Government support in response to COVID-19

By Andrew Walker at Irwin Mitchell

Measures the government has introduced to support businesses, particularly those in the hospitality and leisure sector 

Loans and guarantees

The government have pledged to provide unlimited loans and guarantees to support firms and help them manage cash flow. The Chancellor will make available an initial £330 billion of guarantees (equivalent to 15% of GDP).

• A major new scheme, Covid Corporate Financing Facility (“CCFF”), has been launched by HM Treasury and the Bank of England to help provide support for liquidity amongst larger firms and help them bridge COVID-19 disruption to cash flows through loans.

The CCFF provides funding to businesses by purchasing commercial paper of up to one-year maturity, issued by firms making a material contribution to the UK economy. The financing will be open to firms who can demonstrate that they were in sound financial health prior to Covid-19.

• The Coronavirus Business Interruption Loan Scheme (CBILS) (delivered by the British Business Bank) helps SME’s to access loans and other kinds of finance up to £5 million. In order to support cash flow and allow smaller businesses to benefit from no upfront costs and lower initial repayments, the first 12 months of interest payments and any lender-levied fees will be paid by the government as a ‘Business Interruption Payment’.  

The government will provide lenders with a guarantee of 80% on each loan (subject to a per-lender cap on claims) – the government will not charge business or banks for this guarantee. Businesses can access the first 6 months of that finance interest free, as the government will cover the first 6 months of interest payments.

• A new Coronavirus Large Business Interruption Loan Scheme (CLBILS) allows all viable medium and large sized businesses with a turnover of more than £45 million per year to access loans and other kinds of finance of up to £200 million.  

The scheme allows lenders to specifically support businesses that were viable before the COVID-19 outbreak but now face significant cash flow difficulties that would otherwise make their business unviable in the short term. The government guarantee 80% of the finance to the lender.

• The Coronavirus Future Fund is a scheme which will provide government loans to UK based companies ranging from £125,000 to £5 million, subject to at least equal match funding from private investors.

These convertible loans may be suitable for businesses that rely on equity investment and are unable to access the CBILS. The scheme will be delivered in partnership with the British Business Bank.

• The Coronavirus Bounce Back Loan scheme helps small and medium-size businesses affected by coronavirus to borrow between £2,000 and £50,000.

The government guarantees 100% of the loan and loan terms will be up to 6 years. There will be no fees, interest or repayments due for the first 12 months. The government will then work with lenders to agree a low rate of interest for the remaining period of the loan.  

The government have also announced that they will have wide reaching legal powers in the Covid Bill, enabling them to offer whatever further financial support they think necessary to businesses

Insurance

The government have confirmed that their advice on 17 March 2020 to avoid pubs, clubs and theatres etc. is sufficient for businesses to claim on their insurance where they have appropriate business interruption cover for pandemics in place.

However, most businesses are unlikely to be covered as standard business interruption insurance policies are dependent on damage to property and will exclude pandemic.

Business rates

The government have announced they will give all retail, hospitality and leisure businesses in England a 100% business rates holiday for the 2020-2021 tax year

Cash grants

The Small Business Grant Fund (SBGF) will provide increased grants of £10,000 to eligible small businesses.  

The Retail, Hospitality and Leisure Grant (RHLG) will provide further cash grants of up to £25,000 per property to retail, hospitality and leisure businesses with a rateable value of over £15,000 and below £51,000. Businesses in these sectors with a rateable value of under £15,000 will receive a grant of £10,000.  

The Discretionary Grant Fund supports small and micro businesses that are not eligible for other grant schemes obtain grants of £25,000, £10,000 or any amount under £10,000.

Tax support

The government  supported all UK businesses with a deferral in VAT payments for 3 months from 20 March 2020 until 30 June 2020. UK businesses did however have the option to pay the VAT due as normal.

