What help is available for small businesses struggling with the Coronavirus bombshell?

  • 07 Jul 2020

The Government reacted to the coronavirus pandemic with an unprecedented range of measures designed to help businesses and the self-employed. Jo Faragher outlines what’s available, and highlights the gaps that still exist.

Victoria Hammond, who runs an interior design business and training academy, had to cancel all of her courses when the UK Government announced in mid-March that people should stay home to reduce the spread of the coronavirus.

“I had to stop everything,” she says. “And because I’m a 100 per cent director of my small limited company, I get nothing.”

 

Ms Hammond pays herself a minimal monthly salary, so using the government’s Coronavirus Job Retention Scheme (CJRS, also known as furlough) would have meant living on just under £600 a month, and she would have to stop any work. She tried to apply for a business interruption loan but failed to get hold of her bank. She hopes some courses will be able to take place online but is frustrated that – as a taxpayer – she has fallen through the cracks. 

While many businesses have not been eligible for Government support, there’s no question that these schemes have helped thousands of businesses, employees and self-employed people to survive. The Bounce Back Loans scheme – a simpler and quicker version of the Coronavirus Business Interruption Loan Scheme – received 45,000 applications in a single day when it went live in May. 

What is the best line of support for your business? Nicky Goringe, Managing Director of Goringe Accountants, says: “Some businesses won’t survive; some will adapt and use all the help available; and some will still have a full client base or even extra business.” She explains that the state support on offer can be split into three categories: grants, tax help, and loans. 

1 Grants 

Businesses that have premises registered for business rates can apply for a grant from their local council.

In England, the Small Business Grant Fund offers £10,000 to firms occupying properties with a rateable value of less than £15,000. If it’s a retail, hospitality or leisure business, it can apply for a grant of £25,000 if the property has a rateable value of between £15,000 and £51,000. 

The scheme made £12.3 billion available, with £617 million added later in England to ensure it also applied to firms working in serviced offices, markets, small charity properties and B&Bs, where owners pay council tax rather than rates. A similar arrangement was created in Scotland. 

CJRS is the second main grant available, enabling businesses to ‘furlough’ employees for at least three weeks, with the Government initially paying 80 per cent of salaries, up to £2,500 a month.

The scheme was backdated to 1 March for any employees registered for PAYE from 19 March, and will be in place until October. Employers will be required to pay National Insurance and pension contributions from August, and then 10 per cent of pay in September, followed by 20 per cent in October. Workers will be able to return to work part-time in July, with employers paying 100 per cent of wages for the time they are in work.

This scheme benefited millions of employees, but many small businesses still struggled as they had to pay wages upfront for March before they could reclaim from HM Revenue and Customs in April. And while directors can be furloughed, they can perform only statutory tasks (such as paying a supplier), so cannot keep up day-to-day running of the business. 

 

The Self-Employment Income Support Scheme was introduced to support the self-employed. This is a taxable grant of 80 per cent of someone’s average monthly trading profits, based on their last three years of tax returns and capped at £2,500 a month. A second wave and final claim can be made in August, worth up to 70 per cent of the average monthly trading profits for the business.

This will pay up to £6,570, covering three months’ worth of profits. Again, though, there are some who will not be covered. “There’s a profitability cap of £50,000 and it’s dependent on how many tax returns you’ve filed,” explains Beverley Sunderland, Managing Director of Crossland Employment Solicitors. “If you didn’t file last year ( 2018/19 ) you’re stuck.” Limited company contractors and the newly self-employed are also left out.  

Grants and rates differ slightly in the devolved nations. In Northern Ireland, the Finance Minister introduced rates relief for all businesses across all sectors for the first four months of the financial year, as well as further targeted relief for particularly impacted sectors for the entirety of the financial year. A £40 million hardship fund for micro-businesses has also been made available to businesses that can’t access the £10,000 and £25,000 grant schemes.

