How to use the business bailout

Many small companies are at risk of going under as demand plummets © Getty

published 31 March 2020

An unprecedented government support package is available for small businesses suffering from the Covid-19 crisis. There is a combination of loans, grants and tax breaks to help as many as possible to avoid bankruptcy. The state will also subsidise heavily the cost of employing people over the next few months.

Subsidising employment

On the latter, the plan is that all businesses will be able to ask the government to cover up to 80% of their wage bill, up to a maximum of £2,500 a month for each employee. The scheme is aimed at staff temporarily laid off from work, but not dismissed – “furloughed” in the jargon. Staff already let go can also be covered if they’re rehired and then furloughed. HM Revenue & Customs is still working on the small print, and help won’t be available until next month, though it will be backdated to 1 March.

As far as keeping businesses alive is concerned, the Coronavirus Business Interruption Loan Scheme is the government’s flagship policy. Smaller businesses with an annual turnover of less than £45m can apply to one of 40 or so banks signed up to the scheme for a loan of up to £5m. The loan can be structured as an overdraft, a term loan or as invoice and asset finance. It is interest- and fee-free for the first 12 months.

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Banks don’t have to accept your application. But the government is guaranteeing they will pay back 80% of the loan if you default, so it is much easier for lenders to say yes. They also have to consider your application without taking the effects of the pandemic into account: if you were a viable candidate for borrowing before the crisis, you should still be.

Note that loans will have to repaid in full, with interest, over the term of the agreement, potentially up to six years. You may also have to provide security, especially on loans of more than £250,000. The British Business Bank (british-business-bank.co.uk) is administering the scheme.

As for grants, any business exempt from paying business rates because of schemes such as small business rate relief is entitled to a one-off grant of £10,000 to help cover costs. In addition, businesses in the retail, leisure and hospitality industry that occupy a property valued at less than £15,000 for business rates purposes are automatically eligible for a £10,000 award with no strings attached. This rises to £25,000 for such businesses in properties with a rateable value of between £15,000 and £51,000. Contact your local authority for details, though it should write to you automatically. Your council can also say if you are eligible for an exemption from business rates. There is to be a one-year holiday for firms in the retail, hospitality and leisure sectors. This should also be automatic, but check if you’re unsure.

How HMRC is helping

More help is potentially available via HMRC. You can defer your current VAT bill until the end of June, freeing up funds for other priorities. HMRC has also been told to look kindly on applications for its Time to Pay service, which gives it discretion to support businesses struggling to pay a tax bill – by extending deadlines, for example. Call 0800 0159 559 for more information.

These HMRC measures are available straight away, while the tax authority is also working on a sick-pay scheme aimed at small businesses with fewer than 250 employees. This will enable such firms to reclaim up to two weeks’ worth of statutory sick pay for any eligible employee who has been off work because of the virus. You need to keep records of staff absence and sick pay, but you don’t need employees to get sick notes from their GPs.

All in all, this is a comprehensive package that will help many entrepreneurs get through the crisis. If you’re in any doubt, seek advice from HMRC, your local authority or your bank. Groups such as the Federation of Small Businesses can also help.

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David Prosser is a regular MoneyWeek columnist, writing on small business and entrepreneurship, as well as pensions and other forms of tax-efficient savings and investments. David has been a financial journalist for almost 30 years, specialising initially in personal finance, and then in broader business coverage. He has worked for national newspaper groups including The Financial Times, The Guardian and Observer, Express Newspapers and, most recently, The Independent, where he served for more than three years as business editor.