The government have also announced a new temporary reduced rate of VAT of 5% for businesses that make supplies of admissions that are currently taxable at the standard rate. This temporary rate will apply from 15 July 2020 to 12 July 2021.

Eat Out to Help Out Scheme

Restaurants can use the Eat Out to Help Out Scheme to offer a discount to diners and encourage them to eat at your restaurant.

You can use the Eat Out to Help Out Scheme:

all day, every Monday, Tuesday and Wednesday from 3 to 31 August 2020

to offer a 50% discount, up to a maximum of £10 per person, to diners for food or non-alcoholic drinks to eat or drink in

to claim the money back from the government

How businesses access the measures 

Loans and guarantees 

Coronavirus Business Interruption Loan Scheme (CBILS)

The scheme is now open for applications. To apply, businesses need to talk to their bank or one of the 50 accredited finance providers (not the British Business Bank) listed here as soon as possible and tell them the amount the business would like to borrow, what the money is for and how long the business would like to pay it back. Documents showing the business can afford to repay the loan will need to be provided, which may include those listed here.

. All major banks are offering the scheme. Various products will be made available, including term facilities, overdrafts, invoice finance facilities and asset finance facilities.

The maximum length for the facility depends on the type of finance applied for, and will be:

• Up to 3 years for overdrafts and invoice finance facilities
• Up to 6 years for loans and asset finance facilities.

To be eligible, the SME must:

• Be UK based, with a turnover of no more than £45 million per annum;
• Be a smaller business from any sector (excluding those listed here);
• Be able to show that the business would be viable were it not for the pandemic and has been adversely impacted by the coronavirus.

The lender will check the loan is for a suitable business purpose, affordable for the business and the right type of finance for the business’ needs. If one lender turns a business down, they can apply to another lender in the scheme.

On 3 April 2020, HM Treasury announced the following changes to the scheme:

• The scheme has been extended so that more small businesses can benefit; and Lenders are banned from requesting personal guarantees on loans under £250,000.

Further government guidance can be found here.

Coronavirus Large Business Interruption Loan Scheme (CLBILS)The scheme is now available through 12 lenders which are listed on the British Business Bank website, including all the main retail banks.

To apply a business must find and approach an accredited lender, ideally via the lender’s website. Details of what the lender will request from you when applying for a business loan can be found here.

The lender has the authority to decide whether to offer finance, though businesses can still approach other lenders within the scheme if they have been turned down.

Finance is available from 3 months to 3 years and includes loans, revolving credit facilities (including overdrafts), invoice finance and asset finance.

The government has announced that to be eligible businesses must:

1. Be UK-based in its business activity
2. Have an annual turnover over £45 million
3. Be able to self-certify that the business has been adversely impacted by coronavirus
4. Not have received a facility under the Bank of England’s CCFF
5. Have a borrowing proposal which the lender:

a) would consider viable, were it not for the COVID-19 pandemic

b) believes will enable the business to trade out of any short-term to medium-term difficulty resulting from coronavirus

Businesses from any sector can apply, except for those listed here. Full details of the scheme can be found here.

Covid Corporate Financing Facility (CCFF)

On 18 March 2020 the Bank of England (BOE) in collaboration with HM Treasury published further details in respect of the Covid Corporate Financial Financing Facility (CCFF) and how the facility will temporarily provide funding to companies. For full detail about what the loan facility offers click here to access the BOE website.  

The scheme is now available for applications and businesses should liaise with their bank if they think they are eligible. Not all banks provide commercial paper, though UK Finance has provided a list of those banks that are able to assist on its website.

The Bank of England has produced a useful ‘Q&A’ on the CCFF, which can be found here.

Some key notes that should be considered before making an application to participate in the facility are that:

• companies will need to purchase commercial papers, or in other words, loan facilities for the purpose of paying wages and suppliers during cash flow disruption.
• purchases under the facility will be financed by the BOE.
• the facility will be available to businesses who can demonstrate that they were in “sound financial health prior to the shock”. This means companies that had a short or long-term rating of investment grade, as at 1 March 2020, or equivalent. .
• The BOE will operate the facility for a period of 12 months and will provide 6 months’ notice of the withdrawal of the facility.

