Under the recent MARCH 2020 UK BUDGET and the further announcements following it, the UK government introduced a number of measures aimed at softening the economic impact, particularly on small to medium-sized(SMEs) companies following the outbreak of Covid-19 and the subsequent controls put into place to curtail its further spread nationally or internationally.
Both the Prime Minister, Boris Johnson and the Chancellor, Rishi Sunak in their respective speeches, vouch to do whatever it takes to support the British economy and help millions of businesses. The measures are under regular review and may well include further proposals, but for the time being, some of the more relevant steps in relation to small to medium sized enterprises are:
£330 billion of government-backed loans, known as the Coronavirus Business Interruption Loan Scheme (CBILS) to be made available to businesses via two channels
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- Large firms can access a facility agreed with the Bank of England to provide liquidity; and
- SMEs can apply for the CBILS scheme. This was initially announced under the Budget to be up to £1.2 million per company, but has now been increased to £5 million. It will allow any business that needs access to cash to pay their rent, salaries, suppliers or purchase stock to be able to get a government-backed credit or loan on attractive terms. The loan is interest free for the first 6 months and available on repayment terms of up to six years.
Both these schemes are up and running from yesterday, 23rd March, 2020, so smaller businesses accross the UK who are experiencing lost or deferred revenues, leading to disruptions to their cashflow can make applications for facilities of up to £5 million. The Scheme is administered by the British Business Bank (the UK government’s economic development bank established in November 2014) via more than 40 lenders and partners. See list of accredited lenders and how to apply at: https://www.british-business-bank.co.uk/ourpartners/coronavirus-business-interruption-loan-scheme-cbils/accredited-lenders/
Eligibility criteria
Smaller businesses from all sectors (with some specific exceptions) can apply for the full amount of the facility. To be eligible for a facility under CBILS, an SME must:
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- Be UK based in its business activity, with turnover of no more than £45m per year
- Have a borrowing proposal which, were it not for the current pandemic, would be considered viable by the lender, and for which the lender believes the provision of finance will enable the business to trade out of any short-to-medium term difficulty.
If the lender can offer finance on normal commercial terms without the need to make use of the scheme, they will do so. For more details, see, https://www.british-business-bank.co.uk/new-coronavirus-business-interruption-loan-scheme-opens-to-smaller-businesses-across-the-uk/#_ftn3
Other measures include:
- SICK PAY
The Government will refund up to 14 days sick pay to employers with less than 250 employees.
- BUSINESS RATES
To be abolished until end of the year for businesses in retail, leisure and hospitality. This was initially restricted to businesses with premises with a rateable value of up to £51,000, but this has now changed to all businesses in the retail, leisure and hospitality sectors, irrespective of the rateable value of their premises.
- CASH GRANT
Small businesses that pay no business rate will receive a cash grant of £10,000 (increased from
£3,000 announced under the Budget)
Businesses in the retail, leisure and hospitality sectors with premises of a rateable value of less than £51,000 will receive a cash grant of up to £25,000.
These grants are cash that do not need to be paid back.
This scheme will be administered by local authorities and the Government business department is currently discussing with local authorities how the scheme will work. This £20bn package deal is for local authorities to apply as and when necessary locally. The Chancellor’s advice is for any small businesses in distress to speak directly to their local authorities.
- START-UP LOANS
To be extended. The Chancellor also announced that the Government would be extending the funding for the British Business Bank’s Start Up Loans programme until March 2022. For more details and how to apply, see: https://www.startuploans.co.uk/media-centre/budget-2020-start-up-loans-response/
- EXPORT LOANS
New export loans for SMEs. The Chancellor increased the pot of money available to UK Export Finance (Ukef), the Government’s export credit agency that provides loans to overseas buyers of British good and services. The agency’s role is to ensure that exports do not fail due to a lack of available finance or insurance for those looking to buy up Britain’s export offers.
As part of the extra funding, foreign investors hoping to start a business in the UK are also expected to have their visa applications supported by the Department for International Trade. For details of support under this scheme, see: https://www.british-business-bank.co.uk/export-finance/
- HMRC TAX PAYMENT EXTENSION
Time to pay is scaled up, allowing for tax payments to be deferred. In essence, HMRC will extend “time to pay” arrangements for companies affected by acts of God from flooding to coronavirus etc. These are companies that do have business interruption insurance policies that include pandemics in place, but that do not cover COVID-19 as it is such a new virus. These arrangements are negotiated on an individual basis between SMEs and the Treasury. This would allow debt collection to be suspended if the company is unable to pay their tax bill. HMRC has also stated that during the coronavirus pandemic, the usual 3.5 percent annual interest on deferred tax payments will be scrapped.
- POSTPONED ACCOUNTING FOR VAT
Will apply from 1 Jan. 2021 to all imports of goods, benefiting UK VAT registered businesses involved in international supply chains. The Treasury confirmed that postponed accounting for import VAT will be introduced for all goods imports (EU and non-EU) from 1st January 2021. This is welcomed by many as a relief as it removes the cash-flow cost of paying import VAT on entry in the UK and then recovering it on a subsequent VAT return. Instead, import VAT will be paid and recovered on the same return, almost always creating a “nil” net effect. This change is particularly welcomed by businesses importing goods from the EU, who would otherwise have faced a big cash hit at the end of the Brexit transition period. It should be noted, however, that the change only relates to VAT – Customs Duty will still have to be paid on entry to the UK where aplicable.
If you would like further information or assistance with any of the above issues, please do not hesitate to contact our UK Desk:
Chris Cooke (ccooke@santiagomediano.com)
Helen Okusi (hokusi@santiagomediano.com)
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