This week’s Budget offered help for Britain’s small and medium-sized enterprises — businesses with fewer than 250 employees — that could struggle as the coronavirus pandemic worsens.
Staff sickness is expected to rise just as customer numbers fall when those exposed to the virus follow the official advice and isolate themselves.
Rishi Sunak, the chancellor, focused on five measures to preserve cash and prevent insolvency among UK businesses.
1. Revenue’s ‘time to pay’ tax suspension
SMEs that cannot afford to pay their tax bills can ask HM Revenue & Customs for a “time to pay” agreement which would suspend debt collection. The system has been used to help businesses affected by flooding and the 2008 financial crisis. Each agreement is negotiated on an individual basis through a dedicated hotline. During the coronavirus outbreak the usual 3.5 per cent annual interest on deferred tax payments will be waived.
Ed Dwan, head of the north west England unit of accountancy firm BDO, advised businesses to apply in plenty of time. He said: “An interest-free time to pay arrangement is unusual; normally ‘forward interest’ applies. However, as always, it will be important to get upfront agreement from HMRC before a payment deadline.”
2. Business rates relief for 900,000 properties
The government will not charge business rates, a property tax, on companies in the retail, leisure and hospitality sectors in 2020-21. This includes hotels, restaurants and coffee shops. There is also a £5,000 business rates discount for pubs with a ratable value below £100,000 in England.
These measures mean that around 900,000 properties, or 45 per cent of all business premises in England, will not pay rates in 2020-21. Local authorities, which collect rates, will be provided with £2.2bn by the government to make up for the shortfall.
However, the Centre for Cities think-tank has calculated that many businesses in the north of England will be excluded from the measures because they are already exempt from business rates because the value of their property is too low.
In Oxford, around 16 per cent of properties qualify for the new rates discount, while 13 per cent of premises would be eligible in London. Some 11 per cent of businesses in York — the only city in the top 10 beneficiaries that is not in the south-east — would be eligible.
“It’s likely that businesses in these properties will have already factored this exemption into their business models. And so they’ve got less breathing space should their sales fall as a result of the virus,” the Centre said in a statement.
3. Grants for smallest enterprises
The 700,000 smallest businesses who are already exempt from paying rates will be eligible for £3,000 grants to help meet their business costs. That is a three months’ rent bill for a typical small shop, according to the government. It is not yet clear how businesses will access the grants.
Adrian Young, tax partner at Hurst accountants in Greater Manchester, said: “These are eye-catching measures. The question is whether they deliver what they promise or become bureaucratic and too onerous for people to claim.”
4. Risky loans underwritten by government
The government is offering to underwrite loans to businesses adversely affected by the coronavirus outbreak.
The Coronavirus Business Interruption Scheme will replace the Enterprise Finance Guarantee Scheme (EFG), under which the government guarantees debt to encourage lenders to give loans to companies that would otherwise be deemed too risky. Interest rates will be similar to existing bank lending.
The scheme will be delivered by the British Business Bank, a state-owned wholesale bank that currently operates the EFG. More than 40 lenders including the big four banks — Barclays, RBS, HSBC and Lloyds — provide funds under the scheme as term loans, overdrafts, or asset-based lending secured on equipment or invoices.
Under the coronavirus scheme the BBB will provide lenders with a guarantee of 80 per cent of each loan. The government will waive the 2 per cent it charges borrowers annually for the guarantee under the EFG and will support loans of up to £1.2m. The total amount it will guarantee this year will jump from £500m to £1.2bn. More details will be made available next week.
The BBB said that as companies are affected by coronavirus they will be eligible to apply for funds under the scheme.
5. Sick pay costs can be reclaimed
SMEs will be able to reclaim the cost of 14 days of sick pay — just under £200 — per employee. However, the government has cautioned that they may have to wait months for reimbursement because it has yet to set up a repayment mechanism.
Keely Rushmore, partner in the employment team of law firm SA Law, said the budget measures need “to be publicised widely, put into place quickly, as well as being clear and responsive”.
“If the measures are not available without delay there is a real risk of what should be temporary effects becoming permanent,” she said.
Mike Cherry, chairman of the Federation of Small Businesses, welcomed the measures but cautioned that businesses might need more help. “These are vital contingencies for the UK’s 5.8m-strong small business and self-employed community. [But] there may need to be further steps in the weeks and months ahead.”
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