Updated: 21st April 2020
The government’s pledge to help businesses overcome the challenges posed by Covid-19 resulted in a comprehensive support package being announced including measures to help business owners, sole traders, and employees alike.
One of the most significant of these was the Coronavirus Job Retention Scheme. The scheme funds 80% of an employee’s wage - up to a maximum of £2,500 a month - in the event that they are furloughed. The idea behind this initiative was to prevent mass redundancies as businesses were forced to close their doors amid coronavirus lockdown measures. The scheme will run until the end of October.
One of the main sticking points for businesses is that some have been required to make payment to their staff before retrospectively claiming back this money through the government’s Coronavirus Job Retention Scheme. This therefore requires businesses not only to have this money available to make the payment in the first place, but also to have faith that the money will be reimbursed as promised and in a timely manner.
Demand for the scheme has been huge as businesses up and down the country temporarily laid off staff to help preserve funds and put their company in the best position possible to survive this unprecedented crisis. Over 140,000 businesses applied in the first seven hours when the scheme opened on 20 April.
Whilst it is expected that the vast majority of companies who have applied will have a valid claim to reimburse the wages paid to furloughed staff, as this is a new scheme there are question marks as to how efficient the process will be and whether HMRC will be able to cope with the demand which has eclipsed initial estimations.
Government expectations are that employers will receive this money within six business days following application. Many employers will be crossing their fingers that this money gets to them in time for the big payroll date at the end of the month.
The real test for this scheme will be whether the money gets to employers as promised. If there are delays this could cause huge problems for companies who are already struggling to meet their outgoings with zero income coming in.
Another potential issue, aside from possible delays, is whether all employees who have been furloughed will meet the requirements for this scheme. Originally the scheme dictated that only those employees who were on the company’s payroll as of 28 February would be eligible. However, this left many people falling through the gaps and the date was later extended to employees who had started their new job by 19 March.
However, there are fears that some employees still do not qualify for the scheme. In order for employees who started their employment by 19 March to be eligible, it appears that their employer must have made a 'Real Time Information' submission to HMRC by that date. The issue is that this information is typically submitted to HMRC in the days prior to the payroll being run. For those whose payday comes at the end of the month, this could disqualify them from the scheme once again.
If employers were unaware of this, and furloughed such an employee, they may find their application being unsuccessful.
If the furlough reimbursement is delayed or doesn’t materialise at all, or if your business simply needs additional funds to help you weather the storm, there are options available to you.
You may wish to consider introducing a form of emergency finance into the business. This could take the form of a traditional loan or more specialised forms of funding such as invoice or asset-based lending. when introducing funds into a business, particularly during challenging times, it is always advisable to seek the assistance of a commercial finance expert such as UK Business Finance, who will not only advise on the most appropriate funding channel based on your needs, but will also be able to scour the market to source the finance in the most cost-effective way possible.
Alternatively, you may be able to free up some cash by negotiating with your existing creditors in order to lower your monthly outgoings. Depending on your level of debt, and the relationships you have with your creditors, you may be able to do this through informal discussions; however, for more serious situations a formal process known as a Company Voluntary Arrangement (CVA) may be more appropriate. A CVA is a legally-binding arrangement which gives you the opportunity of paying off your debts over a set period of typically 3-5 years. A portion of your debt may also be written off as part of the process depending on what you can afford to pay back.
If your main creditor is HMRC, you may be able to arrange a Time to Pay (TTP) agreement which allows you to pay your tax arrears through a series of affordable monthly instalments. You may also wish to consider placing the company into administration, particularly if you are being threatened with legal action from creditors.
The challenges being faced by businesses across the country are unparalleled and it can be difficult to know what to do or where to turn to for help. At Real Business Rescue, we have a nationwide team of licensed insolvency practitioners and business turnaround experts who are here to provide you with the help and guidance you need.
We can talk you through a range of business rescue and recovery processes, as well as pointing you in the right direction for sourcing emergency finance or negotiating with HMRC. Call our advisers today on 0800 644 6080 to arrange a free consultation with your local Real Business Rescue expert.
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