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The COVID-19 Exit Strategy – What business needs now from the Government

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Peter Noyce - Menzies Accountant

Peter Noyce – Partner
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Whilst there were a few gaps in both the grants brought into play relating to the Coronavirus Job Retention Scheme (CJRS) and Self-employment Income Support Scheme, stage 1 of Rishi Sunak’s business support has had very positive feedback.

Stage 2 though needs as much thought, planning and, as with many things, timing will be everything.

Businesses, who are very grateful of the respite at present due to the massive uncertainty of the economy that we are all operating in, are already discussing how they should be operating in the immediate aftermath of the government releasing us from the present lockdown – whether that be gradual or otherwise. That will need further detailed, sensitive and “what if” analysis like that undertaken before we entered into the business crisis management a few weeks back. Any business going through a process of stocking up or bringing income streams on-stream will be aware that it is always difficult to plan for, even without the present extreme macro issues.

Time to extend the Job Retention Scheme?

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One course of action that must be brought into play is to extend Job Retention Scheme (CJRS) – and its self-employed equivalent – to the end of July 2020 immediately. This will have the effect of ensuring businesses of all sizes can increase their capacity in an orderly fashion, rather than having full payroll costs in the period straight after lockdown when they are building up their pipeline and orders again. Not many businesses can just turn the tap off (as many have done) and then start operating at full tilt when the release from lockdown tap is turned on again; it just doesn’t work as seamlessly as that.

This may well be a gradual release by the government, and businesses will be very nervous about cash flow and commitments for the remainder of 2020 at least. Many may well fear a double spike, and therefore if the CJRS is not extended they will not be keen to have all employees back on the payroll in that initial period.

The problem of deferring debt

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Whilst all the government initiatives have been welcomed and the overall intention is well meant, the overriding issue is that many are simply deferring debt (VAT, Corporation and Personal Taxes). Those “cans” that have been kicked down the road into 2021, will already be in the sights of many businesses and their cash flow projections. This will also not be helping business confidence in staffing up any time soon; another good reason to extend the grants beyond May. By doing this now it should provide that certainty and undoubtedly protect jobs, which is the reason the scheme was brought in originally.

The deferring of these tax liabilities, especially if additional funding (whether government backed debt or not) has been taken on, will be weighing heavily on the mind of business owners. The Chancellor knows that these are often not businesses that are bad or even zombie companies but successful, profitable, cash generative businesses across many sectors. This may even be the first time that these businesses will have sizeable debts that, albeit almost twelve months or more away, will remain on the horizon and affect business and strategic planning decisions. To ensure those furloughed staff, and those sadly not even fortunate enough to be furloughed, are retained or re-hired, further relief is required otherwise entrepreneurial behaviour will grind to a halt.

As I say, Rishi over to you for Stage 2 please!

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Peter Noyce - FCA

Partner

Peter Noyce is a Menzies Partner in the Woking office specialising in legal firms, business advisory services & financial solutions focused on profit improvement.