Need for assistance of the start-up businesses after the COVID-19 crisis

A plethora of programmes of state aid has been announced to help individuals and businesses during the COVID-19 crisis. However, there are still individuals and businesses that are being left out in the cold said leading tax and advisory firm Blick Rothenberg.

‘There is a depressingly long list of individuals who are going to really suffer while the economy is in lock down said: Heather Powell, a partner at the firm.Despite the coronavirus job retention scheme (CJRS) and the self-employed income support scheme (SSEISS).

She added: ‘Employees who changed their job after 28th February 2020 do not qualify for CJRS (the furlough scheme) and may be put on unpaid leave or, even worse, made redundant. Their only safety net is to apply for benefits.

‘Employees who earn more than £37,500 per year who have been furloughed without a top-up to their full salary have their earnings under CJRS capped at £2,500 (gross) those on a salary of £50,000 will see their take home pay reduced by 22% which may be significantly less than their monthly household bills.

‘While mortgage payments can be deferred, individuals still must pay food, utility and other household bills which may rise as we are spending so much more time at home.

She asserted that: ‘There is an ethical dilemma for those who fall ill while on furlough. Do they declare their illness, and potentially get their pay reduced to the sick pay allowance of £94 per week, equivalent to £408 per month, or remain quiet and continue to be paid £2,500 under the furlough scheme?

‘Three groups of the self-employed are losing out. The successful entrepreneurs whose businesses generated profits of more than £50,000 cannot claim any support under SSEISS.

‘In addition, the large number of self-employed who run their business through a limited company and pay themselves dividends from the company (after payment of corporation tax) and not a salary are losers, they cannot claim CJRS or SSEISS.

‘A huge range of businesses at the heart of the UK economy are caught in this loophole–professionals, contractors, property developers as well as high street businesses such as hairdressers and local restaurants to pick just a few.

‘The final category of self-employed that cannot get any grants under SSEISS are those who started their own business after 5th April 2019. These entrepreneurs are our future and they are getting no support.

She strongly argued that: ‘All these businesses, and their owners, are essential to driving the UK economy forward when we come out of this crisis. They are living off personal savings and if they are not sufficient, debt.

‘When they can back to work their focus will be on paying off the additional debt incurred and replenishing savings – not the spending on goods and services that will pick our economy up. At the extreme there will be business closures and personal bankruptcy which will only extend the turmoil arising from the crisis.

‘What should the government be doing? CJRS needs to be extended to include employees who chose to change jobs in March 2020 and self-employed who are running the businesses that we need to bring us out of recession should be entitled to support under SSEIS, whatever their historic profit level, method of remuneration chosen or the age of their business. It is unequitable to do anything else.

She claimed that: ‘There are losers among many industry sectors; small high street businesses – hairdressers, restaurants, dry cleaners who cannot switch to online sales as well as major retailers.

She added: ‘Anyone who has visited a shopping centre to get to a supermarket will have found the silence eerie. While rates relief is available for 2020 how many retailers will return to their shops is an open question – every week is bringing news of further major names going into administration.

‘Losers also include garden centres and their suppliers who would expect to be starting the summer push over the Easter break, as well as those in leisure and hospitality and travel industry. None of the breaks booked for the Easter and May bank holiday breaks will be rebooked, that revenue has gone.

‘Surprisingly some suppliers to the supermarkets have also lost out. The initial panic, which generated shortages of milk on supermarket shelves, lead to a subsequent lack of demand and farmers were dumping fresh milk in the following weeks as fridges were full, and restaurants closed.

‘Finally, early stage companies are one of the enduring success stories of the UK business community and employ thousands. Many operate in deep tech and innovative sectors, including science. Such companies, many of which may be backed by Angel investors and or PE/VCs are unlikely to qualify for the funding options introduced by the Chancellor.

‘This could be due to not having a track record for generating profit, not having an adequate balance sheet or not having collateral or assets to provide as security. These companies may need funding now to provide working capital as they are also essential to the expansion of our economy, and our future success.”

Heather said: ‘Established businesses may be able to apply for funds under the government backed loan scheme CVBILS, however, the position re personal guarantees (PG) needs to be reconsidered.

‘The threshold for the provision of a PG needs to rise considerably to make it attractive to entrepreneurs–from £250,000 to £1,000,000. This is a major barrier to the take up of loans (assuming your bank is able to process the documentation to agree and then advance a loan).

‘For start-up businesses the existing government schemes do not work, and they need to be amended, or extended to allow prospects and opportunities to be considered. We should also be looking at other opportunities –funding does not all have to come from government backed bank loans.

She concluded that: ‘The treasury could look at some immediate changes to tax incentives for investors to encourage them to provide some of the funds required, particularly for the early state businesses.

‘For example, increase SEIS threshold to say 80%, the EIS threshold to say 50% and increase maximum threshold to say £300,000.

‘The burden does not have to all fall on the state, the private sector investment community has funds and could be part of the solution. We all have a massive interest in coming out of this crisis in the best position we possibly can.’

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