The Retirement Gym

Coping with Covid part 1: Businesses

April 07, 2020 Roy Thompson / Dan Hobbs Season 1 Episode 3
The Retirement Gym
Coping with Covid part 1: Businesses
Chapters
The Retirement Gym
Coping with Covid part 1: Businesses
Apr 07, 2020 Season 1 Episode 3
Roy Thompson / Dan Hobbs

In part 1 of this special 2 part podcast series, Roy is joined by Dan Hobbs, a Tax Partner at MHA Carpenter Box. In the last few weeks Dan has focussed on keeping up to date with the Government updates and support available for businesses during the Coronavirus crises.

In this episode, Dan talks through some of the major measures announced for businesses to help them with cash flow difficulties:

  • Coronavirus Job Retention Scheme (CJRS)
  • Self-Employed Income Support Scheme (SEISS)
  • Coronavirus Business Interruption Loan Scheme (CBILS)

Please note that this podcast was recorded on 1st April 2020 so the content reflects the Government announcements made at that point in time.

Visit MHA Carpenter Box's Coronavirus Hub for the latest information as well as other resources to help you and your business.

Show Notes Transcript

In part 1 of this special 2 part podcast series, Roy is joined by Dan Hobbs, a Tax Partner at MHA Carpenter Box. In the last few weeks Dan has focussed on keeping up to date with the Government updates and support available for businesses during the Coronavirus crises.

In this episode, Dan talks through some of the major measures announced for businesses to help them with cash flow difficulties:

  • Coronavirus Job Retention Scheme (CJRS)
  • Self-Employed Income Support Scheme (SEISS)
  • Coronavirus Business Interruption Loan Scheme (CBILS)

Please note that this podcast was recorded on 1st April 2020 so the content reflects the Government announcements made at that point in time.

Visit MHA Carpenter Box's Coronavirus Hub for the latest information as well as other resources to help you and your business.

Roy Thompson:   0:00
Hi, My name's Roy Thompson. I head up MHA Carpenter Box Wealth Management. We're a firm of Independent Financial Advisors. The Retirement Gym Podcast series typically looks at trying to help people make good retirement decisions. However, in this series, which is entitled Coping with Covid, we want to look at some of the issues facing both individuals on businesses as the Coronavirus has really upset the apple cart.  The series is broken down into two sections. The first section will be with Dan Hobbs, he is a VAT specialist and a partner of MHA Carpenter Box. But over the course of the last month or so, he's done an awful lot of work around some of the new government legislation on the announcements that have been put in place to try and help businesses survive the issues with the virus. So without further ado, I will look to pass on to Dan in our first series, so Dan, welcome to the podcast. 

Dan Hobbs:   1:05
Thanks, Roy. Nice to join you.

Roy Thompson:   1:06
Thank you very much for taking the time out, I know you've been busy. Dan, I suppose, at a high level, there's a lot of talk about some of the provisions and some of the assistance the government put in place has quite a lot of rhetoric in the in the news, some of which is perhaps slightly negative. Some has been positive. Can you tell me at just a high level, what you see as the main attributes of what the government has done and the sorts of individuals they're going to help?

Dan Hobbs:   1:36
Yeah. I mean, there's been lots of announcements by the government over the last couple of weeks, and it's certainly picking up pace. But I think it's fair to say that the government is trying to come up and adapt these schemes as things go and they can see kind of how the outbreak unfolds. And I think the crucial thing in all of this is going to be how long we stay on lock down. But certainly there are a number of important kind of provisions that have been announced. They're really aimed at protecting businesses through these very tough times and individuals through either kind of just generally being able to pay their household bills, but also thinking about jobs and that's really looking at individuals themselves. But also business. I mean the government knows coming out  the other side of this and functional business is going to be very important in the economy. But equally we want to make sure we don't have mass unemployment. So I think one of the really important ones to start with is the Coronavirus Job Retention Scheme. So this is perhaps one of the most comprehensive and biggest aid packages offered to UK business in that it is fundamentally is designed to protect jobs. Now, at times like this, we've got plenty of businesses that are not able to utilise their staff. And that could be for any number of reasons. You know, the retail sectors are being hit very hard. They've been told they have to shut their doors. Well, they got pretty much the entire workforce that can't do any work. Other businesses will be affected as well. Perhaps orders being cancelled, work dropping off, supply chain issues, you name it. And if those employees can't work normally, the first thing of business would be turning to is potential redundancy. Now the Job Retention Scheme is being designed to help businesses try and avoid that decision. So in a nutshell, what the government is offered to do where a business cannot put their workers to work as a result, off Coronavirus, for whatever reason and that business can choose to furlough those workers. What that essentially means is their employment gets put on temporary hold. Now for any employee that gets furloughed the government is undertaken to reimburse that business with 80% of their salary, subject to a maximum cap of £2500 a month. And that scheme runs with effect from the first of March up until the 31st of May, but they've already said it can and will be extended if necessary.

