9 Coronavirus Business Support Schemes (and their pitfalls)

R&D Tax Credits 3 mins read 17th Apr 2020

Predictably, some of these coronavirus business support measures are off to uncertain starts and subject to much criticism and ongoing revision. Here is our brief overview:

Business Interruption Loan Scheme

In theory – Access to loans, overdrafts, invoice finance and asset finance of up to £5 million for up to six years, supporting SMEs with an annual turnover of up to £45m.

In practice – UK banks have collectively signed off on less than 10,000 loans under the Coronavirus Business Interruption Loan Scheme (CBILS). There seems to be a disconnect between the government’s intention regarding coronavirus business support and UK banks collective buy-in. Even with government backing 80% of the loans it seems banks have so far been cagey about unprecedented revisions to their credit checking practices.

Find out more about the coronavirus business interruption loan here.

NB – It is as yet unclear as to whether (CBILS) will prevent SME R&D claims. The CBILS has been notified as a State aid under the European Commission’s new Temporary Framework for Covid-19. As this is a notified State aid, companies who would otherwise make SME rate R&D claims could potentially be forced to claim instead under the less generous RDEC regime.

The key will be whether the CBILS relates specifically to the company’s R&D expenditure, or whether it will be intended more generally to support the company. This will depend on the facts and companies should take account of this when drafting CBILS applications. CBILS represents a short term injection of cash but if it impacts on lucrative and long term R&D tax credit regimes it may lead to future cash flow issues.

Bounce Back Loan

As of May 4th, small businesses can now apply for a new 100% state-backed loan worth up to £50,000, with no interest charged or repayments needed in the first 12 months, as part of the Government’s efforts to help those hit by coronavirus.

The new Bounce Back Loan scheme has been launched because of fears small businesses can’t access coronavirus funding (see the rest of this article) quick enough.

Here are the essentials:

  • Borrow between £2,000 and £50,000 with the amount capped at 25% of your total turnover.
  • No interest and no repayments will need to be made in the first 12 months.

  • After 12 months, all banks will charge a fixed 2.5% interest. This is far cheaper than a typical personal loan.
  • You can repay the loan early without a penalty.
  • The loans are set up to last for six years. So that’s a year interest free and the rest at 2.5%.
  • The loans are unsecured. You don’t give security (the Government does) so it’s far more difficult for banks to take your assets if you can’t repay.
  • Your business must have been established before 1 March 2020. It must also still be trading as a going concern at the point of application.
  • Credit ratings (whether business or personal) won’t impact your eligibility – so most should be able to get these loans. You don’t need to prove the viability of your business.
  • At least eight banks are offering the loans. These include major banks such as Barclays, HSBC, Lloyds and Santander.
  • You need a business to set these up but don’t necessarily need a business bank account.
  • Bounce back loans don’t affect your eligibility for other Government personal support.

Coronavirus Job Retention Scheme

In theory – A temporary scheme in place for 3 months starting from 1 March 2020 with the option to extend. If you cannot maintain your current workforce because operations have been severely affected, you can furlough employees and apply for a grant that covers 80% of their usual monthly wage costs, up to £2,500 a month, plus the associated Employer National Insurance contributions and pension contributions. Employees can be placed on furlough if they were on PAYE payroll on or before 19 March 2020.

In practice – How many times can one use the word unprecedented in a single article? The furlough scheme is an extraordinary measure. It is a people-focused scheme so much depends on the contractual arrangements in place with staff members. In broad terms, a payment of less than 100% of wages will normally represent a unilateral change to an employee’s contractual terms and such a change would need consent.

Our anecdotal research suggests that employees have been likely to accept furloughed status. For most, it will be a more desirable outcome than redundancy. It is critical that once furloughed, staff do not conduct any work (even for example keeping social media activity ticking over) on behalf of the company.

Find out more here.

Coronavirus Large Business Interruption Loan Scheme

In theory – Similar to CBILS, this coronavirus business help scheme is delivered by commercial lenders where the Government guarantees 80% on individual loans for businesses that would be otherwise unable to access the finance they need:

  • For businesses with an annual turnover of between £45m and £500m
  • Facilities backed by a guarantee under CLBILS will be offered at commercial rates of interest
  • For loans of up £25m

Commercial banks will conduct all their usual credit risk checks and there seems to be more of an emphasis on viable businesses as opposed to the survival rhetoric around the CBILS scheme.

Find out more here.

Small Business Grant Funding

In theory – An England-only COVID-19 business grant scheme where the Government provides additional funding for Local Authorities to support small businesses that already pay little or no business rates because of small business rate relief (SBRR), rural rate relief (RRR) and tapered relief. Eligible businesses will receive £10,000 to meet ongoing costs.

In practice – Delivery of this small business coronavirus mechanism varies from council to council but overall it seems to have been well utilised with high approval rates.

Find out more about the COVID-19 small business grant here.

Statutory Sick Pay Rebate

In theory – The scheme can be used by employers if they are: (a) claiming for an employee who’s eligible for sick pay due to coronavirus; (b) had a PAYE payroll scheme that was created and started on or before 28 February 2020; and, (c) had fewer than 250 employees on 28 February 2020. The Rebate Scheme will repay employers the current rate of SSP that they pay to current or former employees for periods of sickness starting on or after 13 March 2020.

In practice – Pretty straight forward. Employees do not have to give you a doctor’s fit note for a company to make a claim. Be sure to keep records of dates and reasons for inability to work.

Find out more here.

Support For Businesses Paying Tax

A UK-wide scheme which means all businesses and self-employed people finding themselves in financial distress, and with outstanding tax liabilities, may be eligible to receive support with their tax affairs through HMRC’s Time To Pay service.

Find out more here.

VAT Deferral

Defer Valued Added Tax (VAT) payments for 3 months. Payments due between 20 March 2020 and 30 June 2020 will be deferred, essentially amounting to one quarter’s-worth. The advice to those paying by direct debit is to cancel direct debits if they are unable to pay.

Taxpayers have until 31 March 2021 to pay any liabilities that accumulate during the deferral period and will need to make arrangements to pay this accumulated VAT.

Find out more here.

COVID-19 Corporate Financing Facility

A UK-wide scheme where the new Covid Corporate Financing Facility (CCFF) ensures the Bank of England will buy short-term debt from larger companies. These arrangements will be made on a case-by-case basis and any firm applying must have a public investment grade rating from at least one of the major credit rating agencies: S&P, Moody’s, Fitch or DBRS Morningstar.

Find out more here.

A Note on R&D Tax Relief

With companies focusing on short-term cash flow, a huge number are bringing forward their R&D claim submissions and many eligible SMEs that had hitherto not applied are starting to do so. At a time of major pressure on HMRC’s operational resource, there has been concern about delays.

HMRC have confirmed that they are prioritising SME tax credit claims and are implementing contingency plans, including additional resource, to clear 95% of claims within 28 days. Currently they are meeting this timeframe, which is an incredible achievement. In our view, prioritising R&D tax relief claims either internally or with the help of an adviser will be one of the least complex, quickest and easiest ways to access funds over the coming months. To get started, try inputting some rough numbers into our online R&D tax credits calculator to see the size of a potential claim.

If you would like to talk with an R&D tax credits adviser at G2, please get in touch. We are open for business and actively processing claims.

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