UK COVID-19 Financial and Business Support Measures
A Summary of the UK COVID-19 Financial and Business Measures Announced by UK Government
Part 1 – Tax Updates
Part 2 – Liquidity Support Measures
Tool to find support for businesses
On 22 April 2020 the Government launch a new tool to help businesses navigate the various Coronavirus related support measures that may be available. The tool takes the form of a questionnaire and, depending on the responses, provides direction to the potentially applicable support for the business.
Given the huge range of support measures which have been made available to businesses the support tool will be invaluable in ensuring that businesses can more easily understand which measure are applicable for them, and to help ensure that no potentially important measures are inadvertently overlooked.
Coronavirus Job Retention Scheme
The "Coronavirus Job Retention Scheme" is intended to cover 80% of salary up to £2,500 per month and the associated employer costs (i.e. employer National Insurance contributions and the minimum automatic enrolment employer pension contributions on that salary), for employees of any employer in the country who are not working, but have been kept on rather than made redundant (i.e. who have been furloughed).
Following an extension announced on 12 May the scheme will run until 31 October 2020. Until 31 July 2020 the scheme will continue to operate as it does currently, but from 1 August 2020 the scheme will be extended to allow claims for employees who continue (or return) to work part time (rather than the current requirement to be furloughed completely). From 1 August 2020 businesses who continue to use the scheme will be required to pay a percentage towards the salaries of their furloughed staff, although what this percentage is has not yet been confirmed. Further details will be announced in due course.
The scheme will cover employees who were on payroll on 19 March 2020 (including both part-time and full-time employees, as well as those on agency contracts or on zero-hour or other flexible contracts). Note that “on payroll” means that an electronic payroll submission must have been submitted by 19 March 2020 – most commonly this will cover monthly paid employees who were employed at the end of February 2020. For employees with regular hours the claim is calculated by reference to the employee’s actual salary before tax as of their last pay period prior to 19 March 2020 (again, most commonly this will cover February 2020 for monthly paid employees) (excluding any bonuses or similar). For employees with variable hours the calculation is based on the higher of the same month’s earnings from the previous year or the average monthly earnings from the 2019-20 tax year (or, where employed for less than a year, the average of their monthly earnings since they started work).
The employer will need to designate the employees as “furloughed workers” and notify them as such. A collective agreement between the employer and trade union has been deemed as an acceptable way of gaining employee consent to cease work during furlough. It is important to note that when on furlough an employee cannot undertake any work for or on behalf of the employer. Employees who are on reduced hours rather than furloughed are not covered.
Whilst furloughed employees cannot carry out any employment duties, although they may undertake training. Any directors who are furloughed must still undertake their statutory duties as a director, but cannot carry out any other duties.
The scheme is administered by HMRC through an online portal which was launched on Monday 20 April 2020. It has been confirmed that the scheme will be backdated to 1 March 2020 and will run in its current form for 5 months (having been extended twice since initial announcement.
The portal operates on a “self-service” basis, and employers will need to manually calculate their claim, however the online resources published by HMRC include a calculator to help businesses work out how much they can claim, limited to straight forward cases. In order to help combat fraud, HMRC will run a number of background checks prior to releasing payment and may check calculations after pay-out. HMRC expect to be able to make payments six working days after the claim is made. The scheme is expected to continue, but with changes, from 1 August to 31 October 2020 - further details to be announced.
This will no doubt be a very welcome measure for employers who are keen to retain employees during this difficult period but who are struggling to fund salary costs, (including associated National Insurance and minimum pension contributions), especially with the extension of the scheme. Employers may decide to pay furloughed employees more than the subsidy if they wish (for example, by continuing the employees regular pay) but do not have to.
Of key importance for employers will be ensuring that the claim process is quick and easy so as to not add undue administrative burden at this difficult time. It is helpful that HMRC have provided an online calculator to assist with the most straightforward cases. It is also positive to see HMRC making changes to the online claim system to allow employers to save and return to in-progress claims and to hear that HMRC are looking to implement a system to make amendments to submitted claim. However, until then it is important to note that:
- once a claim has been submitted for a period it cannot be amended, added to, or re-submitted – so it is vital that employers are able to get the claim right in the first instance.
It is perhaps disappointing that employers will be required to calculate their own claims (including the amount of employer National Insurance contributions and auto-enrolment contributions). HMRC have confirmed that the portal has been tested to withstand up to 450,000 claims per hour (for context, there are around 2 million PAYE schemes, so it would appear that around 23% of PAYE schemes could make a claim almost simultaneously).