Roy Thompson:   4:19
Okay, And that's quite an important point, isn't it? Because I've certainly had a number of conversations with individuals around when it starts, whether whether it's in place for long enough that some people say, Well, I'm only gonna benefit for two months. What you're saying is that as it stands at the moment and these things, along with how the economic position with the virus is evolving, these things can evolve as well.

Dan Hobbs:   4:45
Yeah, indeed. It's very much a moving feast, and we've already seen that the government have kind of updated their kind of rules and guidance on this. As things go, so we still don't have the full detail. We haven't got any draft legislation or law, but we do now have a fair amount of guidance from the government and HMRC on how they think this scheme is going to work in detail and who it applies to so businesses can at least start making informed decisions on the subject.

Roy Thompson:   5:17
Yeah, and I think that's certainly when it first came out, there was the first announcement there was it seemed to me that there was an initial wave of people feeling perhaps a little bit of a sense of relief that, you know, they were previously worried about their business or individually their job role. You know that this seems like a bit of a lifeline to, support that, to really help the economy when I guess when things come out when we come out, the other side is you say. But what  in the press seems to be the case is that you know, there was a kind of a lack of detail. There's quite a lot of hearsay about what the detail was and who would benefit from this scheme. But largely it's any employer as I understand from what you're saying. can claim this provision for their workers, where they can't put them to good use or can't put them to use.

Dan Hobbs:   6:08
Yeah, that's absolutely right. It's open to all employers from the very large to the very small. The only real requirement is that the employees that considering being furloughed cannot be put to work as a result of the coronavirus in one form or another.

Roy Thompson:   6:28
OK and other questions people have. Does it have to be until the end of May or can workers come back to work during that period of time if, in fact, businesses perhaps pick up a little bit.

Dan Hobbs:   6:42
yeah,  so the provisions are fairly flexible. So a business  can choose to furlough an employee for all the way up to the end of May if they want to. In principle, they could furlough them for a longer time. But as things currently stand the government will only reimburse salary up to the end of May unless they extend the scheme. There is, however, a minimum furlough period, and that's a period of three weeks. So what some businesses are choosing to do is furlough their employees until the end of May, and I should mention you don't have to furlough your entire workforce. You can pick any number to suit the needs at the time. And if circumstances change, so you know, the Prime Minister may come at the end of April and say, Well, actually, we're starting to ease up on some of the lockdown provisions, so businesses may decide they need some of their workforce back, well they can recall them during the furlough period.

Roy Thompson:   7:41
Okay, so that's great. So it's quite a flexible scheme and as you say gives quite a lot of power for a employer to retain an employee for when when business returns to perhaps more better times. Following on from that then was quite a lot of rhetoric that the self employed or, you know, there's a limited companies have been perhaps left behind. But more recently we've had further updates from the government and there's now a scheme available for the self employed. So tell us a little bit about that, Dan.

