Protecting staff and cash flow during the Covid-19 crisis is a growing concern for business owners, says a tax expert at accountancy firm Haines Watts.

“Businesses were initially optimistic when emergency measures to introduce a Coronavirus Job Retention Scheme were announced by the Chancellor in March. However, as a result of the lag time in getting the system up and running, there is now a great deal of uncertainty surrounding cash flow,” says Jonathan Scott, a tax partner at Haines Watts in Newcastle. 

The scheme was devised by the UK Government to provide support to UK employers to continue to pay their employees who might otherwise have faced redundancy. However, there have been delays with its implementation.

Jonathan said: “Employers must fund the payroll costs until being able to claim the grants, which means there is a greater strain on cash flow. Ultimately some businesses have taken the unfortunate decision to make some employees redundant.”

The Government has indicated that the service will be up-and-running by 20 April. However, Jonathan says that businesses are fully expecting a lag in terms of when the grants will be released for their claims. 

He said: “Given the huge numbers of businesses likely to be applying, some are suggesting that they don’t expect to see any cash flow from the grant until late-May, early June. Certain companies, particularly those in the hospitality and leisure sector, may have gone almost three months with little to no income by then, but with potentially 80% of their payroll costs.

“If organisations don’t have the cash in place to bridge this gap until the grants are released it will have a detrimental effect on their ability to continue. The Government has recognised the need of this bridging period, which is why they have opened up the Coronavirus Business Interruption Loan Scheme to smaller business. However, lenders are currently inundated with applications which is causing huge delays in getting the funding out.

“For companies, it is vital to forecast cashflows and continue communication with banks and accountants. Only by understanding your current position can you complete accurate forecasts and make informed decisions on the level of savings you need to make in order to continue operating.”

Whilst the Government has announced a full suite of support to assist businesses through this challenging time, Jonathan explains that it’s important to remember there are also other reliefs and incentives outside of this package for your business to utilise.  

He said: “We’re working with a lot of clients to push through R&D tax credit claims to help release tied-up R&D claim cash back into the company. With the average SME claim coming in at £53k, such a cash injection could be the saving grace that many businesses need.”   

With the Job Retention scheme being new and the first of its kind in the UK, the struggle for businesses, according to Jonathan, has been the delay in its implementation. 

“Due to the delay, there are a number of companies who have already made employees redundant. Thankfully, the Government has allowed for employees who were laid off since February 28th 2020, to be eligible for the grant if they are rehired by their employer. 

“It is still early to tell how successful the scheme will be. Though we’ve not got access to the portal till next week, business can start by assembling information on furloughed employees, including: the name, employee number and National Insurance number for each, the total amount being claimed for and the total furlough period.”  

Before the recent reforms, on average, employees would have lost 53% of their net family income if they lose their job. The reforms have reduced this to 13%. 

The number of employees who would have lost more than 60% of their family income if they lost their job has fallen from 9.5 million (36% of employees) to just 300,000 (1%). 

Jonathan added: “Over the coming months as cash becomes scarce, the challenge of paying staff and suppliers is likely to hit hard. For many businesses, the job retention scheme is a lifeline. However, it’s imperative that business manage their cash flow and working capital if they’re to ensure their continuity beyond the Covid-19 pandemic.”