Eligibility

There are different factors taken into account by the BOE to determine whether a company is eligible to partake in the facility. The factors mentioned in the BOE’s guidance are that:

1. Companies make a ‘material contribution’ to the UK economy;
2. Companies have significant employment in the UK or with their headquarters in the UK;
3. Companies generate significant revenues in the UK;
4. Companies serves a large number of customers in the UK; or,
5. Companies have a number of operating sites.

To discuss eligibility and provide further documentation, individuals should contact the BOE at applications@bankofengland.co.uk.

Eligible securities

The facility will be under constant review by the BOE and HM Treasury to consider any extensions or variations in the future. The duration of the facility can be between 1 week to 12 months and is credit rating based as at 1 March 2020. Where there no credit rating is available, the BOE will consider whether a long term credit rating can be used to access eligibility.

You should note that in instances that subsidiary companies require funding, the BOE may require parent companies to provide a guarantee to provide adequate security.

Pricing

There is naturally an uncertainty in respect of how much the loan securities will cost as the BOE continues to keep reviewing pricing in light of market conditions. Further detail about how the BOE plans to apply pricing is expected to become available shortly.

Submissions of offers

To take advantage of the facility, offers to sell the loan facilities to the BOE must be made by phone between 10am and 11am to the BOE. The minimum size of an individual security that the Fund will purchase from an individual participant is £1 million nominal. The offer amount should be expressed in increments of £100,000 nominal. On the day of the purchase, the BOE will send a written electronic confirmation.

Information about the terms and conditions and operating procedures for the facility will be published on the BOE’s website on 23 March 2020.

It is important to note that the BOE reserves the right to reject applications without explanation.

bill automatically to exclude the business rate charge; however they will do this as soon as possible.

Coronavirus Future Fund

The scheme is open for applications until the end of September 2020. Applications can be made through the British Business Bank.

 Businesses are eligible if:

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• It has raised at least £250,000 in equity investment from third-party investors in the last 5 years <!--[if !supportLineBreakNewLine]-->
• None of its shares are traded on a regulated market, multilateral trading facility or other listing venue <!--[if !supportLineBreakNewLine]-->
• It was incorporated on or before 31 December 2019 <!--[if !supportLineBreakNewLine]-->
• At least one of the following is true:
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  • half or more employees are UK-based
  • half or more revenues are from UK sales

This is an investor-led scheme, meaning a lead investor applies on behalf of themselves and may provide information about other investors making up the investment round, in connection to a company.

The distribution of funds for successful applications will be handled through a nominated company solicitor.

Full details of the scheme can be found here

Coronavirus Bounce Back Loan scheme

Applications for Bounce Back loans are now open. To apply, businesses should approach one of the accredited lenders listed here. Businesses should first approach their own provider, then others if they are unable to access the finance required.

Businesses will be required to fill in a short application form online which self certifies they are eligible for a loan under the scheme. Full details on how to apply can be found here.

Government guidance on eligibility states that  businesses must:

• Be based in the UK
• Have been negatively affected by coronavirus
• Not have been an ‘undertaking in difficulty’ on 31 December 2019

Whilst the following businesses are not eligible to apply:

• Banks, insurers and reinsurers (but not insurance brokers)
• Public-sector bodies
• State-funded primary and secondary schools
• Businesses already claiming under the CBILS – however if a business has already received a loan of up to £50,000 under CBILS and would like to transfer it into the Bounce Back Loan scheme, this can be arranged with their lender until 4 November 2020

Full details on eligibility can be found here.

If one lender turns a business down, they can apply to another lender in the scheme.

