CEO & Founder Soaring Falcon
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The second wave: Tax and cashflow ramifications

Accountants have assumed numerous responsibilities to support their clients through the pandemic. Alex Falcon Huerta offers advice on tax payments, cashflow and ensuring business continuity as we enter the second wave.

8th Oct 2020
CEO & Founder Soaring Falcon
Columnist
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Sad young small business owner has to close her cafe due economic crisis.
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When the government first brought in the deferred tax payments for coronavirus support, most accountants' first concerns were the added administration and the mess their clients would get into. 

Keeping track of taxes to ensure clients are up to date can be challenging. Quality bookkeeping must be kept with sound data capturing to provide evidence and accuracy, meaning extra work and educating clients how to track the liabilities.

But what will happen if taxes can’t be paid? We have had too many letters sent out accidentally by HMRC because their systems decide to send them out irrespective of the circumstances. A key issue for HMRC has been manpower around managing the deferred tax agreements.

Tax payments and deferments

Recent government announcements around the tax payments and further deferments mean the cash saved can be used for buying more stock, investing in the business or just saving the cash ready for when the tax is due. 

It's wise to actually keep as much liquid cash in the bank as possible to ensure business continuity. Make sure to plan in for tax payments to avoid unexpected correspondence from HMRC.

VAT, for example, can now be paid in smaller amounts to March 2022 – you will need to opt-in to this scheme and re set up the cancelled direct debit.

Self Assessment – there is a 12-month extension – July 2020 and January 2021 don't need to be paid until Jan 2022.

Debt collector letters

Many accountants have received debt collector letters for clients where HMRC are chasing for the deferred taxes. This is a common theme for HMRC.

HMRC tends to send bulk letters out or send outstanding taxes to their Debt Collector Agency to chase for unpaid taxes. This places immense pressure for both the client and accountant as they would need to call HMRC to explain or put a stop to it. 

HMRC lines have been busy, waiting hours on end to get through, which doesn't help. Some taxes such as PAYE and corporation tax were not deferred and required a call to put a payment plan in place. Some did not do this. It's been intense, to say the least, and a lot of time wasted.

The administration around the debt collector letter is poor and HMRC continues to send these out. The advice here is to make sure your clients have called HMRC on both deferred taxes and non-deferred taxes to avoid a knock at the door by HMRC.

Ensure you have the tax references ready and advise HMRC which taxes you have deferred or are looking to put on a plan to avoid the additional stress later of the debt collector (contact details here). Once the call is logged and HMRC has made notes on its system, it should then stop the letters.

CBILS and BBLS

At the start of lockdown, CBILS was the only option for funding and keeping the business on the straight and narrow. The process for CBILS was long-winded and painful, and many required to get a huge amount of paperwork together just to apply. 

Banks were taking weeks or even months to accept and release funds which put most off.

The release of BBLS was the saving grace. A simple form to complete and quick access to cash. Many business owners panicked and opted for this option rather than looking at the bigger picture. – do they need more than £50,000 to survive? 

But the concern is whether BBLS is going to be enough to cover the second wave and downturn in revenue. Business owners feel comfortable with £50,000 in their accounts but this, potentially, isn’t enough. 

The question now is do they take the next step and convert BBLS into CBILS? This needs serious consideration as the deadline to apply is the 30 November 2020.

As we know this is going to take time, it is highly recommended that this is actioned now – not when you desperately need it. Banks are unlikely to have the capacity or manpower to deliver the funds if it is left too late. Or worse still, they can't meet the criteria for the deadline and you will miss out.

Cashflow forecasting and the second wave

With the second wave of the coronavirus upon us and knowing what potentially is heading our way, isn't it best to plan ahead? Have cashflow in place and know where you stand.

Make sure your clients know their cash burn and how long the cash they have will actually last, should their income stop. Plan funding in advance and ensure deferred payments can be met when they fall due. All this, we should know. But we have become complacent in our thinking. 

Using cashflow forecasting tools like Fluidly, Futrli and Float will really help structure and build in scenarios around when to make these decisions. 

