As the British public looks to the UK Government to confirm that the 19th July 2021 will see the lifting of the remaining restrictions, it feels like we are seeing a return to some normality. The lifting of restrictions will come as a relief to many, especially those in sectors such as hospitality and tourism, however the exit from lockdown also coincides with the withdrawal of support for businesses.
Debt deferment
Many businesses will have seen reduced turnover for a period and may have de-risked their businesses by converting existing loans into Government-backed loans, however the fact is that the debt is still due. In addition businesses may have amassed liabilities by taking advantage of the opportunities to defer VAT, rent and repayments on the Government-backed loans, but those amounts will also soon start to fall due.
Furlough scheme changes
With effect from 1 July 2021, employers are now expected to contribute 10% towards the furlough scheme, with this figure increasing to 20% for August and September, before the scheme formally winds down on 30 September 2021. Understanding the implications on your business from a cash perspective should be high on your list of priorities, especially as we head towards the 20% contribution. As has always been the case with the furlough scheme, any PAYE or National Insurance contributions arising from furlough monies received should be repaid to HMRC on time and any cashflow forecasts should take this into account. It is also worthy of note that where you are looking at restructuring your workforce, you cannot claim from the Government for any staff who have been put on notice of redundancy or who are working their notice.
VAT arrears
HMRC’s VAT deferral scheme has now closed. Any amounts outstanding that have not been dealt with prior to 30 June 2021 will now be subject to penalties, interest and charges. If you are not able to repay any deferred VAT in full, then you can still arrange a Time to Pay (“TTP”) agreement with HMRC. Any agreement needs to be affordable for your business – prepare a forecast based on what you think you can afford, not what you think HMRC will want to see. Many businesses make the mistake of trying to pay the arrears off as soon as possible by agreeing large instalments – this can often end in problems as where there is a TTP in place, you also need to be able to meet your ongoing liabilities otherwise the TTP will fail and the whole amount becomes due.
Where you have PAYE/NIC arrears, HMRC are likely to be less agreeable to a more flexible approach to a TTP for your VAT, but if you are struggling to meet your PAYE/NIC contributions too, encompassing these into one TTP might be helpful, although the point about affordability still applies.
Rent arrears
The Government has advised that commercial tenants have protection from eviction until 25th March 2022. However, this appears to be only for the arrears accrued during the periods in which a business was unable to trade due to lockdown restrictions, which suggests that any amounts now falling due for most businesses (with the exception of those which remain closed due to the extension of the 21st June exit date) are payable. Landlords are unable to proceed with statutory demands and winding up petitions until 1st October 2021, however commercial tenants should now look to engage with landlords, pay ongoing rent and look at ways to meet liabilities accrued over the last 15 months or so. Whilst it may seem that the balance of power remains with the commercial tenants, the reality is that landlords will likely be more willing to negotiate a settlement on better terms if the tenant has resumed the payment of ongoing rent.
Personal liability returns for directors
For the past seven months directors have not had to worry about becoming personally liable for any financial losses arising in respect of wrongful trading, however this stay ended on 30th June 2021. Therefore, if you are now in a position where your business is struggling, you should ensure that you take all the necessary steps to limit potential losses to creditors. Seeking appropriate, professional advice, and following that advice, can help mitigate the risks in this situation.
Lots of arrears, not enough cash?
If you are looking at your cashflow forecast and the amounts falling due in respect of the arrears now seems unmanageable, there are ways to deal with those liabilities. Creditors remain unable to follow through on any threats of winding up your business until October, which gives you time to review your options and identify what the best course of action should be for your business. Dealing with any issues head on is likely to result in a more positive outcome than if you do nothing.
If any of the above resonates with you, please contact our Restructuring & Insolvency team who will be able to help.