It is vital that employers consider their legal obligations under employment law (including equality and discrimination laws) when furloughing workers – something that many employers are unlikely to have done before. This will include gaining consent from employees and formally notifying employees they have been furloughed. There may be additional legal fees incurred for employers at this difficult time.
HMRC have encouraged employers to ensure that they pay their employees on their normal contractual payment date, to ensure that the grant is reported to HMRC via Full Payment Submission. If employers are using the grant to reimburse wages already paid, they do not need to make another Full Payment Submission for this amount.
Employers may also face difficult decisions when the scheme comes to an end, with a decision on whether to continue furlough arrangements, put employees back onto their regular hours, or terminate contracts – especially if they are still struggling financially.
On 15 April the Government extended the eligibility cut-off date for the scheme from 28 February 2020 to 19 March 2020, meaning furloughed employees that were on payroll as of 19 March but not 28 February will now be covered by the scheme. It is important to note that this only covers employees were an electronic payroll submission has been made by 19 March – therefore this will not affect the position of the majority of monthly paid individuals, unless the employer’s regular payment date is early in the month. This will be hugely welcome news to employees who started work shortly after the original 28 February cut off date and were not covered by the scheme but who were paid on or before 19 March 2020 (for example, weekly paid employees). The Government have also confirmed that if, based on the previous cut off date, an employer has calculated a claim based on salary as at 28 February and this differs from the salary as at 19 March then they can still choose to base their calculations on the original date for their first claim.
On a further practical matter, it is important that employers ensure they are registered for online PAYE services in order to be able to make any necessary claims. Usually this process involves a wait of up to 10 days for an authentication code by post. In welcome news, we understand that this requirement has now been removed, allowing almost instant registration for employers.
We note that some employers have had their CJRS claim rejected, because they are in arrears with some of their tax liabilities. However, HMRC have confirmed that this was a mistake and the employers should not have been rejected for support. These employers are encouraged to re-apply to the scheme.
Finally, we await details of what the scheme will look like between 1 August and 31 October 2020 – whilst the extension to allow claims for employee who continue (or return) to work part time is certainly very welcome, we will need to wait for further details on the additional contributions expected from businesses to understand the overall economic impact.
To assist companies in record keeping for future claims HMRC have provided a template, which is available from the ICAEW here.
HMRC’s online calculator is available here.
Deferring VAT payments
Following on from the announcement in the Budget 2020 that HMRC was permitting increased use of time to pay arrangements for businesses, the UK Government has gone one stage further by allowing all UK VAT registered businesses to defer their VAT liability where it arises in the period 20 March 2020 to 30 June 2020. Businesses do not need to apply for this deferral and businesses can automatically choose to apply it. The deferred VAT would need to be paid on or before 31 March 2021. This measure is in line with similar actions taken by some other European countries. However, the deferral will not be applicable to payments due under the Mini One Stop Shop (MOSS) scheme or to payments due for import VAT.
This is a welcome relief for businesses and addresses the difficulty with arranging time to pay agreements which HMRC were previously recommending. On-line traders who are accounting for VAT under MOSS may be unhappy, but as the UK Government is only collecting this VAT on behalf of countries in other EU Member States, this is perhaps not a surprising restriction. In addition, there has been significant lobbying to have import VAT added to the scope deferral. HMRC have not decided to extend the deferral that far, although certain vital medical equipment may be covered by the relief for import duty and VAT. However, it is understood that the Chartered Institute of Taxation has been received confirmation from HMRC that they are willing to discuss agreeing an extended period for the payment of import duty on a case by case basis. This is important for those businesses which have a duty deferment account as such an agreement would allow the delayed payment without HMRC calling on the business’s deferment account guarantee or suspending the deferment account (HMRC’s comment on this can be found here).
It is important to appreciate that this is a deferral and not a waiving of the liability, albeit that the VAT liability does not need to be paid until 31 March 2021. However, VAT returns should still be completed and submitted as normal.
It applies to all VAT payments that are due in the period from 20 March 2020 to 30 June 2020, so includes payments due by 7 April 2020 for VAT periods ending 29 February 2020. It also includes VAT Payments on Account that are due during this period.
HMRC have confirmed that repayment claims will still be made by HMRC as normal which will be welcome news for development companies and exporters.
Finally, HMRC have confirmed that those businesses that pay their VAT liability by direct debit and want to make use of the deferral will need to cancel the direct debit as soon as possible, otherwise HMRC will call for the payment as normal.