Dan Hobbs:   8:15
Yeah, I mean that that's right. When the Job Retention Scheme was first announced, it was very well received and it is a good scheme. But, you know, the obvious question was, what about people that worked for themselves people that don't have jobs? How are the government going to support those people? So what we've got now is we've got a support scheme for self employed individuals and that quite closely mirrors the job retention scheme in many ways. So it's going to apply for a period off three months, like the job retention scheme and the amount that self employed individuals can can receive from the government is kind of calculated on the same basis. So a self employed individual will get 80% of their average profits for a three month period again subject to a cap of £2500 per month. So a self employed individual could receive up to £7500 grant from the government in kind of compensation to the fact that they would have lost profits as a result of the coronavirus. So that scheme is open for any self employed individual that runs at some form trading business. Now, when I say self employed, I mean someone who is a sole trader or a member of a partnership. The very notable exception to all of this is Director's of private, Limited companies. So many small businesses these days choose to incorporate and run businesses through a limited company structure, for good commercial reasons, and indeed it makes sensible tax planning in many cases. Unfortunately, those individuals cannot benefit from this scheme. Now what has been said is that Directors of Limited companies can, in principle, benefit from the Job Retention Scheme.

Roy Thompson:   10:10
OK, so as an employees, like a furloughed employees, that it seems that they would be able to benefit from those those provisions.

Dan Hobbs:   10:19
Yeah, I mean, that's right. So in principle, there's nothing stopping the company furloughing the director that might be involved in running it. It does, however, create a couple of practical problems because one of the requirements for anyone that is furloughed under the job retention scheme is they're not allowed to work during the period in which they're furloughed. So if you are the person responsible for running the business well, how how can you really furlough yourself if you're still gonna be the person that has to say, deal with payments to suppliers, answer calls from customers and just just generally doing the day to day? So there's a bit of a question mark over that at the moment.

Roy Thompson:   11:04
OK and that's still not been clarified that perhaps one thing still hasn't been clarified from the government.

Dan Hobbs:   11:10
Yeah, that's right. It hasn't been verified that that the only thing they have explicitly come out and said in respect to kind of owners of small companies is that if they do fall within the job retention scheme, it is only their salary element which will be eligible for the government grant. Now, typically, small business owners will be remunerated by way of a small salary, with the remainder being made up of dividend payments. Unfortunately, those dividend payments can't be included in the calculation.

Roy Thompson:   11:45
Okay, so so there is some benefit, but it's perhaps not as advantageous. It seems as if you are perhaps an employee or a self employed individual or indeed a member of a partnership. It's quite you know, what comes across to me is it's, you know, the word unprecedented is being used an awful lot over the course of the last two or three weeks, but these are quite dramatic forms of assistance that the government has put out there and shows the magnitude of what's happening. It seems to me when compared and contrasted, perhaps other governments around world, that that's a reasonable step that the government has made, even if it's not necessarily perfect. You've highlighted there, perhaps some winners and losers within that. Is that a sort of a fair assessment?

Dan Hobbs:   12:37
Yeah, I think that's right. I mean, most of these measures at the moment have been designed to address the masses so that there are still plenty of people that are going to fall through the gap for the time being. Whether or not the measures will be extended or new ones announced, it's too early to say. All we really can do at this stage is keeping lookout for for what the government is saying and any changes that might be announced that. But until we get the very detailed rules, in particular the law, which supports all of this, we are guessing, to a certain extent on some of these kind of fringe cases.

Roy Thompson:   13:19
OK. Yeah, so so they're really useful and then, furthermore, that they've sort of introduced the potential for grants or loan structures that you can seek to obtain through your banks. Just at very high level for those business owners listening to that. What sort of key things should they be taking away and perhaps, what would they need to be too produced to be prepared for, you know, when they approach their bank for lending?

Dan Hobbs:   13:48
Yeah, that's right. I mean, those two things I've just spoken about are just two of the measures that the government have announced to support business. There are, of course, some others so you've just mentioned the borrowing scheme there. So we've got the Coronavirus Business Interruption Loan Scheme. So that is effectively a way of the government releasing funding so banks can provide loans to businesses that have been affected by coronavirus to help them through cash flow difficulties, perhaps where their shops are shut or customers aren't paying whatever the reason might be. Now, under these, under this specific scheme, a business can apply to a bank for a funding facility, and that could be in form of a loan or perhaps an overdraft. It would depend on the case by case basis. The bank will be able to lend to that business, and the government will provide the bank with a guarantee of up to 80% of the loan value.  Now the reason that's so important is one of the main reasons a bank may not lend to a business is because there isn't sufficient security in the business to warrant the borrowing. So typically, if a bank was going to lend a business £100,000 what they'd want to look at is well, in the event the business couldn't repay that loan, what might I able to take possession of or sell in order to get my money back? And if a business doesn't have a lot of assets in terms of perhaps property or other tangible assets that could be moved or or lots of money owing to them from customers the banks will generally be quite nervous about lending that so the government providing this kind of 80% guarantee reduces the bank's risk significantly,

