In the last few months we have been working with our clients to help solve problems that were most definitely not part of their budget planning for 2020.
Whilst it has been a very difficult period for those who have been hit hard by the consequences of the pandemic, we can provide many examples of where, by putting our heads together with our clients, we have been able to find solutions that have kept them on track to weather the storm.
Although we are now exiting the ‘lockdown’ phase, there is no doubt that many businesses will continue to find obstacles placed in their path. Ensuring that there is enough cash to keep trading as government support is reduced will be a major concern and we will be on hand to provide support in the weeks and months ahead.
So what does our help look like?
- We’ve worked with clients to understand how their pipeline of work would be affected as a result of the lockdown, updating trading projections and cash flow forecasts for both the current financial year and also the next financial year.
- Armed with these projections and forecasts, we’ve been able to identify potential financial pinch-points and model how the various Government’s CV19 financial support measures might help bridge these.
- Our cash flow forecasts have in some cases demonstrated the need for external funding, which can in many cases be sourced under the Government’s Coronavirus Business Interruption Loan Scheme (CBILS). Even where a client’s business already has a long-standing relationship with its bank, they have relied on our projections and forecasts to present a lending case.
- We have collaborated with RTC North to help our North East-based business clients access part-funded advice and support from us on matters such as the preparation of financial forecasts and securing funding via the CBILS.
- Because our projections and forecasts are dynamic, we have been able to update them on an ongoing basis to support lending applications, factoring in extensions to the Government’s CV19 financial support measures and also the client’s expectations as regards their pipeline of work.
We have also considered longer term matters, for example:
- Maximising tax relief on capital spend – where spending is critical, and low cost funding is available, assessing the benefit of bringing it forward to ensure maximum capital allowances are achieved whilst the annual investment allowance is still £1million.
- Changing a business’ year end – in periods of significant and unexpected downturn, some businesses can access material benefits by changing the date to which they prepare accounts, which can defer payment of tax, allow earlier access to losses and facilitate a claim to use overlap profits of unincorporated businesses.
- Considering incorporation – the profits of unincorporated businesses are taxed as they arise and not when they are enjoyed by the business owners, which is a dilemma because exiting a downturn will often require additional working capital, meaning business owners (typically partners in a partnership) may pay tax on profits they cannot enjoy for some years. Incorporating the business may solve this dilemma.
Whilst most business owners will want to focus on their business, we take a more holistic view.
- Based on trading and profit projections we’ve been able to identify how much income will be available to business owners, how much tax they are likely to face and what their personal cash flow will look like. A side effect of this work has been to seek to recover a repayment of “on account” tax payments already made on 31 January 2020.
- Based on the above, we have been able to weigh up the benefit of using the 31 July 2020 payment on account deferral option to free up clients’ tax reserves to ‘borrow’ against should their business require short-term funding.
- We’ve made business owners aware of the option to take a three-month repayment holiday on their mortgages, recognising that their own income or drawings from their business would be much reduced for the foreseeable future.
- It has been important to consider whether and to what extent pension contributions remained viable, or whether, from a tax perspective, they would be better deferred until businesses returned to profitability.
- Another simple but helpful point for business owners with children: bearing in mind the likelihood of reduced income or profits, we have recommended that they reinstate their family’s claim to Child Benefit.
If you feel that you would benefit from advice on any of the points detailed above, please get in touch with your RG contact.