Scotland is opreating a similar package of grant funding for property-based businesses, with £10,000 and £25,000 grants available for firms. The Scottish Government also launched an additional fund of £185 million to help the newly self-employed, so-called ‘pivotal enterprises’, and businesses in the tourism, hospitality and creative sectors. 

In Wales, businesses with a rateable value of £12,000 or less qualify for a £10,000 grant from their local authority under the Economic Resilience Fund, with extra relief on offer for nurseries, pubs, retail and hospitality businesses. Micro-businesses (including the self-employed, start-ups and non VAT-registered firms) are also now able to apply for grants after the Economic Resilience Fund opened for applications in June. 

2 Tax support 

A number of tax deferrals are available for small business owners and sole traders. Any UK VAT-registered business with a VAT payment due between 20 March and 30 June can defer this until the end of March 2021, but must still submit VAT returns to HMRC on time. 

The self-employed can defer the July 2020 ‘payment on account’ due to HMRC until 31 January 2021. 

Businesses paying corporation tax on a quarterly basis can contact a dedicated HMRC helpline to make a request to defer these payments. Ms Goringe stresses that, although a breadth of support is available, these measures are deferrals, so must be paid eventually: “It depends whether you’re the type who likes cash in the bank now or needs the money as debt in order to grow – it’s all valid,” she says. 

3 Loans 

The Coronavirus Business Interruption Loan Scheme was made available to UK businesses with an annual turnover of up to £45 million.

These businesses can apply to borrow £30,000 or more, providing they can show that the business would have been viable if not for the pandemic, and that it has been adversely impacted. The government guarantees 80 per cent of the finance to the lender and pays all of the interest and fees on the loan for the first 12 months. 

However, many businesses found it difficult to get in touch with their bank to apply, and struggled with the application process; many lenders made exacting documentation demands and asked for detailed business plans. 

At the start of May, the Chancellor introduced a simpler scheme known as Bounce Back Loans. Small businesses can apply for a 100 per cent state-backed loan of anywhere between £2,000 and £50,000 – capped at 25 per cent of total turnover – with no interest charged or repayments due in the first 12 months, and a fixed 2.5 per cent thereafter. 

 

In Wales, the Government announced its own £100 million Covid-19 Wales Business Loan Scheme to support businesses experiencing cash flow difficulties as a result of the pandemic, although this received more than 1,500 applications in the first week and was fully subscribed by early May.

Despite this broad range of support, many small businesses will still struggle as we adapt to a ‘new normal’. Ms Goringe advises that business owners use this time to ask questions about their adaptability.

“What are your terms with clients? Are there certain clients who could get cash to you quicker? Can you adapt your business to bring in new revenue streams or save money? 

“If we’re working from home more and travelling less, there are savings we can all make,” she says. “Think about your goals for the next few years and make changes now – Covid-19 may mean taking a different route, but the goals should be the same.”  

Holding it together  

Just before the Government announced coronavirus lockdown and social distancing measures in March, healthy snack manufacturer Creative Nature was about to launch a new product and had a potential deal with an airline.

Now everyone is working from home, apart from founders Julianne Ponan (in the company office) and her partner Matthew (in the warehouse downstairs). 

Ms Ponan did not want to cut hours or furlough staff, so the team is doing as much as it can remotely. “We did a funding round last year, so we have some cash flow, but we had to pay some ingredient suppliers upfront,” she says – although one supermarket changed its terms to pay smaller suppliers immediately, which helped.

Food shows the company planned to sell at were cancelled, but it cannot claim on insurance as the shows were on dates prior to ‘official’ lockdown. 

 

The company has been quick to pivot its focus, however, and is now doing far more business online. It has reviewed where it spends its advertising budgets and put more energy into social media content to drive awareness of the brand. 

Ms Ponan’s main worry is what happens if she gets sick, and whether, as a director, she can qualify for sick pay. “There is not enough clarity on what business owners and directors get, and how to access it. We’re doing a lot to boost the team’s morale but we just don’t know how long this will go on for.” 

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