We have talked about the need to manage cash flow over the past few months, and businesses have benefited from the grants, reliefs and other support provided by the Government in response to the Coronavirus pandemic. More recently, the focus has shifted towards preparing for the “new normal” and away from cash flow. Many businesses have found themselves to be cash-rich, and worrying about the need to pay suppliers has probably shifted down the priority list as they get to grips with the new way of working. However, as Government support starts to be reduced, now is a good time to highlight some potential pinch points:
The Government have started to reduce their support through furloughed workers, which commenced in August. Our Head of Payroll, Karen Thomson, has provided some further guidance on what that reduction looks like, and this phased reduction will start to impact on cash flow over the next three months, with it being phased out entirely by November 2020. Whilst many businesses have deferred the PAYE/National Insurance contributions element with HM Revenue & Customs, we understand that HMRC are now starting to ask businesses to start to pay over the tax arising from the furlough scheme.
Where businesses are planning on making further reductions in headcount, factoring in redundancy costs and other employee costs will be important for ensuring that the cash flow forecast remains accurate.
30 September 2020 is the next key date for businesses, with both the relief provided to tenants with rent arrears, and the suspension of the ability to issue winding up proceedings finishing at the end of September. This will mean that landlords will be able to take steps to enforce their rights where businesses have arrears of rent, so if you are in this position, it is important that you factor in any rental payments in full with effect from 1 October, together with any payments of arrears.
With regards to creditor pressure, businesses have benefited from creditors being unable to present winding up petitions over the last few months, however once the relief is lifted creditors will be able to enforce their rights. As a reminder, if a winding up petition is presented, this severely limits your options to restructure and deal with the issues in the business and, if the petition is advertised, it will likely result in your bank freezing your facilities. It is imperative therefore, that if you receive any paperwork which is threatening to issue proceedings that you seek advice immediately.
From 1 December 2020, HMRC will rank ahead of floating charge creditors in an insolvency (they currently rank alongside trade creditors). We suspect that this may have an impact on lenders’ appetites to be flexible around increasing working capital facilities as they look to manage their exposure, especially where there are Crown arrears. This may result in some lenders looking at reducing overdraft limits or drawdown percentages which will impact on the working capital available for businesses with overdraft or invoice discounting facilities. Keeping a close eye on your cash will therefore be vital.
The UK has left the European Union and we are currently in a transition period until 31 December 2020, after which we will no longer part of the EU. There is still significant uncertainty around what Brexit will look like, however it is fair to assume that if your business is involved in trade with the EU in some way, or if part of your supply chain imports or exports to/from the EU, then there will be some disruption to your business. Taking a look at your supply chain now will likely stand you in good stead for the exit.
The Government provided a deferral for all those who submit self-assessment returns which means that any tax ordinarily due in July 2020 has been deferred until 31 January 2021. Whilst this article is aimed at businesses, many business owners will be looking at making payments for tax on dividends/savings, etc. and it is therefore right that we use this as an opportunity to remind people that there will be additional personal obligations in January 2021.
The end of the tax year (31 March 2021) sees the deadline for the repayment of deferred VAT. As with all of the above, factoring this future payment into cash flow forecasts is important and if it looks like your business will struggle to meet the repayment, speaking to HMRC early will help you achieve the outcome that you want.
We are not out of the woods yet – as you can see there are a few key pinch points in the next few months that may cause issues for business owners at a time when reduced operations are already impacting on a business’ bottom line. Being aware of the various changes and the respective dates will be key to staying on top of the ever-changing landscape.