Time to Pay arrangements for other taxes
The Government extended the scope of HMRC’s “Time to Pay” service – making a specific helpline (08000 159 559) available for all businesses (and self-employed individuals) who have outstanding tax liabilities that they are finding difficult to pay due to COVID-19.
These arrangements are agreed on a case-by-case basis.
Although partially dealt with by the VAT deferral, the extension of the Time to Pay service is crucial for the cashflow position of many businesses. Whilst some early indications suggest it is still difficult to reach a helpline operative in a timely manner, our experience is that those businesses who are dealt with by the Large Business Service are finding that they have been able to get swift agreement where needed once they have been able to speak to their Customer Care Manager (CCM) to discuss their situation.
Our experiences suggest that, once able to reach them, HMRC are currently able to quickly agree payment deferrals for quarterly corporation tax installments for a period 3 months, with limited information requirements (and without the need for detailed financial information). We understand that, on verbal agreement, HMRC will apply the deferrals automatically and that no formal confirmation will be received by the company. It is expected that further advice will be issued regard any potential longer deferrals, once this initial period has passed.
Business rates holiday for retail, hospitality and leisure businesses and for nursery businesses
The Government will introduce a business rates holiday for retail, hospitality and leisure businesses as well as estate agents and letting agencies in England for the 2020/21 tax year.
All businesses in England that are in the retail, hospitality, or leisure sector or are estate agents or letting agencies will be eligible, no matter what their size. In order to benefit properties must be used (wholly or mainly) either:
- As shops, restaurants, cafes, drinking establishments (e.g. bars and pubs), cinemas and live music venues;
- for assembly and leisure;
- as hotels, guest premises and self-catering accommodation.
- as estate agents or letting agencies.
Nursery businesses in England also qualify where their properties are on Ofsted’s Early Years Register or are (wholly or mainly) used to provide Early Years Foundation Stage.
On the 25 March, the Government announced that the business rate holiday for next year would also be extended to estate agents, letting agencies and bingo halls that have closed as a result of the Covid-19 measures.
Eligible businesses do not need to take any action – the relief will be applied automatically in their next council tax bill in April 2020.
While business rates are devolved to the local Governments of Scotland, Wales and Northern Ireland, both Scotland and Wales have announced similar business rate holidays for retail, hospitality and leisure businesses.
This will be welcome news for eligible businesses, particularly given that the relief and that it will apply automatically. However, the overall value of this holiday is unlikely to be substantial for most, who will also need to determine what other measures may help with cashflow. The extension in England of the measure to estate agents, letting agencies and bingo halls will also be welcome news, although the additional restriction that they must have closed may not be helpful for some that have been able to remain open.
Deferring Income Tax payments
Self-employed individuals generally pay their income tax via “Payments on Account” – two installments based on their previous year’s tax bill, with 50% due on 31 January (prior to the relevant tax year) and the remaining 50% on 31 July. The 31 July 2020 due date for the second 2020-21 payment on account will be deferred until 31 January 2021.
The deferral is automatic and no penalties or interest for late payment will be charged in the deferral period.
Self-employed individuals will no doubt appreciate the automatic deferral of the July 2020 payment on account, which should help to ease cashflow issues. This move will also ensure that individuals do not have to make a payment based on their prior year’s tax liability, which may be too high for some.
It is, of course, possible that with the current downtime for many self-employed individuals, there may still be difficulties in making a tax payment in respect of last year’s tax income. Further help may be available via the extended Time to Pay scheme.
Coronavirus Job Retention Scheme and Administrations
The government has confirmed that the furlough scheme is available in respect of employees of companies in administration. However, the government has stated that “we would expect an administrator would only access the scheme if there is a reasonable likelihood of rehiring the workers”. There has been press criticism of administrators in certain cases because they have made staff redundant rather than placing those staff on furlough – this criticism may be unfair based on the government guidance.
Administrators have also sought input from the courts, notably in the Carluccio’s and Debenhams cases, in relation to the interaction between the furlough scheme and insolvency law. Administrators have 14 days at the commencement of an administration to decide which employee contracts to adopt – employees are then either retained (and their wages must be paid as a priority) or they are made redundant.
In the Carluccio’s case the court has confirmed that contracts are not adopted until either a furlough application is made or wages are paid to the employees. This provides the administrators with additional time to determine whether to adopt employee contracts. During this time the administrators can seek a solution for the business without the risk that employee wages (including amounts above the 80% / £2,500 caps) will be a priority expense in the administration.
