The COVID-19 outbreak has caused major disruption across global markets, with restrictions on human movement disrupting the majority of sectors.
Manufacturers are facing the problem of having reduced or totally absent teams, a pause to supply chains and an aggressive decline in customer demand. The resulting cashflow implications will be significant, with many fixed costs draining cash reserves and the uncertainty of lockdown periods making management decisions very difficult.
What can you do?
You should assess the recently announced government backed initiatives in order to ascertain what can be used and what impact they may bring.
The deferral of tax balances will bring an immediate cashflow saving and the use of the Coronavirus Job Retention Scheme can also yield savings. The Coronavirus Business Interruption Loan Scheme can also be considered for those businesses with proven viability and an historic financial performance that demonstrates the ability to service new debt.
Initial thoughts and decisions will be largely on an assessment of what options business owners have at their disposal and the ultimate execution of those options.
Business owners should also consider the working capital implications of exhausting reserves in the immediate term, with the problem looming as to how you can fund the recommencement of operations in the post lock down period.
You should therefore take care of your financial plan, with your eyes focused on the security you have pledged to external funders and that which may be sought during any CBILS application. Longer term assessment of overall indebtedness should also feature, with a lot of government initiatives being debt based, which by their nature will require repayment. This will therefore pose directors some challenge as they balance their wider responsibility to all business stakeholders.
How can you manage the cashflow risks?
A thorough and robust financial plan will be central to your business planning in the coming months. Additionally, the use of your advisers will be key during any negotiations undertaken with your funders. Capital holidays and short term facility extensions will provide temporary respite, but you should look beyond the initial period of uncertainty and retain some focus on what comes next.
The re-opening of markets will see the re-emergence of demand, but this may not be swift. A gradual build up could be in order for a lot of markets. The risk of customer and supplier failure should also be considered, with contingency plans drawn up.
The demands and pleas for prompt or upfront payment are likely and a natural drift in credit terms may also be imposed by your larger clients. You should therefore assess those impacts and build a cash buffer, with attention required on the covenant suite your funders will have in place. Keeping your books and records up to date will therefore be imperative and allow maximum flexibility as you continue to make strategic decisions.
What else should you consider?
Non-financial considerations will also be vital, as well as the re-introduction of your team in to the workplace. Workforce morale and overall productivity should therefore be monitored closely. Repairs, maintenance and reconnection of idle plant and machinery will also need consideration.
The considerations for business owners are extensive and will move and change due to ongoing problems which may linger due to COVID-19.
Cash management will drive focus and risk monitoring will be an increased priority as we proceed through 2020.
How can we help?
The MHA Tait Walker team have extensive experience in planning and managing cashflow and have relationships across all major funders.
Our advisory teams can also assist with strategic planning and can offer guidance around accelerated tax planning which could prove useful with any negotiation needed with HMRC.
Please contact Lee Humble, Corporate Finance Associate Partner for further advice.
In this time of uncertainty, one of the biggest concerns to our business community is cash flow.
We hosted a webinar with EMN to highlight the importance of cash flow and planning. The webinar covered key areas to improve cashflow in this current COVID-19 climate, from our Corporate Finance Partner, Steve Plaskitt.
You can watch the webinar below:
Unprecedented times need unprecedented measures
From 11 March 2020, the Government have introduced a range of exceptional financial measures to assist businesses to mitigate the financial impact of COVID-19 and the associated lockdown. These measures are being applied by a range of agencies, including the banks, councils and HMRC.
The measures include:
- Non-domestic rates reliefs and grants provided via councils
- Loan finance (“CBILS”, “CFF”) provided via the banks and financial sector
- Support for self employed persons (“SEISS”)
- Financial support for employers where staff are furloughed (“CJRS”)
- Automatic tax deferrals, in particular VAT
- Further tax deferrals on request (“Time to Pay”)
- Recovery of Covid-19 related Statutory Sick Pay for employers <250 staff
The measures help some businesses more than others:
|The measures are better for (comparatively)||The measures are less helpful for (comparatively)|
|Employers with employees employed before 29th February 2020||Employers with employees employed after 29th February 2020|
|People who started a new job prior to 28th February 2020||People who are leaving a job to start another now|
|Self-employed who were self employed prior to 6th April 2019||Self-employed who were self-employed after 6th April 2019|
|Self-employed earning £49,999||Self-employed earning £50,000|
|Retailers where business rate reliefs are automatic||Manufacturers, offices|
|Businesses for whom credit was previously easy to obtain||Businesses where credit was not freely available|
|The proactive||The reactive|
What else should proactive businesses do?
Firstly, make sure that they take account of automatic, and “on request” tax deferrals. Tax deferral has two main aspects at the moment, automatic and on request.
|Automatic||VAT payments due from 20th March to 30 June 2020|
Will be payable in Q1 2021 (by 31 March 2021)
Self-assessment payments on account due in July 2020 – payable 31 January 2021
|On request – via “Time to Pay”||Corporation tax payments|
PAYE and NIC
Other tax debts already due
Plan and act now to minimise the tax debts you owe HMRC
HMRC have made it clear this is just deferral of tax debts and they expect tax deferred will become payable when they have agreed it will become due, so in the meantime can you reduce it? HMRC can offset what they owe you against what you owe them and when you speak to them they have a view across all tax debts you owe and what they owe you.
