

UK-based businesses with turnover of no more than £45 million.

The business must be unable to meet a lender’s normal lending requirements for a fully commercial loan or other facility but be considered viable in the longer term. The business must meet the other British Business Bank eligibility criteria. There are a small number of ineligible and restricted sectors. Fishery, aquaculture and agriculture businesses may not qualify for the full interest and fee payment.

Ineligible sectors are banks, building societies, insurers and reinsurers (but not insurance brokers); the public sector including state-funded primary and secondary schools; employer, professional, religious or political membership organisations or trade unions.

Delivered by lenders that partner with the British Business Bank. Best to speak to your current bank as the starting point.

 Practical Steps

Prior to COVID-19, the statistics for SMEs made grim reading. There is this glamour to becoming an entrepreneur and starting your own business, but it’s probably one of the toughest careers you could choose.

95% of start-ups fail in the first five years, only 1% make it to £1m in revenue, and only 0.1% make it to £10m. But even when you do make it, it’s difficult for SMEs to access the capital they need to be able to grow.

They either go to their bank and have to put up personal assets as security or end up giving away a large chunk of the shares in the business in return for what is in the grand scheme of things not a lot of capital from investors/private equity. Potentially they also lose some control in the process.

Now more than ever there is a need to collaborate, find joint ventures, mergers and acquisitions to both survive and grow the business in these uncertain times.

Whilst I am not one to speculate, with £330bn of stimulus offered, that’s a lot of money to be repaid when we get back to some sort of normality. Expect tax rises and inflation.

Larger businesses don’t have the same level of challenges as SMEs. They have:

  • more revenue coming in (more cash flow).
  • potentially diverse income spread (so they sell more than one product/service).
  • economies of scale.
  • buying power.

It is hard for an SME to access the capital needed to grow. Organic growth is tough.

Looking at your business today, think about who in your sector could you approach to collaborate with. Whether it be a joint venture, a merger, or even an acquisition?

Maybe it’s a competitor that serves a different area than you do. Maybe it’s a business that offers different services than you do but sells to similar clients. Maybe it’s a business that supplies you.

If you found a way to collaborate, whether informally through a joint venture, or formally through some form of merger or acquisition, think about the benefits:

  • Economies of scale – are there internal functions that could be shared across the business, so you reduce costs?
  • Buying power – if you are all buying similar things, taking a “larger order” to your supplier will drive bigger discounts.
  • Best practice – if one business in your consortium does something better than you, then emulating their techniques could drive increased efficiency and profitability.
  • Value – a diverse and larger revenue/market share will make the group of companies more valuable – that is why larger companies sell for a higher multiple than a standalone SME. Kingston University says the average SME sells for 2.2 x profit. Whereas larger businesses with £75-100m+ revenues sell for a much higher multiple. Public companies in the main are double-digit multiples.
  • Sharing – imagine if you were in business right now with several others, sharing these challenging times, instead of being on your own. Would it make it easier to navigate?
  • Capital – a larger business has access to more and will find it easier to obtain capital to grow. This is because it poses less risk to an investor or lender – for all the reasons stated above. Think about it, let’s say currently one of your major clients stops doing business with you and another goes bust. That could wipe out your business. But in an enlarged group, whilst it would have a negative impact, it would not necessarily wipe the business out, so it has less risk.

So now, more than any other time I have seen, is the time to collaborate. If you are working in your business rather than on it, you will struggle to grow. As the business owner, leave the day-to-day operational management to your key management team (if you don’t have one, find one) to free your time up to find joint ventures, mergers and acquisitions. You can work on the business, not in it. 

Developing future strategies

You may say, all well and good, but how do you fund an acquisition? That’s where I come in, through my Private Equity, Mergers & Acquisitions firm, we work with businesses to help them fund, buy/acquire, or merge with companies.

Other Practical Steps

Work with your suppliers.

Communicate with your suppliers to tell them what you are doing and why, and find out what they are doing. Try and have an open dialogue about how you can work together. Negotiating payment plans and deferment of amounts due.

Work with your customers.

Think creatively about how you can continue to sell to your customers without jeopardising the health and safety of your workforce to try to get cash flowing in again.

Further help

If you want some help in navigating the immediate support being offered and accessing some or all of those schemes, or you want to look at how you can use mergers, acquisitions and joint ventures as a serious strategy to grow your business, please contact me.

For further information

Surviving the Coronavirus Lockdown and Social Isolation is a guide to creating a new normal in a changing world. Download a copy of the ebook for free now.
#LetsResetNormal

Get your free copy of the book here.

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