The Debenhams situation differs from Carluccio’s: the staff were already furloughed prior to the administration; consents were not sought from staff to the furlough and given over 15,000 retail staff obtaining consent would be challenging. The Debenhams administrators also wished to continue to make payments to the staff (subject to the furlough scheme limits) but were concerned that should they do so that contracts would be adopted and the amounts above the furlough scheme caps would become a priority expense. The Debenhams administrators’ application to court was heard on 15 April 2020 seeking clarity on whether employee contracts would be adopted where employees remained furloughed. The judge was not prepared to give directions and an appeal is anticipated.
Administrators and their legal advisors will need to carefully assess the position of furloughed employees for each new administration case, and determine whether any court applications or other actions are required in the initial 14 day period before contracts are adopted. The position remains uncertain pending the outcome of any appeal of the Debenhams judgment.
Self-Employed Income Support Scheme
Similar to the Coronavirus Job Retention Scheme, eligible self-employed individuals will be able to apply for a taxable grant worth 80% of their profits, up to £2,500 per month, covering the 3 months from March to May 2020.
The new “Self-Employed Income Support Scheme” is open to self-employed individuals with a trading profit of less than £50,000 in 2018-19 or an average trading profit of less than £50,000 from 2016-17, 2017-18 and 2018-19. To ensure that only genuine self-employed individuals can claim, more than half of an individual’s income in these periods must come from self-employment. Individuals who use a personal service company (as is the case for many contractors) will not be covered by the scheme – they are not self employed – but where they pay themselves a salary through their company some help may be available via the Job Retention Scheme, assuming they are operating PAYE schemes.
HMRC will use existing information to check potential eligibility and will notify eligible taxpayers directly with guidance on how they can apply through an online portal. From 4 May 2020, HMRC has started contacting those self-employed individuals it believes are eligible for the scheme. HMRC will also use the existing information to calculate the grant, so at no stage will the taxpayer have to provide any further financial information.
The claims service opened on 13 May and the Government have confirmed that the grants will be paid in a single lump sum instalment within six working days of completing a claim.
For those self-employed workers who are covered this should provide welcome news, although for many who are struggling with cash flow right now it may be disappointing that they will not receive any payments until late May, at the earliest. Eligible individuals may be able to receive a business interruption loan in the interim to provide some additional help.
The government was keen to highlight that the scheme will cover 95% of self-employed workers. That being said, it will still be disheartening for those whose trading profit is slightly over £50,000, or for those who have only become self-employed since 6 April 2019 who will not receive any support under this scheme.
During the announcement the Chancellor also alluded to a potential equalisation of National Insurance contribution rates for self-employed and employed people in the future – something the Government previously tried to implement, but abandoned due to negative reaction.
For individuals who are uncertain whether they will be eligible for the scheme, HMRC have provided an eligibility checker, available here.
Coronavirus Statutory Sick Pay Rebate Scheme (“CSSPRS”)
The Government will refund eligible SSP costs in respect of employees who cannot work due to coronavirus (or self-isolation) for periods of sickness up to 2 weeks, starting on or after 13 March 2020, to all employers with fewer than 250 employees (measured as at 28 February 2020).
Eligible SSP costs will include two weeks of SSP per employee who has not been able to work due to COVID-19.
Employers will need to maintain records of absences and related SSP payments.
As the scheme is being operated under the EU’s Temporary State Aid Framework, as part of their claim employers must declare that it will not result in the amount of state aid received by the employer exceeding their maximum temporary aid available. HMRC’s guidance during the claim process highlights the maximum level of state aid that a business may receive (normally €800,000) and reminds businesses that they should not claim amounts that take them above this limit, in combination with any other aid received
This measure should help employers to cover the cost of sick pay for staff. However, many employers offer contractual sick pay which is in excess of SSP and, therefore, may not receive full reimbursement for their costs.
A new online service for employers to make their CSSPRS claims was launched on 26 May 2020 and can be accessed here. We hope that, given the success in quick payments from HMRC with the Job Retention Scheme, payments will flow quickly to businesses who need to make a claim.
As with other claims that interact with State Aid, it can be difficult for businesses to ensure they fully comply with state aid rules and it is somewhat disappointing, therefore, that HMRC do not provide additional assistance or guidance.
An overview of other tax and fiscal measures introduced in other global jurisdictions can be found here: https://wts.com/global/insights/covid19
Stamp Duty on transfers of unlisted UK shares
HMRC Stamp Office has announced temporary processes to deal with Stamp Duty for the duration of this emergency period. While transfers of listed shares are carried out electronically, ordinarily the stock transfer forms used to transfer ownership of unlisted UK shares have to be physically presented to the Stamp Office for stamping. The emergency processes mean that the documents may be scanned and emailed (with payments of duty also being made electronically). Electronic receipts will allow company registrars to update registers of members.
