The coronavirus crisis is putting most business finances under pressure, and it’s become crucial for many companies to focus on getting and preserving cash. Here are some quick wins which can make a big difference to keep you in business:
1. Get your R&D tax claim in ASAP and reclaim more from prior years.
The R&D Tax credit is a UK government incentive designed to reward businesses that innovate. Any company that invests resources into developing or enhancing new and existing products may be eligible (see the criteria).
Companies can get this ready in parallel to preparing their year-end annual tax returns so they can file them together and receive the cash as soon as possible. R&D specialists can assist in getting the maximum claim, often at a net benefit than if companies claim themselves since founders tend to be more conservative in their assumptions. Importantly, businesses can restate a prior year’s claim and get more from work that’s already been done. To support this, we offer a free R&D claim review service to help you figure out if it’s worth reclaiming, with our fee only on any additional money successfully claimed from HMRC.
HMRC usually take 6–8 weeks to return a claim, however this has been lengthening recently due to the current crisis. If your business needs its claim money now, some specialists also offer claims financing if you submit through their service, however this will be at an additional charge on top of their fee. For reference the market standard for specialist fees on smaller SME claims (<£0–500k) is anywhere from 10–25% of the claim amount, with the possibility to cap the total.
Finally, if you are currently partially through your accounting period, you can also bring forward your year end to the current month, and claim R&D for a partial tax year (however, you will need to file your taxes for this shorter period, as well).
2. Pay vendors later and get cash from customers sooner.
Everyone wants favourable payment terms, however it’s often a case of if you don’t ask, you don’t receive. Many larger companies are aware that their customer base or supply chain is struggling and may be open to being flexible with their payment terms now more than ever. This is a good time to either fully renegotiate your terms, or simply ask for short term relief, recent examples like Amazon Web Services have shown some flexibility with SMEs. Landlords should also not be exempt, as they will very likely be unable to secure new tenants, offering current leaseholders some leverage to negotiate a deferral or short-term reduction of your rent.
In terms of getting cash in sooner, this is the time to get on the phone and chase up late payments doggedly, every day if needed as you don’t want to be excluded from your customers’ next payment run. Companies can also look at adjusting their discounts for early payment, and also reassess their product pricing downwards to entice new customers towards cheaper upfront annual, semi-annual, or quarterly payments rather than paying in monthly instalments.
3. Delay payments to HMRC.
The UK government has put forward several emergency initiatives to support SMEs. HMRC is being uncharacteristically lenient and has automatically deferred all VAT payments for the next quarter until April 21st (though you are still required to file for them on time). Do make sure to claim back any VAT on expenses if you are entitled to, and we recommend also reviewing prior claims to make sure nothing was missed which can still be claimed late and refunded by HMRC in your next return.
Though it hasn’t been advertised, companies can also seek to defer their PAYE or NIC payments at no cost (usually there is a 3% interest charge). To do so, contact HMRC directly and request a deferral. Note that this is on a case-by-case basis, and if you do not pay without first getting approval you will be penalised as at any other time.
4. Take advantage of emergency government programs.
These offer loans partly backed by the British Business Bank to eligible companies. Thus far, it seems these are mainly applicable to companies which would have been eligible for loans under normal circumstances but have been impacted by the crisis, it is likely not to apply to previously unprofitable companies in need of additional funding. You can apply directly by going to most high street banks, however, note that banks will be prioritising their own customers which may cause a delay in the application process given the circumstances. Most banks have pledged not to require personal guarantees for amounts less than £250k, so take note if they ask for this.
Furlough Compensation: The government’s Coronavirus Job Retention Scheme allows companies to claim 80% of wages for employees to take temporary leave (furlough) due to the outbreak.
Employers can claim a grant from HMRC to cover wages for a furloughed employee, equal to the lower of 80% of an employee’s regular salary or up to £2,500 per month. The grant also covers the associated Employer National Insurance contributions as well as the minimum automatic enrolment employer pension contributions on paying those wages (this applies pro-rata from the point in the month when the employee was furloughed). This scheme is open to all UK employers who filed for PAYE payroll scheme in February 2020.
Statutory Sick Pay (SSP): This new legislation allows SMEs (with fewer than 250 employees) to reclaim Statutory Sick Pay paid for sickness absence caused by the COV-19 outbreak. It will refund employers up to 2 weeks of Statutory Sick Pay for employees that were sick or had to self-isolate due to the virus. It is important businesses maintain records of employee absences and payments of SSP in order to claim them back further down the line.
Rates Relief for Retail: The government has announced that it will increase the retail rates discount by 100% as a response to the coronavirus outbreak. It will also extend it to include leisure and hospitality sectors with a physical presence. For more information on the full list of premises that are eligible, see here.
Bounce Back Loans: This is a new government backed loan for small businesses that offers £2,000–£50,000 loans, or 25% of business turnover. These loans are interest free for the first 12 months and offer flexible terms (up to 6 years). Businesses can apply online and expect to receive the cash within days. To be eligible, businesses must be in the UK and must have been negatively impacted by the corona virus outbreak. Read more here.
We know that this may be a challenging time for startups, and we are here to help. We specialise in helping companies contingency plan, so feel free to reach out with any queries, or if you just want to chat about your company finances.