Q: How should I manage money risks when my business is struggling with cashflow?
Even more carefully than usual. The money risks involved in operating as a sole trader are covered in this guide. The biggest risk being that your personal income and assets (e.g. flat/house, car, savings) are at risk if you cannot pay your business debts.
The good news is that the government has announced emergency measures to help, and you should be able to benefit from some of them, for example:
deferment of the next VAT quarterly payment:
This means your businesses won't need to make pay the VAT due for the coming quarter (April–June 2020) until the end of the 2020-21 tax year (i.e. next April). This is essentially a cash loan for your business from HMRC. VAT for the 3rd quarter of 2020 (July–September 2020) is currently still payable at the end of September 2020.
Delay of your next income tax return, so that this year’s tax won’t need to be paid until end of January 2022 – though you should still budget to pay your tax so that it doesn’t become a nasty crunch point when it falls due.
Rent-payment breaks for residential tenants:
Residential tenants can apply for a three-month payment holiday from their landlord.
No one can be evicted from their home or have their home repossessed over the next three months.
At the end of this period, landlords and tenants will be expected to work together to agree sensible repayment plans.
Rent-payment breaks for business tenants:
If you rent a property for commercial reasons, e.g. a workshop, storage facility, factory, etc., there is currently no specific relief outside of the loans, grants, etc. that the government is making available to help businesses manage the costs of their overheads.
Tenants who are unable to use their premises because of government-ordered shutdowns may try to seek a rent suspension arrangement or to withhold rent, but this is likely to be a breach of their lease obligations unless they can argue that the terms of their lease specifically permit them to take this action in these circumstances or, if the lease includes it, the ‘force majeure’ clause within their lease covers these exceptional circumstances – often it won’t have specified this kind of event, meaning that the tenant isn't permitted to do this.
Business rates relief:
There are a number of business rate reliefs available too – if you pay these for your business.
The government has introduced a payment holiday, meaning you won't have to pay these rates for the year 2020/21.
You can find out more here. Particularly weighty measures are available to those in retail, hospitality and leisure, but even if you’re not, you should check out the other rate reliefs – most small businesses to whom rate payments apply will benefit from this holiday.
Self-employed people can now access full universal credit at a rate equivalent to statutory sick pay. You can apply for this online here.
Other possible cash grants that may apply to your business:
Your accountant will be able to advise you on these.
Job retention scheme:
If you employ staff, look up the Covid-19 Job Retention Scheme, which if you’re eligible, means that the government will cover 80% of the salary of an ‘at risk’ employee, up to a cap of £2,500 per month, per employee. The government is calling these affected employees ‘furloughed employees’, meaning staff that you’d otherwise have to lay off or make redundant if you didn't have this emergency 80% salary cover.
You can use our template letter changing employment contract for furlough arrangements to do this quickly and simply.
This arrangement is backdated to 1 March 2020 and will apply to the wages of affected staff for a period of 3 months (or possibly more if needed).
For more details on the Job Retention Scheme and to determine whether you’re eligible, click here. HMRC is developing a dedicated online portal to process applications and portals.
Don’t forget the Business Interruption Loan Scheme and time to pay arrangements agreed with HMRC – covered in the first answer to these questions.
Check your insurance position too. We’ve covered some of the possible protections above.
In addition to those insurance policies already mentioned, if you have trade credit insurance, now may be the time to make a claim on that policy.
This type of insurance protects you when customers don’t pay or delay paying you for goods that they’ve ordered from you. It primarily covers the position where a customer goes insolvent or delays paying you. It doesn’t usually cover suppliers going insolvent or reducing their supply volumes.
If you’re having difficulties paying back credit cards or loans (that are not mortgages), you should talk to your bank as soon as possible. They may be able to put in place a special payment plan for you.