Roy Thompson:   15:37
yes, so that's quite again, in addition to the provisions they made for employers to help their workforce, that is a step further, to help the wider business and the sustainability of that. When approaching what sort of things with the bank typically be asking for. So from a purely organisational point of view, what is it that business owners need to to prepare typically when they approach bank lending of that nature?

Dan Hobbs:   16:09
So the bank will still want to assess that the business itself is viable, so security is an important factor. But perhaps the more important one is the bank wants to make sure that they're lending to a business which has a good model. It is a good, viable business. Now, I would say that they are taking into account that during this period of crisis, well, there's going be plenty of businesses that were looking good and profitable, that may not be for the short term, so they are very much looking at the state of business pre outbreak and what it looked like. So what we're expecting and what a lot of banks are asking for is kind of financial information to support any application. So that would normally be in form of kind of recent statutory or management accounts to show historic business profitability and kind of turnover. But they're also looking for kind of forecast for the next 12, 24, 36 months that depending on the kind of term of borrowing, to try and get an assessment of what business cash flow is going to look like. So anyone looking to apply for some kind of funding, whether it's under the Coronavirus Business Interruption Loan Scheme or other borrowing, it's going to certainly be worthwhile having that kind of financial information ready or certainly be in the process of preparing it.

Roy Thompson:   17:33
So quite normal things that bank it's still gonna be looking for. You know, these aren't things that they no additional things, that they're not things they wouldn't normally ask for when when you approach for lending, so you should approach if you're business owner you should approach the bank in the same way with an open conversation around security and perhaps cash flows and management accounts all of which will helps speed up the process when you do manage to speak to the bank and get a conversation started on that subject.

Dan Hobbs:   18:08
Yeah, absolutely.

Roy Thompson:   18:10
So Dan. We've been speaking for 10 15 minutes. It's obviously a very trying times, I referenced at the beginning for individuals, lots of people worried about you know, not only their own health and their family's health, but the health of their own business or they're employed position. So hopefully some of that information that you've just gone through has been useful. Where can people go? So having listened to this, which covers things at very high level, what sort of resources can they access that perhaps you've prepared.

Dan Hobbs:   18:44
Yes. So I mean we as a firm, we've produced a Coronavirus Hub, which is available on our website. So if you would go to www.carpenterbox.com our website has a whole host of resources which are being updated daily as matters progress. There's a whole host of information there for measures which are available for businesses to take advantage of and indeed measures for individuals aswell  and what they may be able to kind of available to help them through these difficult times. So we're updating that regularly. Beyond that, I would always recommend people try and go to official sources if they want to look for things, you know, the .gov website is being updated as and when new measures are announced, the only kind of qualification I would add to that is that it's not always worded in a very user friendly environment. So the content we produce is somewhat distilled summary of what's published on the government website. There's also a webinar that we've produced recently, which kind of discusses some of these topics in further details. So that is live on our website and available for anyone to watch as well.

Roy Thompson:   20:05
Dan that's been really, really useful and hopefully has covered off some of the main points that a lot of people have questions about at the moment. So thanks for your much for your time today. I'll let you get on. I know you're busy with people enquiring about these sort of things, and you're looking to provide assistance. Thanks very much.

Dan Hobbs:   20:24
No problem, Roy. Thanks for having me.

Roy Thompson:   20:27
In the second part of the series, I'll be speaking with Kelvin Riches. Kelvin is a Chartered Financial Planner and he's spent a lot of time in the last month dealing with individuals as they become more and more concerned around their own personal finances. Should you need further resource then I would point you to MHA Carpenter Box Coronavirus Hub. So which can be found at www.carpenterbox.com/coronavirus. Thank you for listening.