To fight an impending recession, the UK Government has announced an unprecedented package of support for businesses and workers.
Stephen Welch, a Turnaround & Crisis Management specialist, outlines below some of the key initiatives and what businesses need to be doing now.
Keep informed about Government initiatives
COVID-19 has brought upon us a series of unprecedented events, many governments are responding and are offering a myriad of financial, tax and legal concessions. The support packages are evolving daily. In the UK, the Government now offers a range of assistance including:
- Loan assistance – for small business this has been increased to £5m plus an interest holiday for six months, where the loan is a result of COVID-19. For large businesses the Bank of England is buying short-term debt, to ease credit pressures arising from short-term liquidity.
- Tax relief – HMRC is accepting PAYE deferrals and VAT deferral (three months). Additional measures include statutory sick pay rebates and postponement of IR35 and administrative extensions for tax returns.
- Wage cost support for all employers – HMRC will reimburse 80% of furloughed workers wage costs up to £2,500 per month per employee.
- Support for self-employed individuals – HMRC will provide a taxable grant worth 80% of trading profits up to £2,500 per month for three months.
- Rate relief for retail & leisure – grants of up to £25,000 of rate relief.
- Funding for local authorities – an additional £1.6bn in emergency funding to local authorities to make sure payments flow to critical service providers.
The UK Government's assistance package will continue to evolve. While the support initiatives are very welcome, it can be complex to access. Make sure you get help from your tax and/or legal advisers now.
Where businesses are choosing to defer tax debts or rates, do not forget these liabilities will ultimately have to be met in the future. Make sure that when dealing with HMRC your communications are in writing. Be prudent and seek assistance from your legal or accounting advisers to get your documentation in good order.
Solvency and wrongful trading
The Government has recently announced a temporary suspension of wrongful trading provisions. The wrongful trading law is interested in at what point the director knew, or ought to have concluded, there was no reasonable prospect of the company avoiding liquidation or administration. Even with the best of intentions, a director can be liable for wrongful trading.
The temporary suspension will reduce pressure on Board’s managing a distressed business. However, dealing with such issues and business solvency can be complex and unfamiliar territory for many directors.
Where a business is facing financial distress or uncertainty, keep in mind the following for good board practice:
- Board meetings to be held more frequently
- Board to consider cash flow reports and confirmation of solvency
- Board to thoroughly document its deliberations and decisions
- Consider notification obligations under your D&O insurance.
It is well advised to seek, financial, legal and insolvency advice in respect of Directors’ duties and how these can be satisfied in this challenging time.
Focus on liquidity
The Board and Management must maintain a focus on protecting a business’ liquidity. Where Government support schemes are being accessed, make sure your CFO thoroughly understands the mechanisms to access support and the associated timings.
Your CFO should have the following questions at the front of mind:
- Do I understand what Government support schemes my business can access?
- Do I have sufficient legal, tax and accounting assistance to access these schemes?
- Do my cash flow reports reflect the timing and impact of receiving government support?
- Has my Board been thoroughly briefed on the impact of accessing the additional government support?
- Do I need to notify my Lender; and/or will accessing these schemes impact any banking covenants eg. deferral of material tax liabilities?
Message business stability
The new assistance packages being offered by the UK Government are there to help stabilise UK business. Parallel to accessing these schemes, businesses need to revisit their messaging to internal and external stakeholders. It is a nervous time for customers, suppliers and employees. Now more than ever there is a need to develop and execute a well-controlled communications plan. Inform your network about what your business is doing to continue to trade, even if the messages are short and focus on the short-term.