Businesses in the hospitality and leisure sectors are universally concerned about how they can keep afloat during the current Covid-19 pandemic. The Government announced a raft of business support measures to help businesses survive an environment where trading has been curtailed and cost of operations may outstrip income. These include Business Interruption Loans, a Coronavirus Job Retention Scheme and tax deferrals and holidays. Specific measures for the hospitality and leisure sectors include a business rates holiday and grant funding of up to £25,000.
We have sought to set out below some of the most common questions in relation to the current position. The Q&A is intended as general guidance only; a response to specific queries and comprehensive legal advice on any of the issues discussed in this note is available as required on request.
- Business Interruption Loan Schemes
- Coronavirus Job Retention Scheme
- Tax deferrals and holidays
- Businesses trading internationally
Business Interruption Loan Schemes
What is the aim of the Coronavirus Business Interruption Loan Scheme (“CBILS”)?
The CBILS’ aim is to support UK businesses by the continued provision of finance during the COVID-19 outbreak.
How will the CBILS work?
The CBILS will operate in a similar manner to the Enterprise Finance Guarantee scheme whereby lenders providing funding to eligible businesses will benefit from a government-backed guarantee of up to 80% of the outstanding facility balance, subject to an overall cap per lender.
Freeths’ has acted on a number of transactions that utilise the Enterprise Finance Guarantee Scheme so is familiar with the documentation and process for transactions of this type.
How will CBILS make finance available for businesses?
The CBILS will make finance available through the following products:
- overdrafts;
- invoice discount facilities;
- asset finance facilities; and
- term loans.
Who is eligible for the CBILS?
To be eligible for the CBILS, a business must be:
- applying for business purposes;
- UK based with a turnover of no greater than £45 million per year;
- generating more than 50% of its turnover from trading activity – this means that real estate investment / development businesses are unlikely to be able to utilise the scheme;
- operate in an eligible industrial sector (banks and certain public sector bodies are not eligible for this scheme); and
- unable to meet a lender’s normal lending criteria for a commercial loan or other facility but otherwise be considered a viable business in the long term.
What are the finance terms of the CBILS?
Finance terms are up to 6 years for term loans and asset finance facilities, and up to 3 years for revolving and invoice finance facilities.
The UK Government will make a Business Interruption Payment to cover the first 12 months of interest payments and any lender fees (some lenders have indicated that they will not charge arrangement fees or early repayment charges to entities borrowing under the CBILS) under the financing arrangements entered into.
What is the maximum amount of a facility?
The maximum amount of a facility made available under the CBILS will be £5 million.
Who is liable for the debt?
The borrower remains fully liable for repaying the debt like any other commercial lending facility (ie it is not a grant).
Is security required for the CBILS?
From 6 April 2020 insufficient security was no longer a condition to access the CBILS. This means that the scheme is available for all CBILS-backed facilities, including those over £250,000, and lending support can be provided even where businesses are considered to have sufficient security and would, otherwise, be able to obtain lending on a normal commercial basis.
From 6 April 2020 facilities under £250,000 did not require personal guarantees. For facilities over £250,000, personal guarantees may still be required at a discretion of a lender. However, any personal guarantee provided is capped at a maximum of 20% of the outstanding balance of the CBILS facility after the proceeds of business assets have been applied.
These changes aim to ensure that a larger number of small businesses are now able to access the scheme.
How is this scheme being funded?
Large, systemically important UK entities (such as the major UK clearing banks) are able to access the Bank of England’s Covid Corporate Financing Facility.
This facility will enable such entities to issue commercial paper (which are a form of IOUs) to the Bank of England in exchange for funding.
The aim of this scheme is to provide liquidity to the banking system and larger firms with the hope that they will then provide funding to small and median sized entities.
How should a business apply for the CBILS?
If a business would like to take advantage of the CBILS, it should contact an accredited lender. It is important to appreciate that it is commercial lenders and not the government that will provide funding under the CBILS.
Such lenders include the leading UK Clearing Banks such as Lloyds, NatWest, Barclays and Clydesdale Bank.