New guidance can be found on Gov.UK, at Completing a Stock Transfer Form and Paying Stamp Duty. More detailed guidance will be added shortly.
Postal applications relating to stamp duty should no longer be made.
This is a practical and welcomed change that both enables more HMRC staff to work from home, and also removes the difficulties about sending and receiving correspondence. Further guidance will be issued in relation to group relief and claiming other exemptions. Challenges to be anticipated will be around file size limitations, and turnaround times, but HMRC are looking to work together with the taxpayers to ensure any issues are minimised.
Making Tax Digital – Delay to the Requirement for Digital Links
The Making tax Digital for VAT regulations require businesses to ensure that VAT returns are submitted digitally, and for there to be digital links between the various pieces of software that are used so that there is no manual intervention in the “digital journey” of the data from it being inputted to the submission of the VAT return.
While most business will have already signed up and submitted their first VAT returns under these new regulations, HMRC allowed a “soft-landing” period of 12 months for the digital link requirement. This meant that businesses were not required to have the digital links in place before VAT return periods starting on or after 1 April 2020 (or 1 October 2020 for some businesses where MTD was deferred by six months). Now, as a result of the Covid-19 crisis, HMRC have announced that the digital link requirement will be delayed further by twelve months to VAT return periods starting on or after 1 April 2021. This new timeline will affect all businesses, even those who only required the digital links to be effective from 1 October 2020.
For some SME’s, whose only piece of relevant software is their financial package, this announcement will not be relevant as they will already be fully compliant with Making Tax Digital. However, for larger businesses and those with multiple systems which may have required remediating actions and improvements, this delay will be welcomed.
Carrying Over Annual Leave
Workers (including agency workers and those on zero-hours contracts) who have not taken all of their statutory annual leave entitlement due to COVID-19 will now be able to carry up to 4 weeks of unused holiday over into the next 2 leave years.
The changes will help to ease the requirements on businesses to ensure that workers take their statutory amount of annual leave in the year. This will ensure that employers in key industries heavily affected by COVID-19 will remain well-staffed by allowing key workers to carry over annual leave at a time when granting annual leave could leave them short-staffed.
What is not yet clear is whether these changes force employers affected by COVID-19 to allow employees to carry over leave or rather no longer requires them to ensure that the employee takes the full 28 days leave in one year. The new regulations state that workers have the right to carry over where it is not reasonably practicable for a worker to take some, or all, of the holiday to which they are entitled to due to COVID-19. To the extent an employee cannot reasonably take leave due to commitments arising from COVID-19 then the employer will be forced to allow the employee to carry over leave. However, it remains to be seen whether if an employer provides the employee a reasonable opportunity to take leave then they cannot be forced to allow a carry-over under these changes.
No Import Duty and VAT on Vital Medical Supplies
The Chancellor has removed import duties and VAT on vital medical supplies and equipment (including protective garments and eye protection, cleaning solutions and disinfectants, diagnostic reagents and certain medical consumables) brought into the UK from non-EU countries during the COVID-19 outbreak.
The relief can be claimed immediately by:
- State organisations, including state bodies, public bodies and other bodies governed by public law
- Other authorised non-state bodies. Organisations can request authorisation by contacting the National Import Relief Unit (NIRU) by emailing firstname.lastname@example.org
These organisations can claim for relief on certain imported goods that are for distribution, free of charge, to those affected by, at risk from or involved in combating COVID-19, regardless of whether they remain the property of the organisation importing them. Additionally, medical supplies imported for donation or onward sale to the NHS are also eligible for this relief. However, only imported goods will be affected by this relief, VAT on domestic supplies will continue to be charged at the normal rate.
This measure will continue until 31 July 2020. However, if the goods cease to be used by those affected by the coronavirus HMRC must be notified of that change of use and import duties and VAT are likely to apply.
While relief for import duty and VAT can already apply in certain circumstances, this measure will be welcome by those organisations involved in the testing and caring for COVID-19 patients. However, further guidance on which non-state bodies can be authorised and whether there will be any restrictions have not yet been provided. Therefore is it possible that certain bodies may not be eligible for this relief. Furthermore organisations may be concerned that a retrospective clawback of the relieved duty and VAT may arise once the crisis is over. Therefore this is an area which should be kept under review.
