Protecting small business income during the pandemic - Penny Freedom

Protecting small business income during the pandemic

The Covid-19 global pandemic has plunged us into a new reality, the likes of which none of us have ever experienced before. As small businesses try to navigate these unsettling times, one of the most difficult aspects, health concerns aside, is income and finances.

With so many industries shut down, the UK’s army of contractors, freelancers and small businesses are not only worried about their cash flow in the now, but are understandably fearful for the future and how they will weather the storm.

Here we outline 7 ways to protect your business income during the coronavirus pandemic:

1) Furloughing (your staff and yourself)

The Coronavirus Job Retention Scheme (CJRS) was announced by the government early on into the lockdown regime. Its aim is to allow businesses affected by the crisis to temporarily stand down employees without resorting to redundancies – this is known as “furloughing”.

If you employ staff in your small business, you can furlough them and claim a grant from the scheme to cover 80% of their regular wage, up to a maximum of £2500 per month.

To be eligible under the CJRS, an employee must have been on payroll on 19th March and been reported to HMRC as an employee by that date.

Limited company contractors and freelancers

But what if you are a contractor providing your services through a personal service company?

If you are the only shareholder and employee of your limited company, the available guidance indicates that you can furlough yourself and claim for the PAYE element of your income – ie. get 80% of salary up to £2,500, which will be backdated to 1st March 2020.

If you do choose to furlough yourself, you can’t undertake any work through the company, other than to perform your statutory obligations as a director. In addition, the scheme pays nothing on dividend income, so the financial benefits may be negligible.

2) SEISS

If you are self-employed, and your business has been adversely affected by the pandemic, you may be able to secure income through the Self-employed Income Support Scheme (SEISS), which is expected to be launched in early June.

If you included self-employment on your 2018-19 tax return, HMRC will contact you directly and invite you to apply online.

SEISS will allow you to apply for a government grant of 80% of your average monthly profit (up to £2,500), for an initial 3 months, which will be extended if needed.
The amount will be determined by an average of the 2017, 2018 and 2019 tax years. If you started trading between 2016 and 2019, HMRC will only use the traded years to average.

The scheme is open to those with taxable profits of less than £50,000 (and this is more than half of your total income if you have income other than from self-employment).

In order to claim, you must be currently trading (or would be if it wasn’t for Covid-19), have traded in 2019-20 and have submitted a tax return for 2018-19.

3) Invoice finance for small businesses

Invoice financing isn’t traditionally the cash flow solution of choice for most small businesses but it can be a really quick and effective way to immediately inject funds into your business.

At this time of critical economic slow-down, you may find that clients try to put off or avoid paying invoices in order to shore up their own cash reserves. Invoice financing works by selling your invoice at discount of its total value, giving you control over when invoice income actually comes to fruition.

Penny provides on-demand invoice funding for small businesses, freelancers and contractors. You may be able to sell your invoice to Penny for up to 99% of its value and get paid straight away. Find out more

4) Business Interruption Loans

The government’s Coronavirus Business Interruption Loan Scheme (CBILS) was put in place to help businesses through the worst of the coronavirus crisis, with government-backed loans from a list of approved lenders.

To qualify for a facility under the CBILS, your business must:

  • Be UK-based in its activity
  • Have an annual turnover of no more than £45 million
  • Produce a borrowing proposal which the lender would consider viable of it wasn’t for Covid-19
  • Self-certify that they have been adversely affected by the pandemic.

Unfortunately, the scheme has been in the headlines for all the wrong reasons. At the time of writing, reports suggest that less than 50% of applications have been approved and that the process is long and over-complicated, at a time when businesses need quick access to funding.

Having said that, changes have been made and the rate of approvals is picking up week on week so the scheme remains a viable method for some businesses to secure income to get them through the pandemic.

5) Check your insurance

If you invested in an income protection insurance policy before the coronavirus crisis broke, you may be covered if you are now unable to work because of it.

These types of policies normally pay out in cases of ill health, an accident or unemployment, and you will usually receive payments from one to twelve months after you’re unable to work.

If you do have income protection insurance, it may also have a provision for redundancy, if you find yourself in that situation.

Check your policy wording thoroughly and liaise with your insurer regarding cover, especially if you have only recently taken out a policy.

6) Defer tax and VAT payments

The next major income tax deadline is 31st July 2020. If you pay at least £1000 of tax from your self-assessment tax return, the payment due on 31st July is half of your estimated tax bill for 2019-20. This year you can defer this payment on account until 31st January 2021, without incurring any late payment penalties.

You don’t have to apply to HMRC as they won’t be making a demand for the tax due. However, if you normally pay your income tax by direct debit, you should cancel it with your bank or the payment will still be collected.

In addition, all VAT-registered businesses are being granted a deferment of their VAT payable in the period from 20th March to 30th June, to help protect income and manage cash flow during the pandemic.

7) Beware of scams

The current climate has despicably led to an increase in online scams, which exploit the health and financial impacts of Covid-19 to defraud people when they are at their most vulnerable.

The combination of money, data and fear are a scammer’s paradise.

A final way you can protect your income in the midst of this crisis is to be extra-vigilant about sharing your personal and financial information online.

We hope that this article has been useful. In the face of uncertainty, understanding what financial avenues are available, and taking some resilience measures, may make you feel more in control and confident in the future.