The government support measures and their impact on the UK businesses

Let’s have a look at the main measures

Furlough scheme – The government pays 80% of salaries up to a limit (£2,500 per month ). Employers then need to decide to bring employees back to work their normal hours, reduce their hours or terminate their employment. It has been extended to 30 September 2021, having previously been scheduled to run to 30 April 2021.

Winding up petitions are suspended until the end of June. This helps businesses to protect their assets from creditors.

VAT Deferment – Any VAT deferrals can now be split into smaller, interest-free payments to March 2022 as opposed to payment in full by 31March 2021.

CBILS (Coronavirus Business Interruption Loan Scheme) and BBIL (Coronavirus Bounce Back Loan) both expired at the end of March. They are being replaced by the Recovery Loan Scheme until the end of 2021. It applies to businesses of any size from £25,000 to £10 million. The government guarantees for up to 80% of the loan.

VAT Reduction: 5% VAT for hospitality and leisure has been extended to 30th September 2021 before rising to a 12.5% interim VAT rate from October 2021 until April 2022.

100% Business Rate holidays for retail, hospitality and leisure are now in place until the end of June 2021, with a two-third discount thereafter for the rest of year.

Trade Credit Reinsurance Scheme: the government is supporting the economy, by guaranteeing for up to 90% of losses. This has been extended from March to June 2021.

However, the government has also reintroduced the “Crown Preference” rule as of December 2020. Read more about this to find out if your business is affected and it can miss out on credit re-payments.
 

David Smith, Head of Risk Information, explains:

“When trying to predict the future performance of the economy at present, the only thing we are certain of is uncertainty. Official statistics, for instance, show that company insolvencies are currently at a 30-year low whereas profit warnings issued by UK quoted companies – just one of the many barometers of business health – are currently at a 20-year high.

Companies are facing many challenges linked to the pandemic: sales short of forecast, delayed/ discontinued contracts, operational and supply-chain issues… to name a few. The government measures and temporary insolvency proceedings restrictions are seen as having been instrumental in preventing the wave of failures that would usually be expected in a severe downturn. At some point, we expect to see an increase in insolvencies in the UK. The question is when?

At the same time, we know that GDP is estimated to have grown by 0.4% in February 2021 and Global GDP is expected to rebound by +5.1% in 2021. We also expect to see a consumer-led boost of the economy thanks to the reopening of high street retailers, pubs and restaurants, vaccination campaign progressing fast, better weather to come… Major events like the European Football Championships in June  would usually have a big impact on demand too.

Over the coming months, much will most certainly depend on how long government support measures remain in place - as it stands, a number of these measures will fall away from June - and the process used to phase them out, to avoid a cliff edge.”

In this climate, there might be some new, unexpected golden opportunities for businesses. Companies will have to maximise those possibilities to grow, differentiate, export and generate new revenue streams. At the same time, they will have to manage their risks more carefully than ever.