Zero-rating of PPE
For the period from 1 May 2020 to 31 July 2020 a temporary zero-rate will be applied to the supply of Personal Protective Equipment which have been recommended for use by Public Health England. This covers disposable gloves, plastic aprons, surgical masks etc. The zero-rating will apply to all providers of such equipment and is not affected by the nature of the recipient.
While certain organisations have been able to benefit from the zero-rating of this equipment since the outbreak, many organisations have been excluded from this. Therefore, this measure will be very welcomed, especially for the privately owned care homes and medical service providers and hospitals who have not only been suffering with the difficulty in the procurement of these items, but also have been incurring irrecoverable VAT, resulting in increased cost.
Zero-rating of E-Publications
In the Budget 2020, the Chancellor announced a change in the VAT law, such that the zero-rate would apply to e-publications, bringing them in line with paper publications. This measure was to take effect from 1 December 2020, however, it has been announced that this measure will be brought forward to 1 May 2020.
This is a welcomed announcement, especially for those parents purchasing e-books to assist with home schooling or those people who have found themselves unemployed or furloughed and looking to develop new skills.
A tax case is still progressing through the courts which could affect the previous VAT treatment of e-publications and while HMRC have re-confirmed that VAT applies any supplies pre-1 May 2020, it is possible that this zero-rating may be extended to the last four years depending on the resolution of this case.
As part of the financial measures announced by the UK Government on 20 March 2020 to support UK workers and businesses through the anticipated downturn expected by COVID-19, access to emergency liquidity will be provided through a number of mechanisms, including:
- The joint HM Treasury and Bank of England Covid-19 Corporate Financing Facility (“CCFF”) have announced they will support liquidity for larger businesses through accelerated access to low cost commercial paper.
- The UK government backed Coronavirus Business Interruption Loan Scheme (“CBILS”) is to provide SME with UK Government guarantees support on loans of up to £5m via participating lenders.
- The UK government backed Coronavirus Large Business Interruption Loan Scheme ("CLBILS") is to provide larger UK business with a turnover of £45m- £500m with UK government support on loans of up to £25m via commercial banks at commercial rates of interest.
In addition, companies will benefit from various other liquidity support measures including the Coronavirus Job Retention Scheme (“CJRS”) to cover up to 80% of the wages of workers not currently working but retained on payroll as well as various business rates and taxation incentives and payment deferrals.
Overview of CCFF and what we know today
The CCFF scheme has been designed to provide liquidity to larger businesses where the Bank of England will purchase directly qualifying companies’ commercial paper on behalf of HM Treasury. The latest guidance suggests:
- Eligibility will be based on companies’ credit ratings prior to COVID-19 i.e. facility will look through the current impacts of COVID-19 on balance sheet and cash flows;
- Facilities are expected to have a maturity of a minimum of 12 months with 6 months notice in the event of Bank of England withdrawal of support; and
- Financial applications are to be requested directly from the Bank of England under confidential arrangements though the exact form of the application not as yet finalised.
What are the eligibility criteria for applying for CCFF?
Whilst details are as yet not finalized, the Bank of England will purchase commercial paper directly from companies making a material contribution to the UK economy and purchase on the secondary market for other large eligible institutions.
Guidance suggests that companies making a material contribution to the UK economy are UK incorporated companies with genuine interests in the UK, qualifying criteria are expected to include; companies with significant headcount, head quartered in the UK, significant UK revenue, significant UK customers and with UK operating sites.
In order to qualify the commercial paper must be GBP denominated and meet the following criteria:
- Maturity of 1 week to 12 months if issued to the Bank of England via a dealer with option to roll subject to CCFF remaining open and ongoing eligibility;
- Minimum short term credit rating of A-3 / P-3 / F-3 / R-3 from at least one of Standard & Poor’s, Moody’s, Fitch and DBRS Morningstar as at 1 March 2020;
- Where no short term credit rating available long-term credit rating to be considered;
- Issued directly into Euroclear and/ or Clearstream; and
- If an issuer is downgraded after 1 March 2020 below the minimum credit ratings as above, the issuer will remain eligible for primary and secondary market purchase in the CCFF, subject to HM Treasury approval.
What are the costs and timelines involved?
Once accepted onto the scheme, the commercial paper for sale will need to be submitted to the Bank of England’s Sterling Dealing Desk and purchases made with a minimum nominal value of £1m with £0.1m increments with settlement on a T+2 basis.
No pricing schedule has yet been issued however purchases are expected to be made at a spread over the sterling overnight index swap curve.
