What is solvency?

During periods when demand for your goods and services drop – for example, if your business has been closed down or adversely affected by the recent COVID-19 outbreak – your sales and incoming cash receipts tend to drop at a faster rate than you are able to reduce your outgoings.

Expenses tend to fall into one of two groups:

  • Those that tend to vary in direct proportion to your sales: buying raw material or stock for resale, or
  • Fixed overheads: rents, rates, wages, and other recurring costs.

Variable costs can be reduced quickly once a downward sales trend is confirmed. Fixed costs can also be reduced but over a longer time period.

During a time when costs overtake income, losses occur. If losses are significant they may exhaust any reserves you have built up in your business. When this happens, you are in danger of becoming insolvent (liabilities exceeding assets).

Consequently, if your business is experiencing a downturn, keeping your accounts up-to-date is of paramount importance. Most accounting software will produce a balance sheet and we can show you how to monitor this report to warn you of approaching insolvency.

Please call if you need help to organise your record keeping and we will provide you with the information you will need. 

Prepare accounts quickly

As most self-employed readers will be aware, Self-Assessment tax and NIC payments on account are based on profits earned in the previous tax year and balancing payments due are not payable until the 31 January following the tax year end date.

From a cash flow point of view this is an advantage but only if taxable profits year on year are increasing.

During this unsettled period due to COVID-19 disruption, many self-employed businesses will have lower profits in 2019-20 compared to 2018-19, and even lower numbers in 2020-21 compared with 2019-20.

For these two years – profits arising in 2019-20 and 2020-21 – we recommend the we prepare accounts and submit returns as soon as possible after the end of the tax year. The 2019-20 tax year ended 5 April 2020.

Why do we recommend this?

  • If profits have fallen, year on year, we can apply for payments on account (payable January and July each year) to be reduced.
  • You will be advised of any balancing tax payments due for the previous tax year – due the following January – well in advance of the payment date, so you have time to save appropriately.

And there is a non-tax advantage to preparing accounts and tax calculations as quickly as is possible after the end of the tax year. If you need to apply for one of the recently announced Coronavirus Business Interruption Loans, your bank may need to see a copy of your most recent accounts. The data will also provide up-to-date information to create a realistic cash flow forecast.

Clients are requested to call as soon as they have updated their accounting records taxable in 2019-20 – for most businesses that will be for the year to 31 March 2020 (or 5 April 2020). 

Changes announced to Coronavirus Business Interruption Loan Scheme (CBILS)

Many small businesses that have applied for a government backed CBILS loan thus far have been offered standard overdrafts and loans – without the Government's 80% guarantee – on the basis that they fit the banks’ criteria for this type of lending.

The Chancellor has now confirmed that this is not the intention of his CBILS scheme and that from now on all businesses affected by the COVID-19 disruption should be offered a CBILS loan with the government guarantee. This change is underlined by the following statement in the press release:

“To maximise the support available, the Chancellor is extending the CBILS so that all viable small businesses affected by COVID-19, and not just those unable to secure regular commercial financing, will now be eligible should they need finance to keep operating during this difficult time” 

A summary of other changes to CBILS are set out below. 

  • Lenders will be banned from requesting personal guarantees on loans under £250,000.
  • For loans over £250,000 personal guarantees will be limited to 20% of any amount outstanding on the CBILS lending after any other amounts have been recovered from business assets.    

These two changes will provide further reassurance for business owners. Not only will their homes be protected – lenders are already prohibited from asking business owners to put their house on the line – but will also limit the exposure to other personal assets. Reassuringly, these changes will apply to finance already offered under CBILS.

