Practical Guidance Note #4
COVID-19: What you need to do in order to access government support
How furloughed workers can access government support and updates on the Coronavirus Business Interruption Loan Scheme
Important: Today the government updated its COVID-19 guidance for businesses seeking to apply for the various support measures announced last week by Rishi Sunak. There’s been a lot of confusion around eligibility and how businesses/individuals can apply, as well as when these support measures will be available. This latest update begins to provide some clarity.
23rd March 2020
Under the Coronavirus Job Retention Scheme, all UK employers will be able to access support to continue paying part of their employees’ salary for those employees that would otherwise have been laid off during this crisis.
All UK businesses are eligible.
How to access the scheme
You will need to:
- Designate affected employees as ‘furloughed workers,’ and notify your 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).
HMRC will reimburse 80% of furloughed workers wage costs, up to a cap of £2,500 per month. HMRC are working urgently to set up a system for reimbursement. Existing systems are not set up to facilitate payments to employers.
What exactly is a furlough, and how does it work?
The word ‘furlough’ isn’t a term many of us are familiar with in the UK and there appears to be some confusion over how this might work.
What is an employee furlough?
Very simply, an employee furlough is when employers require their staff to take unpaid leave of absence. In other words, they won’t be able to work, they won’t get paid, but crucially they’re still technically employed by the company.
This is a mechanism used primarily in the US where an employer needs to drastically cut costs in times of economic difficulty. For many businesses, labour costs represent the lion’s share of their operating expenses, so payroll and employee benefits are two areas where they can save money the fastest.
The key point, however, is that employee furloughs are different to lay-offs in that they’re meant to be temporary and employees are expected to return to work when circumstances improve, and the company is ready.
NB There is very little on Statutory Sick Pay, but this latest update suggests the government are setting up an online portal for the Job Retention Scheme. Once this is created there may be more clarity on the backdating process.
If your business needs short-term cash flow support, you may be eligible for a Coronavirus Business Interruption Loan.
The new Coronavirus Business Interruption Loan Scheme supports small and medium sized enterprises (SMEs) with access to working capital (including loans, overdrafts, invoice finance and asset finance) of up to £5m in value and for up to six years.
The government will pay to cover the first 12 months of interest payments and any lender-levied fees, so smaller businesses will not face any upfront costs and will benefit from lower initial repayments.
The government will provide lenders with a guarantee of 80% on each loan (subject to a per-lender cap on claims) to give lenders further confidence in continuing to provide finance to SMEs.
This scheme is being delivered through commercial lenders, backed by the British Business Bank.
You are eligible for the scheme if:
- Your business is UK based, with turnover of no more than £45m per year
- Your business meets the other British Business Bank eligibility criteria.
How to access the scheme
The scheme is now open for applications. To apply, you should talk to your bank or one of the 40 accredited finance providers (not the British Business Bank) as soon as possible, to discuss your business plan. You can find out the latest on the best ways to contact them via their websites.
All major banks are offering this scheme. If you have an existing loan with monthly repayments, you may want to ask for a repayment holiday to help with cash flow.
The full rules of the scheme and the list of accredited lenders are available on the British Business Bank website.
The application process: What you need to know
Decision making is fully delegated to the lender, which means that getting understanding of what they want and whom to apply to is of the utmost importance.
The lender must show that they can’t lend to you under normal circumstances in that you wouldn’t qualify for a normal interest-bearing loan.
NB If you do qualify then this is what you will be offered, and you will not qualify for the CBILS
It’s important to understand that we have heard anecdotally that the bank or funder may wish to have a Personal Guarantee of 20% or even more.
In terms of timing this is not expected to be a quick process so, if your business needs cash quickly, other funding options may be a temporary measure whilst this funding is being put in place.
You can also use other government initiatives such as Coronavirus Job Retention Scheme in conjunction with this funding.
- Get your books up to date, ideally in a cloud-based platform like Xero
- Construct a financial forecast, ideally a full profit & loss and a cash flow forecast
- Predict the likely impact of COVID-19 on your business
- Check whether you qualify for any other types of relief
- Make an application using expert guidance
If you want help with this process, particularly around areas like cash flow forecasting and business planning then please speak to your adviser at Old Mill.
The Chancellor has set out a package of temporary, timely and targeted measures to support public services, people and businesses through this period of disruption caused by COVID-19.
This includes a package of measures to support businesses including:
- A Coronavirus Job Retention Scheme
- Deferring VAT and Income Tax payments
- A Statutory Sick Pay relief package for SMEs
- A 12-month business rates holiday for all retail, hospitality, leisure and nursery businesses in England
- Small business grant funding of £10,000 for all business in receipt of Small Business Rate Relief or Rural Rate Relief
- Grant funding of £25,000 for retail, hospitality and leisure businesses with property with a rateable value between £15,000 and £51,000
- The Coronavirus Business Interruption Loan Scheme offering loans of up to £5m for SMEs through the British Business Bank
- A new lending facility from the Bank of England to help support liquidity among larger firms, helping them bridge coronavirus disruption to their cash flows through loans
- The HMRC Time To Pay Scheme.
Whether you are concerned about your family, your business or yourself, please do call upon us if we can help during these uncertain times.