Further details are included on the Bank of England’s website with the latest press release here.
Overview of the CBILS and what we know today
The CBILS scheme has been designed to provide SME businesses with access to credit during the COVID-19 outbreak via UK Government guarantee of loans, which issued under the CBILS scheme, equate to up to £5m per borrower for up to six years.
The scheme is intended to cover a wide range of funding instruments extending to term facilities, revolving facilities (overdrafts) and asset financing (including invoice financing).
The scheme is provided by the British Business Bank via participating lenders (currently c. 40 lenders, some of which may be restricted to the type of funding instruments they can support).
A key point to note is that companies will remain liable for the capital amount of any loan provided under CBILS, but the UK Government will provide guarantees to the lenders for the capital amount of the loan and first 12 months of interest.
Personal guarantees will not be required to secure borrowings below £250,000, above this amount personal guarantees will be capped at 20% of the outstanding loan with the guarantee for the remaining 80% provided by UK government.
The UK government has announced that it expects the scheme to run for an initial period of 6 months from the 23 March 2020 with no limit on the capacity of the scheme.
What are the eligibility criteria for applying for CBILS?
Companies will apply to participating lenders, where lenders consider the borrowing proposal to be sound but there to be insufficient security, the lenders will consider the company for support under CBILS.
In order to be eligible companies will need to be a UK based business activity, generate an annual turnover of no more than £45m and have a borrowing proposal that the lenders would consider viable were it not for COVID-19 and believe that the loan would enable the company (borrower) to trade out of any short to medium term difficulty.
Companies from any sector banks other than building societies, insurers, reinsurers and state funded public-sector organizations (including state-funded primary and secondary schools).
Further details including names of participating banks are published here.
Overview of the CLBILS and what we know today
The CBILS scheme has been designed to provide large UK businesses facing difficulty as a result of the COVID-19 outbreak with access to additional loans (credit) from commercial banks and launched on 20 April 2020.
From 26 May, a lender can now provide a loan up to 25% of a businesses’ turnover, subject to a maximum of £200 million. Businesses who borrow more than £50 million through the scheme will be subject to certain restrictions, including the inability to make any dividend payments (other than those that have already been declared), the inability to perform any share buybacks, and the inability to pay cash bonuses or award pay rises to senior management (subject to certain conditions).
Banks will be encouraged extend these loans to businesses facing significant cash flow difficulties and ordinarily would not have access to financing through the provision of a UK government guarantee of loans issued under the CLBILS scheme.
These guarantees extend to 80% of loans provided by commercial banks up to £25m per borrower for firms with an annual turnover of £45m to £250m and £50m per borrower for firms with an annual turnover in excess of £250m.
The scheme is intended to cover a wide range of funding instruments extending to term facilities, revolving facilities (overdrafts) and asset financing (including invoice financing) and facilities back by a guarantee under CLBILS will be at commercial rates of interest.
The scheme is provided by commercial banks and a key point to note is that companies will remain liable for the capital amount of any loan provided under CLBILS and lenders will still be expected to conduct their usual credit risks, but the UK government will provide the 80% guarantees to the lenders for the loan.
What are the eligibility criteria for applying for CLBILS?
Companies will need to be a UK based business, generate an annual turnover over £45m, self-certify that the business has been negatively impacted by COVID-19, and not received funding from the CCFF. Companies will need to have a borrowing proposal that the lenders would consider viable were it not for COVID-19 and believe that the loan would enable the company (borrower) to trade out of any short to medium term difficulty.
Companies from any sector other than banks, building societies, insurers, reinsurers and state funded public-sector organisations (including state-funded primary and secondary schools).
Companies will apply to accredited commercial lenders, details of which are yet to be announced. Further details are available here.
Start-up support: New Future Fund and Innovate Loans
The Government is offering a new unsecured convertible loan facility for amounts from £125,000 up to £5,000,000 for a maximum 36 month term. The scheme launched on 20 May and will initially be open until September 2020. To qualify a company must have raised at least £250,000 in equity investment from third party investors in the last 5 years and have a substantive presence in the UK. The Government loan funding must be matched by third party investment and be used for working capital. The interest rate will be at least 8% but higher if agreed between the company and the matched investors. The loan will convert at a discount of 20% to the next funding round provided that round is at least equal to the bridge funding. On a sale or IPO, no discount would be applied. Limited warranties and covenants would be needed and the Government’s corporate governance rights will be minimal. Further details will be published in due course.