Further changes include:

  • The Government encouraging operational changes to speed-up applications under the scheme. 
  • The government still covering the first twelve months of interest and bank fees.
  • A new Coronavirus Large Business Interruption Loan Scheme (CLBILS) is to be made available to enable banks to make loans under the scheme of up to £25m (the present limit for the smaller scheme is £5m). This will allow firms with an annual turnover of between £45m and £500m access to the 80% government guarantee.
  • The Government actively requesting that banks keep interest rates to “a reasonable level”. After all, base rates are at a record low…

These changes should make it easier for small and mid-sized firms to get access to funding that will support their efforts to survive the COVID-19 disruption. Readers who need to make an application would be wise to revise their business cashflow and other projections prior to making an application. This funding is a loan not a grant. The impact of loan repayments and interest charges after the first twelve months need to be considered as part of this planning process.

We can help you consider your options and prepare the necessary forecasts.

Relaxation of phone contracts during COVID-19 outbreak

An interesting joint statement from the Government, Ofcom and the telecommunications industry has been published to help offer support to vulnerable consumers and those who may become vulnerable due to circumstances arising from COVID-19.

The UK’s major internet service and mobile providers, namely BT/EE, Openreach, Virgin Media, Sky, TalkTalk, O2, Vodafone, Three, Hyperoptic, Gigaclear, and KCOM have all agreed the following commitments, effective immediately (from 29 March 2020):

  • All providers have committed to working with customers who find it difficult to pay their bill as a result of COVID-19 to ensure that they are treated fairly and appropriately supported.
  • All providers will remove all data allowance caps on all current fixed broadband services.
  • All providers have agreed to offer some new, generous mobile and landline packages to ensure people are connected and the most vulnerable continue to be supported. For example, some of these packages include data boosts at low prices and free calls from their landline or mobile.
  • All providers will ensure that vulnerable customers or those self-isolating receive alternative methods of communication wherever possible if priority repairs to fixed broadband and landlines cannot be carried out.

Digital Secretary Oliver Dowden said:

It’s fantastic to see mobile and broadband providers pulling together to do their bit for the national effort by helping customers, particularly the most vulnerable, who may be struggling with bills at this difficult time.

There have also been other specific measures announced by UK operators to support their customers through this pandemic such as offering additional TV channels free of charge.

Converting assets into cash in the bank

During and after any period when economic activity is depressed, companies that survive the process are those that manage their cashflow effectively.

A number of businesses will be in the fortunate position of heading into the current COVID-19 crisis with adequate cash reserves to see them through, many others will not.

In both cases, minimising expenditure and maximising cash inflows should be the name of the game.

Last week we stressed the importance of gathering in monies due from customers. This week we offer a number of additional ideas to bolster cash inflows. They are:

  • If you have stock gathering dust in your storeroom offer it to customers at a discounted price – set an initial price reduction to cost – converting these items to cash makes sense. It is also a win-win strategy: you free up space and add to cashflow, and your customers will perceive that they are getting a bargain.
  • If stock items are perishable, food for example, set up distribution to food banks and relevant charities and make sure that local press and radio stations are made aware of your generosity – this may not create cashflow, but it will provide free publicity.
  • Can you sub-let space office or factory space for storage?
  • Do you have any redundant plant or IT equipment that you could sell online – eBay etc.
  • Keep your accounts up to date. If you have made losses you may be able to carry losses back in time and recover tax paid in previous years.

You can also achieve the same benefits by reducing expenditure. See our further article on this aspect in our newsfeed next week.

And we can help. Call if you want to brainstorm options that you may have, to convert assets into cash.

Deferring VAT and tax payments

As part of the government’s response to assist businesses during the COVID-19 crisis is the offer to defer VAT and self-assessment tax and NIC payments.


HMRC will not enforce payment of VAT liabilities that fall due between 20 March 2020 and 30 June 2020. For most VAT registered firms, this will boost cashflow as one quarter's VAT payment will not be made.


HMRC have also confirmed that any second payment on account due 31 July 2020 does not need to be made.

Whilst businesses and tax payers will appreciate this offer, there will come a day of reckoning.

Deferred does not mean cancelled.

Any deferred VAT will need to be paid by 31 March 2021, and any deferred self-assessment tax by 31 January 2021.

Make sure you factor these 2021 payments into your cashflow forecasting. Business owners may forget that these potentially significant payments will need to be dealt with early next year.