Business rates 

Businesses that are based in England and in the retail, hospitality and/or leisure sector are eligible for the business rates holiday. Properties that will benefit from the relief will be occupied hereditaments that are wholly or mainly being used:

As shops, restaurants, cafes, drinking establishments, cinemas and live music venues

For assembly and leisure e.g. a sports club, a gym or a spa

Hospitality property e.g. hotels, guest and boarding premises and self-catering accommodation

Businesses need take no action. The business rates holiday will apply to the next council tax bill for the 2020 to 2021 tax year. Local authorities may have to re-issue the next

Cash grants 

Retail, Hospitality and Leisure Grant and Small Business Grant Fund

The RHLG will apply to the Properties which on 11 March 2020 had a rateable value of over £15,00 and less than £51,000 and would have been eligible for a discount under the business rates Expanded Retail Discount Scheme had that scheme been in force.

The SBGF will apply to small businesses with a property that on 11 March 2020 was eligible for Small Business Rate Relief (including those with a Rateable Value between £12,000 and £15,000 which receive tapered relief) and/or Rural Rate Relief.

RHLF and SBGF are not available for properties occupied for personal uses, such as private stables and loose boxes, beach huts and mooring or for car parks and parking spaces. Businesses which as of 11 March 2020 were in liquidation or were dissolved are also ineligible.

Grant income received by a business is taxable; therefore the Small Business Grants and Retail, Hospitality and Leisure Grants will be subject to tax. However, only businesses which make an overall profit once grant income is included will be subject to tax.

Businesses do not have to do anything to access these grants. The local authority will write to businesses if they are eligible for the grant. 

Any enquiries on eligibility for, or provision of, the reliefs and grants should be directed to the relevant local authority. Further government guidance can be found here.

The Discretionary Grant Fund

Businesses should visit their local council’s website to find out how to apply. Your local council will run an application process and decide whether to offer you a grant. Businesses are potentially eligible if it:

• is based in England
• has relatively high ongoing fixed property-related costs
• occupies property (or part of a property) with a rateable value or annual mortgage/rent payments below £51,000

was trading on 11 March 2020 The following businesses cannot apply:

• If it is in administration, insolvent or has received a striking-off notice.
• If it is already claiming under another government grant scheme, such as:
• Small Business Grant Fund
• Retail, Hospitality and Leisure Grant
• Fisheries Response Fund
• Domestic Seafood Supply Scheme
• Zoos Support Fund
• Dairy Hardship Fund

The discretionary grants fund counts towards state aid. Please see here for more details in respect of exceeding the relevant state aid threshold.

You do not have to pay the grant back but it will be taxable. Only businesses which make an overall profit once grant income is included will be subject to tax.

Local councils are to prioritise certain businesses which are detailed here.

Tax support

 The VAT deferral period has now concluded. Payments due after 30 June must be paid in full as normal and you must continue to file your VAT return on time.

Any VAT payments you have deferred between 20 March and 30 June should be paid in full on or before 31 March 2021. For more information see Pay your VAT bill. Further information can be found here.

The temporary reduced rate of VAT of 5% applies to businesses that make supplies of admissions that are currently taxable at the standard rate. This includes:

• shows
• theatres
• circuses
• fairs
• amusement parks
• concerts
• museums
• zoos
• cinemas
• exhibitions
• similar cultural events and facilities

Examples of where the reduced rate may apply could be attractions such as:

• a planetarium
• botanical gardens
• studio tours
• factory tours

Further information can be found here.

Eat Out to Help Out Scheme

Restaurants can register if their establishment:

• sells food for immediate consumption on the premises
• provides its own dining area or shares a dining area with another establishment for eat-in meals
• was registered as a food business with the relevant local authority on or before 7 July

Restaurants cannot register:

• an establishment that only offers takeaway food or drink
• catering services for private functions
• a hotel that provides room service only
• dining services (such as packaged dinner cruises)
• mobile food vans or trailers

Further information on registering and what happens next can be found here. Registration will close on 31 August.

This article was updated on the 16 July 2020.