The Perpendicular Wave: Coronavirus and Business
27th March 2020
The Perpendicular Wave
Coronavirus and business
As the saying goes, gentle seas do not good sailors make. On the other hand, none of us probably needed to be such good sailors.
March 2020 shall be known to future generations as the month in which the Coronavirus pandemic unleashed in the UK. To those of us who have lived through it, we shall never forget the speed and extremity of the change to our daily lives – not the sight of plentiful shelves emptied, not the fettering of our right to leave our homes, not the fear of the contagion that may kill people we love. The concerns over the health of our economy have rightly given way to actions essential to halt the virus as quickly as possible. But just as correctly, the government has put in place a vast package of aid and emergency legislation to help see the country through what may be a once-in-a-century event.
In this article, we look at the various provisions designed to steady the course of business through the coming weeks and months.
We have also prepared a summary of these provisions, for which please click here.
As nationwide restrictions to prevent contagion mean many businesses have had to cease trading, drastically curtail their operations, or have suffered vertical drops in custom, the government has introduced three schemes to help business deal with the immense disruption to cash flow and business viability, as part of an overall aid package worth £330bn: (1) the Coronavirus Business Interruption Loan Scheme; (2) the Coronavirus Job Retention Scheme; and (3) the COVID-19 Corporate Financing Facility.
The Coronavirus Business Interruption Loan Scheme (run by the British Business Bank) enables eligible SMEs with annual turnover of no more than £45m to obtain an interest free loan of up to £5m. The funds do not come direct from the Government. Rather, the Government provides a grant that covers the first 12 months of interest payments and the fees related to taking out the loan, and guarantees 80% of the loan itself. The Scheme will last for six months, and businesses can borrow for up to six years. Only firms that have been trading successfully will be entitled to a loan. All major banks, including NatWest, Barclays, HSBC and Lloyds are participating. Businesses should contact their bank in the first instance if they wish to obtain a loan under this scheme.
The Coronavirus Job Retention Scheme provides further support to all UK employers by enabling firms to keep paying their employees’ wages, and so avoid having to lay them off. In this scheme (run by HMRC), the business must designate affected employees as “furloughed workers”, and inform HMRC (through a new online portal). Furloughed workers are employees who would otherwise be laid off during this crisis. If an employee is designated as furlough, they cannot do any work for the business during the designated period. HMRC will reimburse 80% of furloughed workers’ wage costs, up to a cap of £2,500 per month (gross) per employee. Currently, this provision is available for three months.
Firms have the option to fund the remaining 20% themselves, which may be difficult (if not impossible) for some, but the intention is this scheme will greatly assist businesses in maintaining their workforce, and keeping money in their employees’ pockets, both of which will be a boon once the restrictions on movement are lifted and we can return to normal life. If a firm decides not to top up the remaining 20%, it should be mindful that a reduction in an employee’s pay without obtaining prior consent from that employee constitutes breach of contract, and unlawful deduction in wages. Absent consent from employees to make this reduction in pay, a business could expose itself to potential claims.
The COVID-19 Corporate Financing Facility offers financial support to larger companies. Under this scheme, the Bank of England will buy short-term debt from firms affected by a short-term funding squeeze. Support is also available to corporate finance markets, the purpose being to ease the supply of credit to all companies.
In addition to these schemes, further measures designed to smooth the coming period include the deferral of VAT payments from 20 March 2020 to 30 June 2020; the deferral of self-assessment income tax payments due on 31 July 2020 to 31 January 2021; cash grants of up to £25,000 for businesses in the retail, hospitality and leisure sectors with a rateable value of up to £51,000; business rates holidays for those in the nursery, retail, hospitality or leisure businesses for the 2020-21 tax year; a one-off grant of £10,000 to help eligible small businesses that pay little or no business rates meet their ongoing costs; and the Time to Pay service, in which those in financial distress and with outstanding tax liabilities may be eligible to receive support with their tax affairs from HMRC.
The Coronavirus Act 2020
As well as financial aid, the Government’s emergency legislation as set out in the Coronavirus Act 2020 (which came into force on 25 March 2020) provides further measures to help steady the seas. Much of the Act relates to essential tools to support the NHS, social care, and key workers; to slow the rate of the contagion; to ensure food supplies are sufficient; to manage the deceased with dignity and respect; and to allow court hearings to proceed remotely. The measures in the emergency legislation shall be limited to a duration of two years, and are designed to be switched on and off by the Government based on the advice it receives from the UK’s Chief Medical Officers.
