Many businesses have been relying on government support to get them through the coronavirus pandemic but may now face a range of cash flow issues caused by the impending closure of these schemes.
One outcome to consider is that your cash flow position could end up being worse than it was pre-pandemic, therefore you need to implement careful financial planning to head off any problems.
Taking advice and communicating with all stakeholders early will be key.
We feature some essential advice in this article to help you navigate the change in circumstances.
Here’s what we cover:
Coronavirus financial support coming to a conclusion
The massive programme of financial support to help UK businesses through the pandemic is finally winding down. The UK government has spent more than £100bn on protecting jobs during the past 18 months, with a range of support schemes that have been a lifeline for hundreds of thousands of small businesses and self-employed people.
As the pandemic has receded, the government has gradually announced the ending of these schemes. But many have come to rely on them.
If that includes your business, you now face a critical planning period as the government turns off its pipeline of money.
Support schemes and when they end
Like a recovering patient, the economy is having its crutches removed. The monumental Coronavirus Job Retention Scheme (also known as the furlough scheme), which gives grants to help employers keep staff on during the pandemic, is ending on 30 September 2021.
The Recovery Loan Scheme (RLS), which helps businesses grow and recover from the disruption of the pandemic, will close on 31 December 2021, subject to review.
Repayments from the Coronavirus Business Interruption Loan Scheme (CBILS) were interest-free for the first 12 months. CBILS applications ended in March 2021; for many, interest and repayments have started in the subsequent months, depending on the terms and when you took out the loan.
The VAT Payments Deferral Scheme eased cash flow in more than half a million businesses between March and June 2020. If you’re spreading deferral repayments, you must pay them off by January 2022.
To support tourism and hospitality, the government reduced VAT to 5% for certain hospitality supplies and for admission to certain attractions. This reduction will end in September 2021, followed by a higher reduced rate of 12.5% until 31 March 2022.
The government also provided a Business Rates Retail Discount for retail properties, and expanded the discount to the leisure and hospitality sectors. The discount is currently at 66% and will end on 31 March 2022.
The deadline for the fifth and final Self-Employed Income Support Scheme (SEISS) grant, for those affected by coronavirus, is 30 September 2021.
Issues to watch out for
These deadlines will create cash flow challenges for thousands of companies.
As Jo Gibson, business services partner at Hurst Accountants, says: “Schemes such as CBILS and furlough have been a lifeline for companies’ payroll liabilities.
“Once the schemes stop, I’m concerned they must go back to meeting their full payroll costs, and sometimes business rates and other costs they haven’t had for several months.
“Some businesses that deferred VAT payments or took CBILS loans will also have to add interest and repayments to their usual costs. Some took sizeable loans because there was so much uncertainty, so their repayments are chunky.
“If they have not yet recovered their pre-Covid financial position, the timing of these repayments is not great. They’re facing many new costs, so cash flow could be tighter than before the pandemic.”
Another serious challenge to cash flow is that many suppliers have increased their prices with no notice, says Gibson.
For example, the costs of some containers from the Far East have risen five times in the past year due to Covid-related disruptions.
Why you should plan your cash flow now
Jamie Skelding, director at Prime Accountants Group, says the impending support cuts make it vital to have robust financial plans, targets and budgets in place.
Include as many scenarios as possible in your cash flow forecasts.
Have a plan for each so you can react early if you need additional cash flow support with plenty of time to find a solution.
The financial landscape over the next few months may be complicated, so include as many potentially relevant factors as possible.
Joanne Harris, head of technical, compliance and payroll at SJD Accountancy, says: “There are nuances to consider in different sectors.
“In construction, for example, there are lots of vacancies and a labour shortage. The end of government support schemes could help unlock much talent in this sector, helping boost recovery.
“So consider such factors in your planning and forecasting.”
Use the best technology you can get. A sophisticated, cost effective and user-friendly cash flow planning solution will make the task much easier.
Good cloud accounting software that provides robust financial dashboards and reporting systems can also be a powerful tool and go a long way towards improving your planning and processes.
Choose software that identifies your business’ key performance indicators and monitors them carefully.
Prepare for a cash flow gap
If your forecasts suggest your cash flow could be under pressure, start preparing for this by looking at your cost base and trimming out anything that isn’t core to your business.
The pandemic has helped many businesses cut costs, especially in office space.
Harris says: “We’ve seen many people re-evaluate their office as lease and tenancy agreements come up for renewal. The shift to working from home is likely to continue and become permanent for many.”
But you may have to go further.
“Companies still struggling with cash flow, such as in leisure and hospitality, may have to decide between letting staff go or changing shift patterns to maintain cash flow,” says Gibson.
Skelding also recommends looking at outsourcing processes to make them more cost-effective, flexible and resilient.
The next step is to identify your key suppliers and focus on staying within their payment terms, so they don’t get concerned and start asking for payment in advance.
If you still need additional credit after all this, Gibson recommends speaking to potential lenders as early as possible.
“Be mindful of short-term lending, as it can be expensive and create an extra headache in future,” she says. “Speak to your bank and an adviser who can give you a good view of the market.”
Harris says: “Some of the best advice we give to clients with cash flow challenges is to keep everyone informed and communicate well.
“Work out who are the key stakeholders you need to speak to and be proactive.
“For example, if there are potential problems relating to any tax owing to HMRC, always communicate with them as soon as possible. Ignoring the issue or burying your head in the sand is the worst thing to do.
“Either contact them directly or work with your accountant to let them know your situation.
“Accountants can also help you monitor liabilities and when they’re due, making sure you’ve made provisions or advising on setting up payment plans with HMRC.”
Growth and tax implications to consider
You may need to invest post-pandemic – for example, in rebuilding capacity and staff, or pivoting your market position.
If so, Skelding says there may be tax reliefs available if you made losses in previous accounting periods.
You could consider changing accounting periods to accelerate use of losses, he says.
You could also use enhanced loss reliefs to claim tax refunds and carry back losses from previous periods, which will give you cash benefits. In addition, you may be able to use research and development tax reliefs if you’ve been reinventing your business during the pandemic.
“You don’t have to have do something famously ground-breaking such as splitting the atom for your expenditure to qualify as R&D spend and, where it does, the tax relief is a powerful asset,” adds Skelding.
An adviser will be essential in such scenarios.
They can also help you interpret and understand your sales and costs data, challenge your assumptions and suggest solutions you may not be aware of.
Self-employed tax challenges
Harris says yet another issue is that many people don’t realise grants such as the SEISS are taxable.
If you have taken a grant, she advises submitting your tax return as early as possible to make sure you know your liabilities and can plan to meet them.
Self Assessment forms for this financial year already have new sections to make sure all relevant forms of government support are declared, she says.
“Even if you cannot pay what you owe, still file the return,” adds Gibson. “Not filing will make the situation worse by incurring late filing penalties.”
Confidence in the face of uncertainty
The government’s financial lifelines are ending at a time when some sectors are still struggling and many businesses continue to face an uncertain future.
Over the next few months, you may encounter some complex challenges with many fluctuating factors affecting your cash flow and tax position.
Pivoting markets, supply chain bottlenecks, VAT changes in Europe and other Brexit-related challenges will all test the mettle of small business owners. The last thing you need is a cash flow shock when the furlough scheme or other financial support is taken away.
The key is to make sure you have the cash to fill such gaps by using experienced advisers coupled with sophisticated cash flow planning and financial reporting tools.
Speak to lenders early if you need them. And keep all your stakeholders well informed.
Do all these things and you can face an uncertain future with much more confidence and optimism.
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