The Government is also committing £750m of support for R&D intensive small and medium size firms. This will be administered through Innovate UK’s existing grants and loan scheme which will accelerate up to £200m of grant and loan payments for the 2,500 existing customers on an opt-in basis. An extra £550m will also be made available to increase support for existing customers and £175m of support will be offered to around 1,200 companies not currently in receipt of Innovate UK funding. The first of these Innovate UK payments will be made by mid-May.
A different mechanism has been needed to support early stage business in technology and life sciences with similar initiatives recently being launched in France and Germany. The package does look like it will help a number of businesses but there are many limitations which may preclude many companies from accessing the funding. One key aspect of the success of the Future Fund will be the appetite of VCs and other investors to commit funding in this short period while there is still significant economic uncertainty although matched Government funding should help follow on investment decisions for good businesses that are approaching a new funding round. The additional funding from Innovate UK will be very welcome although further details around how this will be applied are awaited.
Protection Against Eviction of Commercial Tenants
The Government announced additional protections for commercial tenants who have difficulties paying their rent due to COVID-19. Whilst all commercial tenants remain liable for rent they will now be protected from eviction if they are not able to pay.
Commercial tenants will not automatically forfeit their lease and cannot be forced out of their premises due to missed payments up to 30 June 2020 (subject to a potential extension).
This will apply for all commercial tenants in England, Wales, and Northern Ireland.
Many commercial tenants will already be engaged in active discussion with their landlords in the current climate, especially where they are cashflow difficulties. This new is likely to be welcomed by commercial tenants who are struggling to pay their rent, but may receive a mixed response from landlords suffering their own cashflow issues. In this regard the Government has confirmed it will actively monitor the impact on landlords’.
Suspension of Wrongful Trading Provisions
The UK business secretary has announced that the Government will temporarily suspend the wrongful trading provision of Section 214 Insolvency Act 1986, retrospectively, for 3 months from 1 March 2020. This will enable company directors to continue to operate their businesses without the threat of personal liability, should they fall into insolvency.
The suspension will allow directors of companies to continue to trade, and pay staff and suppliers even if the they believe the company could become insolvent. Without this suspension, directors facing liquidity issues would have to file for insolvency to avoid the personal liability of continuing to trade.
Existing fraudulent trading laws and the threat of director disqualification should continue to act as a deterrent against director misconduct.
The suspension of wrongful trading provisions should assist in allowing directors to focus on their employees and their businesses without a concern of falling foul of a technical breach of the wrongful trading provisions, given the back-drop of unprecedented uncertainty. Maintaining the fraudulent trading laws also provides some appropriate protection for creditors. The proposed measures are silent on any potential steps to not prevent creditors seeking winding-up petitions. In response to the current situation, restrictions to hostile winding-up petitions have been implemented in Germany and Australia.
Changes to the UK's Insolvency Framework
In addition to the suspension of the wrongful trading provisions, the Government have proposed changes to the UK’s Insolvency Framework to prevent businesses unable to meet debts due to COVID-19 from being forced to file for insolvency.
The changes will include:
- a moratorium for companies giving them breathing space from creditors enforcing their debts for a period of time whilst they seek a rescue or restructure;
- protection of their supplies to enable them to continue trading during the moratorium; and
- a new restructuring plan, binding creditors to that plan
Whilst the proposals are not yet finalized the Government have ensured that the changes will include key safeguards for creditors and suppliers to ensure they are paid while a solution is sought.
There has been extensive consultation on the proposed changes to the UK’s Insolvency Framework in 2016 and 2018 and it appears that there is now an increased government emphasis on these reforms. The details of the updated proposals are yet to be confirmed, and the timing remains uncertain. During consultation, the proposed reforms were generally welcomed (subject to clarification of detail) and would add to the existing restructuring and insolvency toolkit without taking any of our existing tools off the table.
The moratorium was previously proposed as an initial 28 days and up to 3 months in duration. It will be important to understand the moratorium eligibility criteria and scope in due course. The protection of supplies was previously anticipated to be in relation essential services (e.g. IT software and connectivity) – again further clarity will be needed on how this is proposed to operate in practice. The key additional benefit of the proposed new restructuring plan is likely to be cross-class cram down which is not available in a Scheme of Arrangement.
Pending these proposals being implemented, where an insolvency process is required the existing administration process does provide for the option to achieve the rescue of the company. A rescue of the company (rather than the business) is often not achievable, however, for companies with genuine short-term challenges this could be an option in the current circumstances.
Last updated 28/05/2020 at 11.03
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Senior Managing Director
Senior Managing Director
Senior Managing Director