How to use the business bailout
The government has provided unprecedented support to small businesses. Here’s how to benefit.
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.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
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.
Sign up to Money Morning
Our team, led by award winning editors, is dedicated to delivering you the top news, analysis, and guides to help you manage your money, grow your investments and build wealth.
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.
-
Do you qualify for the Winter Fuel Payment if you live abroad?
The Winter Fuel Payment will be means tested for expats living in Europe, in line with the new rules impacting those in the UK. But a quirk in the system means not all countries are eligible.
By Katie Williams Published
-
What the Employment Rights Bill means for your job
New workplace reforms are set to give employees new rights to benefits and flexible working
By Marc Shoffman Published
-
UK wages grow at a record pace
The latest UK wages data will add pressure on the BoE to push interest rates even higher.
By Nicole García Mérida Published
-
Trapped in a time of zombie government
It’s not just companies that are eking out an existence, says Max King. The state is in the twilight zone too.
By Max King Published
-
America is in deep denial over debt
The downgrade in America’s credit rating was much criticised by the US government, says Alex Rankine. But was it a long time coming?
By Alex Rankine Published
-
UK economy avoids stagnation with surprise growth
Gross domestic product increased by 0.2% in the second quarter and by 0.5% in June
By Pedro Gonçalves Published
-
Bank of England raises interest rates to 5.25%
The Bank has hiked rates from 5% to 5.25%, marking the 14th increase in a row. We explain what it means for savers and homeowners - and whether more rate rises are on the horizon
By Ruth Emery Published
-
UK wage growth hits a record high
Stubborn inflation fuels wage growth, hitting a 20-year record high. But unemployment jumps
By Vaishali Varu Published
-
UK inflation remains at 8.7% ‒ what it means for your money
Inflation was unmoved at 8.7% in the 12 months to May. What does this ‘sticky’ rate of inflation mean for your money?
By John Fitzsimons Published
-
VICE bankruptcy: how did it happen?
Was the VICE bankruptcy inevitable? We look into how the once multibillion-dollar came crashing down.
By Jane Lewis Published