Knowing in advance allows the business owner to reduce stress levels, anxiety and place confidence in where they are. Then fintechs like Capitalise can help you change from BBLS to CBILS within their system.

Forecasting post-Covid

Looking to a brighter post-pandemic future, Covid will push our traditional business models and bring in new, advanced business models like crypto trading or technology apps. 

Diversification and globalisation will be key areas and local accountants will more than likely need to seek advice with scaling to other countries. 

Businesses would have been forced to make changes and look at new ways to generate an income. Having now been educated around technology, a potential growth area could now be looking to sell overseas. Some service sectors can easily achieve this by online marketing – selling services via products like Pinterest and Instagram.

Where they see downfalls in future cashflow, they can plan ahead to bring in a new market to improve their intake of revenue. Having the cashflow in advance allows the business owner to not only make decisions faster but to be more creative and work on business development.

Cashflow can always be turned into a positive where there are opportunities.

Replies (6)

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By johnjenkins
08th Oct 2020 11:05

This is not just a UK problem, it is world wide. To think that a couple of months lockdown could do so much damage to the world economy is mind blowing. We are very lucky that the food industry has been allowed to carry on. My view is that if we don't now go with the scientists who believe we should go back to normal yet protecting (as much as we can) the vulnerable, we could be in danger of a collapsed economy which could take years to recover. Let's look at it from a purely practical point of view, without any compassion. 90 odd percent of deaths are the elderly with problems. Should we impose restrictions (some ludicrous) on the majority, that could ruin our fragile economy? This is an obvious question that Governments and leaders have to ponder everyday. One thing is sure that the longer restrictions carry on, the longer it will take business to recover. I very much doubt if the hospitality industry will ever recover as people find different ways to amuse themselves. The pubs have lost their atmosphere already.

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By markabacus
09th Oct 2020 09:14

You make a good point and compassion aside you have to wonder if 'locking down' partially or nationally is the right think to do. Not only is it damaging the economy but also those waiting for treatments are at risk becasue they can't be treated, so a case of saving some people at the expense of others.
The Spanish flu just after WWI was left to take it's course, life went on unchanged for those it did not touch directly or indirectly.
Today we have social media and the mind set that nothing bad should ever happen and if it does we must do something to stop it and for it not to happen again.
With Covid 19 and trying to deal with it, it makes me think of King Canute and stopping the tide comimg in. It just won't happen, the tide came in and ......
I'm sure we all have clients that have been badly affected by all of this and some will not make it thru. Already some staff have been made redundant.
As for CBILS, it would appear to be fine for some but if you are property developer who couldn't sell properties thanks to Brexit then Covid 19 then no matter how little borrowing you have the answer is NO. One such client has been thru 3 brokers as their own bank have withdrawn the Property Development finance facilty and CBILS for the like of them.

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By AndyC555
09th Oct 2020 11:27

"The Spanish flu just after WWI was left to take it's course, life went on unchanged for those it did not touch directly or indirectly."

It was the same during the 'Asian flu' pandemic of 1957 and the 'Hong Kong' flu pandemic of 1968, the latter of which was thought to have killed 30,000+ in the UK.

The last really serious flu outbreak in the UK was the winter of 1999/2000. Adjusted for population growth, we had more 'all causes' deaths in 1999/2000 than we have so far in 2019-20.

Unlike previous flu epidemics one striking feature is that the current one has hardly affected younger people. For those 45 and under we've had precisely zero excess deaths this year when compared to the 5 year average.

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By michael maggiore
08th Oct 2020 13:39

What is the position if an application was made for a £25k bounce back loan which has been drawn down and you need to borrow a further amount?

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Replying to michael maggiore:
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By johnjenkins
08th Oct 2020 14:15

If your turnover allows it you can borrow up to £50k.

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Replying to michael maggiore:
Caroline Plumb
By Caroline Plumb
08th Oct 2020 19:54

The current position appears to be that you can only have one bounce-back loan and only with one lender, so you can't extend it. You can however switch it to a CBILS loan for e.g. £50,001+ if turnover allows (max 25% of turnover) or top-up with a non-CBILS lender.

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