Where are we with COVID-19?

While some companies can continue to trade working from home, or with a reduced staff, the demand for services and products by consumers has plummeted, resulting in a knock-on effect in nearly all sectors. Exports are down globally as companies face reduced demand and closed borders, while the entertainment and hospitality industries have been impacted the hardest by the lockdown.

What is the government’s response?

With the current pandemic of COVID-19 having an impact across the globe, the UK government has responded with a package totalling £330 billion to support businesses. Recognising that SMEs will be the hardest hit the government has brought in several measures to aid these entities that make up 99.9 per cent of private-sector business in the UK. 

COVID-19 has had an unprecedented impact on our economy, with businesses adapting to short-term diminished demand by reducing their business output, shutting down, temporarily or permanently, or taking their entire offering online.

The unprecedented measures brought in by the government were widely positively received when announced in March. Highlights for SMEs include refunds available for statutory staff sick pay that will cover up to two weeks for staff affected by COVID-19, without the need to present a GP note.

The Coronavirus Business Interruption Loan Scheme is available to support SMEs access to loans and overdrafts. It will support a loan value up to £5 million, with the government covering the first six months of interest for credit taken under this scheme to help SMEs further.

For larger companies, the Bank of England will be facilitating the new COVID-19 Corporate Financing Facility that will ensure firms can continue to finance short term liabilities and continue to trade through this difficult time. However, being chiefly loan-based, this support system may deter many companies facing difficulty who are reluctant to increase their debt burden.

The government has also committed to paying 80 per cent of staff salaries up to a cap of £2,500 for members of staff who would be laid off during this crisis via the Coronavirus Job Retention Scheme. This will help a great many small businesses, with the Self-employment Income Support Scheme offering comparable aid to those self-employed who are being hit with the deduced demand and budget cuts.

What challenges are your clients facing?

The Corporate Finance Network has estimated that 18 per cent of SMEs will not survive the pandemic intact with the current measures.

Businesses are now battening down the hatches for an extended period of uncertainty. While the government is pulling out the stops to support the UK economy, several reports show that access to these funds is not easy for all who need it. Banks are attaching interest rates of up to 30 per cent on borrowing, and some government loans are accessible only when other forms of credit have been exhausted.

Many businesses feel they would not be able to cope with the level of debt they would find themselves in once the crises measures are lifted. Now is the time for accountants to be ensuring that their clients are exploring all avenues to boost cash flow.

The interruption of supply chains, closures of facilities and unavailability of staff mean that businesses cannot maintain their service offering to their clients, causing a loss in revenue and inability to fulfil contracts. As companies look to survive these trying times, there are several factors that they and their accountants should be considering.

How could we work together to support your clients?

In looking to protect businesses, tax relief is a viable option to get a cash injection into your client’s business without pushing them further into debt. These schemes are already in place, with HMRC continuing to drive through claims for our clients during the pandemic. Exploring unclaimed research and development, capital allowances, patent box and remediation of contaminated land tax relief could mean the difference of over £57,000 to your clients’ bottom line per relief.

R&D tax relief was a major highlight of the recent budget announcements, on 11 March 2020, with the Chancellor releasing plans to increase public R&D investment to £22 billion per year in by 2024-25.

For qualifying companies, R&D tax relief is money claimed back for work already done and paid for, providing a much-needed cash injection now. If your clients own a commercial property with unclaimed qualifying plant and machinery, they could uncover thousands in capital allowances. Remediation of contaminated land tax relief offers additional relief for money spent by companies removing harmful contaminants from land and buildings. Patent Box is an effective reduction to a Corporation Tax liability for profitable companies exploiting patents.

Accountants are currently talking with their clients constantly. Identifying and uncovering hidden value during these trying times may just help businesses get through the financial strain of this crisis. There remains a high percentage of companies that don’t realise they qualify for valuable tax relief. Now more than ever, accountants and SMEs should be exploring these potential opportunities.

Nigel Holmes FCA CTA, head of R&D technical operations, Catax