Understanding government support schemes for businesses during COVID-19
Rishi Sunak’s debut budget speech on March 11th was delivered under the shadow of the threat posed by the developing COVID-19 coronavirus crisis as the impact of the global pandemic began to be felt by businesses up and down the country.
Labelled by some as a ‘coronavirus budget’ Sunak announced a raft of measures to help stabilise the economy by offering companies various lifelines as they battled against the escalating situation. These included help with emergency funding as well as business rates relief for small companies.
Following on just days from the budget, Rishi Sunak was once again back in the spotlight detailing further measures to help beleaguered businesses and he has promised to provide further help over the course of the coming days and weeks as the situation develops.
As businesses face unprecedented uncertainty over the coming months, here is what has been offered so far.
- Coronavirus Job Retention Scheme – The government have pledged to step in and help pay peoples wages via the Coronavirus Job Retention Scheme. This will be available to all companies of all sizes and will take the form of a non-repayable grant which will cover 80% of the wages of people who are not working up to £2,500 a month. Employers can top up this amount if they choose. The hope is that this will allow a company which has been forced to close, or which is otherwise experiencing financial distress, to retain their staff rather than laying them off. Claims can be backdated from 1st March 2020 and were made available for an initial three month period, although employers will be expected to make a financial contribution to these payments from the end of July. The scheme has now been extended until the end of April 2021.
- Self-Employed Income Support Scheme (SEISS) – A more recent addition to Sunak’s business support package, this scheme offers a financial lifeline to the self-employed. The scheme consists of a two taxable grants, the first worth 80% of a sole traders average monthly profits up to a maximum of £2,500, with the second worth 70% of average monthly trading profits capped at £6,570. To qualify, an individual must typically make more than half of their income from self-employment and only those earning less than £50,000 will be eligible for support. Average monthly profits are calculated based on the previous three years’ tax returns and only those with a tax return for 2018-19 will be eligible, in order to prevent abuse of the system. However, this does mean that those new to self-employment will find themselves locked out of this scheme. The first payment will be backdated from March and paid as one single lump sum in June, with the second payment following in August. Individuals can continue to work while receiving this grant. Those entitled to help via the SEISS will be contacted by HMRC in due course, however, you can check your eligibility by entering your Unique Taxpayer Reference (UTR) on the government website.
- Government-backed loans – In an effort to keep businesses afloat during these challenging times, a pledge to provide government-backed loans has been made. Sunak declared that this would be open to “any business who needs access to cash.” While £330bn has so far been ring-fenced for this initiative, Sunak confirmed that this amount will be increased in line with demand.
- Coronavirus Business Interruption Loan Scheme (CBILS) – First announced at the budget, the CBILS will temporarily replace the current Enterprise Finance Guarantee Scheme and will operate in much the same way. CBILS was originally going to provide loans of up to £1.2m; however, this maximum loan amount has now been increased to £5m. No interest will be payable on this type of borrowing for the first twelve months, and a range of finance options including loans, as well as asset and invoice finance will be available. Banks will not be permitted to request personal guarantees for loans under £250,000; instead the government will provide security of 80% to the bank should they suffer losses. Borrowing through the CBILS opened as of March 23rd 2020.
- Bounce Back Loans - The UK's smallest businesses will be able to take advantage of government-backed 'bounce back loans'. Capped at £50,000, companies will be able to apply for a loan worth up to 25% of its turnover. No interest will be payable for the first 12 months with an interest rate of 2.5% kicking in after this point. The entire loan will be backed by the government. Sunak has promised a quick and easy process which should grant companies access to the funds within 24 hours of applying. The scheme opened for applications on Monday 4th May 2020.
- The Future Fund - Aimed at innovative companies who typically rely on funding from outside investors, The Future Fund will provide convertible loans from £125,000 up to £5m. This is an investor-led scheme, with the government promising to match 100% of the funding introduced into a company from private investors. This money cannot be used to pay salaries or dividends, nor can it be used to repay existing borrowings to shareholders or related parties. The loan will mature after 36 months, at which point it will convert into shares. An interest rate of 8% will be levied on the loan although this will not need to be paid back on a monthly basis; instead the interest will accrue until the loan matures and at this point it will either be paid back or it will convert into shares. Announced 20th May, applications for The Future Fund will remain open until the end of September.
- HMRC Time to Pay (TTP) Scheme Extended - Sunak has thrown a lifeline to those companies who fear being able to keep up with their obligations to HMRC during this time of upheaval. This will be done through an extension of the current Time to Pay (TTP) scheme which gives businesses additional breathing space when settling their tax bills including VAT, PAYE, and Corporation Tax. It is hoped that this will help to free up cash flow and help to keep money moving around the supply chain. There will be a dedicated helpline set up to help businesses discuss the possibility of setting such a payment plan up.
- VAT deferred - The next quarterly VAT payment will be deferred for businesses. This does not cancel the VAT due, but it does give businesses the ability to conserve some money in the short-term.
- Additional help for the self-employed and sole traders – The minimum income floor for accessing benefits, including universal credit, will be suspended. In real terms this means the self-employed will be able to claim universal credit at rate which is equivalent to SSP. This will be useful to those that do not qualify for the Self-Employed Income Support Scheme. Self-assessment payments will also be deferred to January 2021 in a further effort to help.
- Business rates relief - One of the major announcements during the budget was that for businesses in the retail, hospitality and leisure sectors, with a rateable value of less than £51,000, they will be fully exempt from business rates for this year. Sunak has now sweetened the deal further by providing a cash grant of up to £25,000 for those businesses. Furthermore the business rates holiday will now be extended to all businesses in the retail, hospitality or leisure sector, regardless of its rateable value.
- Small business grants – Smaller businesses, who would not stand to benefit from the business rates holiday, were instead promised a grant of £3,000 each in order to assist with cash flow. This has now been increased to £10,000 and will benefit 700,000 of the smallest businesses.
Homeowners were also offered some reprieve by way of a three month mortgage holiday for those experiencing financial difficulties as a result of COVID-19 although interest will continue to be levied during this time. Those in rental accommodation were buoyed by the news that there is to be a blanket ban on evictions for three months should tenants be unable to pay their rent on time. Once this three month period if over tenants will be encouraged to come to an arrangement with their landlord to make up for any missed payments through an affordable payment plan.
This is a moving situation and we will update this page as and when further measures are announced by the government.