For business, the Government has offered a lifeline to commercial tenants who cannot pay their rent due to cash flow problems caused by the disruption: tenants who miss a rent payment up until 30 June 2020 cannot be forced out of their premises on the grounds of automatic forfeiture of their lease. They will, however, remain liable for that rent. As such, tenants do not have to fear that being forced to stop trading will mean they will lose their premises and potentially their business, and landlords do not have to worry that tenants will misuse an unforeseen holiday on their rent payments. (The Government may extend this provision if need be.) In a highly encouraging move, many landlords are already in the process of reaching voluntary arrangements to alleviate pressure on their tenants. An unprecedented crisis is an opportunity for people to be at their best: so far, there is reason to feel optimistic about how our country and most of our global neighbours have responded.
Another notable provision contained with the Coronavirus Act is the suspension of the rule that employees have to wait three days before they are eligible to receive statutory sick pay. They will now be entitled to receive it from day one and not day four. Furthermore, employers with less than 250 staff will be able to reclaim two weeks of statutory sick pay paid to employees during the period of the outbreak.
And, to add to the sense of a national community pulling together at a time of crisis, employees and workers can take two, three or four weeks of Emergency Volunteer Leave, to assist with the health and social care sectors. Whilst the leave is unpaid, volunteers will be compensated (at a flat rate) for loss of earnings and expenses.
For the Self Employed
With more than 5m people self-employed in the UK, the Government has now introduced a package to maintain this essential section of the economy, which mirrors the provisions contained in the Coronavirus Job Retention Scheme.
The Self-Employed Income Support Scheme entitles the self-employed to receive direct cash grants of up to £2,500 per month for at least three months. The scheme is open to those with a trading profit of less than £50,000 for the 2018-19 financial year, or an average trading profit of less than £50,000 for the three financial years of 2016-17, 2017-18 and 2018-19, where more than half of their income for these periods came from self-employment. The payment will be 80% of these figures. Members of partnerships are also eligible.
The Government estimates that this provision covers 95% of people who receive the majority of their income from self-employment. Those eligible will be contacted by HMRC, who will invite applications when the system is operational. Grants will be paid at the beginning of June 2020 as one lump sum to cover March, April and May 2020, in effect a reimbursement of sums that would otherwise have been earned during that period. In order to help in the meantime, the self-employed will be able to obtain other support, such as more generous universal credit and business continuity loans where they have a business bank account. Those who missed the tax return deadline in January 2020 have four weeks from 26 March 2020 to file that return, so as to be eligible to claim the grant.
If the self-employed operate through a company and use PAYE schemes, they will be covered not by these provisions but by the Coronavirus Job Retention Scheme.
The Calming Horizon
Following the impact of the perpendicular wave, the coming period will bring a multitude of smaller swells from the repercussions of this recent, remarkable event, on the way towards the calm horizon. For instance, it is unusual for UK commercial insurance policies to cover pandemics, unspecified diseases or Government-ordered closure. A policy will therefore need to be considered carefully before a claim for losses caused by the virus may be pursued. Here, at Rosenblatt HQ (which is, for the time being, dozens of small units spread out across London and the Home Counties in glorious self-isolation), our ship is steady, though we will tell our tales of March 2020 for years to come.
If you need expert advice or guidance, please do contact us:
Tania MacLeod, Partner and Head of Dispute Resolution – firstname.lastname@example.org
Anthony Field, Partner, Dispute Resolution – email@example.com
Neil Sampson, Partner, Head of International Business – firstname.lastname@example.org
Laura Clatworthy, Partner, Dispute Resolution, Employment – email@example.com
Caroline DeLaney, Partner, Real Estate Disputes – firstname.lastname@example.org
Philip Alfandary, Partner, Tax – email@example.com
It has been quite the week or two. The crisis is far from over, but the Government has provided a wide range of provisions to help settle the country’s nerves. We are here to help you steady your ship – and your nerves too.
Nick Leigh, Verity Ingle
27 March 2020