VAT and self-assessment deferral
Most farming businesses will be in an overall VAT reclaim position, so this has not been of benefit to all business impacted by coronavirus. However, some businesses have been able to take advantage of this interest free deferral of VAT payments as a measure to ease cashflow. If a direct debit has been cancelled to take advantage of the VAT deferral it needs to be set up again for future VAT payments.
The reaction to the deferral of self-assessment payments on account due 31 July 2020 is mixed. Where cashflow allows, be it from trading or from COVID-19 support measures such as grants and loans, clients are indicating they would prefer to pay this liability when it falls due rather than have another debt looming into next year. However, where cashflow is tight, this is being looked upon as an interest free loan until 31 January 2021.
HMRC time to pay
If you have a tax liability looming and will struggle to pay due to coronavirus, it is worth contacting the dedicated HMRC team on 0800 024 1222 to agree a time to pay arrangement.
The scheme can be used to defer a payment of VAT, income tax, PAYE or corporation tax and agree a manageable monthly amount, the first payment can be delayed by up to three months. Late payment interest is charged on corporation tax at 2.6% per annum and no interest is incurred on the PAYE.
We are only just seeing businesses start to take this up, but over the coming months this is likely to increase.
Existing borrowing arrangements
We are seeing a significant number of businesses agree capital repayment holidays on long term borrowing, typically for a six to 12-month period. Generally, the term of the loan is not extended. Beware as the repayments will be higher after the holiday ends, as there is a shorter window to repay the capital. This increase needs to be factored into any cashflow forecasting.
For loans with a short life remaining this can create a large increase in monthly payments over the final period and the bounce back loan scheme has provided a more effective solution to this - with no arrangement fees and a six year repayment term this can help to spread the capital repayments over a longer period.
We have also seen other finance arrangements such as cars on PCP being flexible and allowing a payment holiday. It is worth looking at all your current arrangements.
Cashflow projections
Many businesses now use real time software to enable understanding of the current and past picture of the business. However, in these uncertain times it is what may be happening in the future, over the next few weeks and months, that is critical. Many of the software packages have cashflow functionality and we can assist with these if required. Alternatively, an excel cashflow forecast template is available here.