As the COVID-19 lock-down starts to bite, businesses will be utilising available resources to meet their daily needs. In a number of cases this may see cashflow diminish as losses start to make inroads into reserves.

The best way to plan for these deferred payments is to create a cashflow forecast. This can be a simple spreadsheet with a list of monies due in, monies to be paid out, and that projects a running balance of your bank balances. This needs to be done at least a year ahead and reviewed monthly so you can see where cash shortages are likely to occur.

We can set this up for you and show you how to keep the report up-to-date.  

Working Tax Credits increased for one year

As part of the package of measures to tackle the Coronavirus outbreak, the government has announced that the basic element Working Tax Credit payments will be increased from an expected £1,995 to £3,040 for the 2020-21 tax year starting on 6 April 2020. 

This annual increase of £1,045 is equivalent to £86.67 per month for one year from 6 April 2020. The actual amount that Working Tax Credits recipients will receive depends on their circumstances, including their level of household income.

If you claim Working Tax Credits, you don’t have to take any action or contact HMRC – the increase in your payments will start from 6 April 2020.

There have also been corresponding increases in Universal Credit available to many employed and self-employed workers on low incomes or who have become unemployed. This has seen the government increase the basic element and remove the minimum income floor in a move to benefit the self-employed. The minimum income floor won’t apply to anyone after 6 April 2020. This will last until the Coronavirus outbreak is over. 

Directors – between a rock and a hard place

Directors that have drawn remuneration from their companies as a mix of low salary and higher dividends would seem to be overlooked by the schemes announced in the past two weeks to support the employed and the self-employed.

In the first news story published by government announcing the Self-Employed Income Support arrangements (26 March 2020), the following paragraph was inserted:

“Those who pay themselves a salary and dividends through their own company are not covered by the scheme but will be covered for their salary by the Coronavirus Job Retention Scheme if they are operating PAYE schemes”. 

On this basis, the only financial support that directors could claim is the Job Retention Scheme. This will be based on their salary – not salary plus dividends – and only if they furlough themselves (play no active role in their businesses). It is likely that a director's statutory responsibilities will not count as work if a claim under the Coronavirus Job Protection Scheme is made.


Coronavirus tax payment helpline

The phone number for the COVID-19 helpline launched earlier this month has been changed to 0800 024 1222. Calls to the previously published number will be redirected. The launch of the new number will help increase capacity. 

The helpline will field questions and concerns from any business or self-employed individual worried about paying their tax due to Coronavirus disruption and to receive practical help and advice. HMRC has said that there are up to 2,000 experienced call handlers available to support businesses and individuals when needed.

For those who are unable to pay due to Coronavirus, HMRC will discuss your specific circumstances to explore:

  • agreeing an instalment arrangement
  • suspending debt collection proceedings
  • cancelling penalties and interest where you have administrative difficulties contacting or paying HMRC immediately

The helpline opening hours are Monday to Friday 8am to 4pm. The helpline will not be available on Bank Holidays. HMRC say that these reduced opening hours are due to fewer staff being available due to the Coronavirus and to be prepared for a long wait. 

Coronavirus – relaxation of insolvency rules

New insolvency measures have been announced to help prevent businesses unable to meet debts, due to the impact of Coronavirus, to continue trading and not be forced to file for bankruptcy. The measures were announced by the Business Secretary, Alok Sharma.

These changes will see the temporary suspension of the wrongful trading law during the pandemic. It will apply retrospectively, from 1 March 2020, for three months. This means that company directors can continue to trade without the threat of personal liability. This will allow directors of companies to pay staff and suppliers even if there are fears that the company could become insolvent due to the current, exceptional trading circumstances. 

Other changes include a temporary moratorium for businesses undergoing a rescue or restructuring process. During this period, they cannot be placed in administration by creditors and be able to continue buying important supplies – such as energy costs and raw materials. There will also be a new restructuring plan binding on creditors.

These measures should help some businesses to cope with the significant difficulties of the current crisis and hopefully, enable them to continue functioning until the situation improves.