“Unprecedented” has become a media cliché to describe the times we find ourselves in, but nevertheless, they really are. Throughout the UK, the coronavirus outbreak has taken lives, restricted lifestyles and threatened livelihoods.
Early on in the crisis, Chancellor Rishi Sunak called it “an economic emergency” and said that “never before in peace time have we faced an economic fight like this one”.
Cash is king
Previous economic crises and downturns have shown that it is the businesses with sufficient cash reserves who are able to survive and recover quickest.
But how do you keep cash flowing in this challenging period, especially if restrictions mean you can’t operate?
Here we look at some of the options which may be available to your business in order to keep cash flow going.
Government relief schemes
Coronavirus Job Retention Scheme (CJRS)
The Coronavirus Job Retention Scheme (CJRS) was announced by the government early on into the lockdown regime, with the aim of allowing businesses affected by the crisis to temporarily stand down employees without resorting to redundancies – this is known as “furloughing”.
If you employ staff in your small business, you can furlough them and claim a grant from the scheme to cover 80% of their regular wage, up to a maximum of £2500 per month.
To be eligible under the CJRS, an employee must have been on payroll on 19th March and been reported to HMRC as an employee by that date.
Limited company contractors
If you are the only shareholder and employee of your limited company, the available guidance indicates that you can furlough yourself and claim for the PAYE element of your income – ie. get 80% of salary up to £2,500, which will be backdated to 1st March 2020.
If you do choose to furlough yourself, you can’t undertake any work through the company, other than to perform your fiduciary obligations as a director. In addition, the scheme pays nothing on dividend income, so the financial benefits may be relatively small.
Self-employed Income Support Scheme (SEISS)
If you are self-employed, and your business has been adversely affected by the coronavirus outbreak, you may be able to secure income through the Self-employed Income Support Scheme (SEISS), which is expected to be launched in early June.
If you included self-employment on your 2018-19 tax return, HMRC will contact you directly and invite you to apply online.
SEISS will allow you to apply for a government grant of 80% of your average monthly profit (up to £2,500), for an initial 3 months, which may be extended if needed.
The amount will be determined by an average of the 2017, 2018 and 2019 tax years. If you started trading between 2016 and 2019, HMRC will work out the average on the years you have traded.
The scheme is open to those with taxable profits of less than £50,000 (and this is more than half of your total income if you have income other than from self-employment).
In order to claim, you must be currently trading (or would be if it wasn’t for Covid-19), have traded in 2019-20 and have submitted a tax return for 2018-19.
Deferring payment of Income Tax and VAT
The next major income tax deadline is 31st July 2020. If you pay at least £1000 of tax from your self-assessment tax return, the payment due on 31st July is half of your estimated tax bill for 2019-20. This year you can defer this payment on account until 31st January 2021, without incurring any late payment penalties.
You don’t have to apply to HMRC as they won’t be making a demand for the tax due. However, if you normally pay your income tax by direct debit, you should cancel it with your bank or the payment will still be collected.
In addition, all VAT-registered businesses are being granted a deferment of their VAT payable in the period from 20th March to 30th June, to help protect income and manage cash flow during the pandemic.
The VAT eligible for deferment will be that reported on VAT returns for the quarters to: 29 February, 31 March and 30 April 2020, plus monthly returns, annual accounting advance payments and payments on account.
The VAT that is deferred will have to be paid to HMRC on or before 31 March 2021. HMRC will issue guidelines about making this payment nearer that date.
Bounce back loan
The bounce back loan scheme allows small businesses to borrow up to 25% of a business’s turnover and amounts of between £2,000 and £50,000. The government guarantees 100% of the loan, and there isn’t any fees or interest to pay for the first 12 months.
Invoice financing isn’t typically the cash flow solution of choice for most small businesses, purely because traditional factoring companies just aren’t interested in businesses below a certain turnover.
However, if you can get the right service, it can be a really quick and effective way to immediately inject funds into your business.
At this time of critical economic slow-down, you may find that clients try to put off or avoid paying invoices in order to shore up their own cash reserves.
Invoice financing works by selling your invoices at discount of their total value, giving you control over when invoice income actually comes to fruition.
To find out more about this way of advancing invoice income, have a look at Penny. They are specialists in on-demand single invoice finance for contractors, freelancers and small businesses.
Penny invoice financing allows you to sell individual invoices for a cash sum and not have to wait for your customers to pay.
In addition to those we have identified, there are a number of alternative options with the potential to free up cash flow. You may wish to consider:
- Agreeing compromises with suppliers and / or creditors
- Reducing non-critical expenditure
- Reviewing direct debits and standing orders.
This article is sponsored by Penny
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