A full list of the current accredited lenders can be found by clicking on the following link.
Can larger businesses access the CBILS?
On 20 April 2020, the government introduced a new scheme, the Coronavirus Large Business Interruption Loan Scheme (CLBILS). The CLBILS aims to ensure that larger businesses can also benefit from the government’s financial support measures.
Under the CLBILS accredited lenders are now able to provide loans of up to £25 million to businesses with an annual turnover between £45 million and £250 million, and loans up to £50 million to businesses with an annual turnover of over £250 million. Such debt will be provided for terms of between 3 months and 3 years.
Eligibility criteria for the CLBILS is largely the same as for the CBILS (UK based business and demonstration that it has been adversely impacted by COVID-19) other than a business must:
- have an annual turnover of more than £45 million; and
- not have received any financial assistance under the Covid Corporate Financing Facility (please see below for more details).
Another difference between the schemes is that the government will not make a Business Interruption Payment to cover the interest and lender levied fees for the first 12 months of any loan under CLBILS. However, the 80% government-backed guarantee will cover interest and the fees as well as the principal amount of the facility.
Otherwise, the new scheme is broadly similar to the CBILS.
How does the Business Bounce Back Loan Scheme work?
The BBLS launched on 4 May 2020.
As with CBILS and CLBILS, the Business Bounce Back Loan Scheme (“BBLS”) can be accessed through accredited lenders. Under the BBLS loans of between £2,000 and £50,000 will be made available. Unlike CBILS and CLBILS, the government will guarantee 100% of the loan.
No payments of fees, interest or principal will be payable for the first 12 months of any loan advanced under the BBLS. Loan terms will be for up to 6 years.
The BBLS will be available to UK businesses that can demonstrate: (i) they have been adversely impacted by COVID-19 and (ii) were not ‘an undertaking in difficulty’ as of 31 December 2019.
Entities that have already received, or are applying for, funding under CBILS may not access the BBLS. However, if an entity has received a loan of up to £50,000 under CBILS it may apply for it to be transferred to the BBLS prior to 4 November 2020.
What financial assistance is available for larger firms with a turnover of over £500 million?
The Covid Corporate Financing Facility has been designed to support liquidity among larger firms through the purchase of short term debt in the form of commercial paper. This scheme is available to companies that make a material contribution to the UK economy. To be eligible, companies must have been in sound financial health prior to the economic shock caused by COVID-19
The test for establishing whether a company is of sound financial health is whether it has a short or long term credit rating of investment grade, as at 1 March 2020. This credit rating will be one published by a major credit ratings agency (such as S&P, Moody’s or Fitch).
If a company does not have a credit rating then it may still be possible to access the scheme if is viewed by a bank as having an investment grade credit rating.
Companies must issue commercial paper through a bank so contacting your bank should be the first step taken to access the scheme.
Further information on this scheme can be accessed at:
https://www.bankofengland.co.uk/news/2020/march/the-covid-corporate-financing-facility
Is any government financial support available to start-ups?
The government has announced a new scheme, the Future Fund, which will be introduced in May 2020 in order to provide start-ups and scale-ups with the government’s financial support. The Future Fund will provide government convertible loans from £125,000 to 5 million to UK-based businesses, subject to a business securing an equivalent funding from third party investors. A business must have also raised a minimum of £250,000 in equity investment from third party investors in the past 5 years.
Further information on the scheme’s headline terms can be accessed here.
Coronavirus Job Retention Scheme
For up to date information and Q&A see Coronavirus: Job Retention Scheme
The Chancellor of the Exchequer also introduced the Coronavirus Job Retention Scheme (the “Scheme”). The Scheme enables employers to contact HMRC for a grant to cover most of the wages of their workforce who remain on payroll but are temporarily not working during the coronavirus outbreak. For more information see our Coronavirus Job Retention Scheme Q&A.
Tax deferrals and holidays
I’m a business and as a result of Covid-19, I need help with my tax bills. Is any help available to me?
