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.
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.
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.
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The founder of Soaring Falcon Accountancy, Alex Falcon Huerta FCCA is a Xero MVP and member of ACCA's international assembly. With a background as an accountant working with some of the most agile and progressive small businesses in the UK, Alex is an early technology adopter who set up her practice to accelerate change both for her clients and...