Yes, the Government has launched a number of initiatives—
- VAT payment deferral
Businesses will automatically (subject to the following comments for businesses with direct debit mandates in place to pay their VAT) be entitled to defer VAT payments for 3 months from 20 March 2020 until 30 June 2020. Businesses will be given until the end of the 2020/2021 tax year to pay any liabilities that have accumulated during the deferral period. VAT refunds and reclaims will be paid by the Government as normal. Please note that HMRC has now confirmed that it will not automatically cancel collection of VAT payments by direct debit. Businesses that have a direct debit mandate in place to pay their VAT and wish to defer payment will need to contact their bank to cancel that mandate (and this will need to be done before the direct debit is due to be collected). - Business Rates holiday for all retail, hospitality, leisure and nursery businesses in England
Businesses in the retail, hospitality and leisure sectors, and nursery businesses, in England will not have to pay business rates for the 2020/2021 tax year. Properties that will benefit from the relief will be those that are wholly or mainly being used: (1) as shops, restaurants, cafes, drinking establishments, cinemas and live music venues; (2) for assembly and leisure; or (3) as hotels, guest and boarding premises and self-catering accommodation. The Government has also confirmed that the holiday will apply to nurseries. Local Authorities are expected to apply the Business Rates holiday automatically. - Grant funding of up to £25,000 for businesses in England the retail, hospitality and leisure sectors
English businesses in these sectors with a rateable value of under £15,000 will receive a grant of £10,000. Businesses with a rateable value of between £15,001 and £51,000 will receive a grant of £25,000. Properties that will benefit from the relief will be those that are wholly or mainly being used: (1) as shops, restaurants, cafes, drinking establishments, cinemas and live music venues; (2) for assembly and leisure; or (3) as hotels, guest and boarding premises and self-catering accommodation. Local Authorities are expected to write to businesses which are eligible for this grant. - Increasing grants to small businesses in England eligible for small business rate relief (SBRR), rural rate relief (RRR) and tapered relief from £3,000 to £10,000
Local Authorities are expected to write to businesses which are eligible for this grant. - HMRC Time To Pay Scheme
All businesses and self-employed people in financial distress, and with outstanding tax liabilities, may be eligible to receive support with their tax affairs through HMRC’s Time To Pay service. These arrangements are agreed on a case-by-case basis and are tailored to individual circumstances and liabilities. Businesses seeking to avail themselves of the Time to Pay Scheme should contact HMRC. - Self-employed income tax deferral
Income Tax payments due in July 2020 under the Self-Assessment system will automatically be deferred to January 2021. No penalties or interest for late payment will be charged in the deferral period.
Is any help available with payroll or employment taxes/PAYE?
Yes, the Government has launched the Coronavirus Job Retention Scheme above.
Further information can also be found here.
Businesses trading internationally
My business trades internationally – what support am I entitled to?
The Government and Department for Inernational Trade (“DIT”) have a number of ways to support UK businesses, whose supply chains have been adversely effected by the spread of the Coronavirus.
Using its global network of businesses across the world, the DIT can help by putting you in touch with alternative suppliers and by assisting in liaising with the local embassy or consulate, to provide you with local guidance on an international scale.
UK Export Finance (UKEF) works also with banks and insurance brokers to help companies of all sizes fulfil and get paid for export contracts. It provides guarantees, loans and insurance on behalf of the government that can protect UK exporters facing delayed payments or transit restrictions.
Help from UKEF includes the following:
- if your business is facing disruption due to late payments, UKEF can help ease cash flow constraints by guaranteeing bank loans through its Export Working Capital Scheme
- if you are concerned about getting paid, UKEF offers an export insurance policy that can help you recover the costs of fulfilling an order that is terminated by events outside your control
- UKEF can also support finance for overseas buyers through the Direct Lending Facility scheme, so they can continue to buy your goods and services
- UKEF has over £4 billion of capacity to support UK firms exporting to China, as well as significant capacity across other markets affected by Coronavirus to help cover these risks.
For further information contact Natalie Drought
If you would like to talk through the consequences for your business, call our Coronavirus Helpline on 0330 134 0199 for a free consultation (on appropriate commercial enquiries only) or e-mail us and one of our Helpline team will get in touch.