So for example, a corporate tax debt HMRC owes your business can be offset against a VAT debt your business owes HMRC.
What you should be aiming to do is to reduce the debt owed to HMRC as much as possible by proactive tax management, so that you are left with as little outstanding tax debt as possible when the repayment dates approach.
So what might cause you to be in a position that HMRC owe your business corporate tax when your business owes HMRC VAT? It is typically tax relief claims for corporate tax purposes which relate to the activities your company has been carrying out in the last two years, for example:
- R&D claims
- Capital allowances claims
- Enhanced Capital Allowances – this is a particularly beneficial, and overlooked, area in manufacturing
- R&D Allowances
- Land Remediation Relief
- Patent Box
- Loss reliefs (e.g. loss carry back claims or group relief claims)
These claims typically need signed accounts so this might be a reason not to put off getting your accounts done for your latest year end – maybe even accelerate them? You should also note that any CBILS application will ask you what tax debt you have – keep a track of the tax debt (what you owe and what you are owed).
What else could your business be thinking about?
We have listed below some other things you should look at in terms of tax cashflow management:
- Can you reduce your VAT instalments if you make payments on account for VAT purposes. You have to request this from HMRC but it is a “standard” process
- Can you claim VAT “bad debt relief” – can you recover the output VAT on:
- Debts which have gone bad
- Doubtful debts more than 6 months beyond normal term
- Is there any “international” VAT wrongly charged to your business on cross border invoices issued to you?
- Can you reduce or reclaim corporation tax Quarterly Instalment Payments? Will an update in your forecasts now show that less tax will be due for the year? Can you ask for past paid QIPs back? This might have to be done in writing (or web chat) but again is a standard process
Our manufacturing credentials
MHA Tait Walker work with over 150 North East manufacturers and engineering businesses across a range of disciplines.
Over the last ten years we have generated more than £45m cash from R&D claims for North East businesses. We are members of the Advanced Manufacturing Forum and the Engineering & Manufacturing Network, as well as having strong links with MAS, UKTI and iMechE.
We have a dedicated manufacturing and engineering sector team and are part of MHA’s National Manufacturing Group. We have completed over 35 Corporate Finance transactions in the manufacturing sector since 2000.
We have attached below links to some of the publications we have setting out ideas to improve your cashflow – please feel free to download copies and request details of how we can assist you.
If you have any questions, please contact us at email@example.com.
Our Tax Partner, Alastair Wilson, shares his thoughts on what the Budget 2020 announcement means for manufacturers.
Under the circumstances, the Budget was well balanced in responding to the short term challenges of COVID-19 and the longer term aspirations for accelerating growth in the economy and the manufacturing sector.
In terms of short term responses to COVID-19, the commitment from the Government to refund the cost of COVID-19 linked Statutory Sick Pay to employers with less than 250 employees for up to 14 days will be welcomed. In particular, the likely extension to providing refunds for self isolation for other symptoms will help those manufacturing businesses where staff are required to self isolate with other symptoms and where working from home is typically impractical.
In the manufacturing sector, the Coronavirus Business Interruption Loan Scheme will also provide more comfort that funding sources will be available for businesses who are being adversely impacted by COVID – 19. In conjunction with the reduction of the Bank of England base rate to 0.25% on the same day as the Budget, this should hopefully convert into readily available finance for SME businesses in the sector at a time of uncertainty.
In the longer term for the manufacturing sector, the extension of the R&D Expenditure Credit to 13% and the Structures and Building Allowance to 3% will both be welcomed as they support investment in R&D and new manufacturing facilities. Equally, the Government has committed to substantial public sector funding for R&D carried out by (for example) universities which is typically carried out in conjunction with manufacturers or results in spin out companies. This is a clear demonstration of support for a sector that was concerned that the exit from the EU would result in less funding for R&D projects in the UK.
However, not all was positive for manufacturers. The Budget has confirmed that the rate of Corporation Tax is remaining at 19% (rather than reducing to 17% in April 2020, as was originally enacted) and this will impact negatively upon the cashflow of profitable manufacturers. The largest contributor to additional taxes to be raised is from the u-turn on the reduction in Corporation Tax.
The reduction of the lifetime allowance for Entrepreneurs’ Relief from £10m to £1m is also unfortunate as it was a relief which actively encouraged succession planning in larger manufacturing businesses and we may see less appetite for retirement for some manufacturing business owners. The proposed Plastic Packaging Tax is forecast to raise more than £200m a year in tax from 2022 and a large part of that cost is likely to end up within the manufacturing sector. The Budget was also devoid of any significant new measures to encourage businesses to hire apprentices or encouraging wider employment in the sector.
But under the circumstances, the Chancellor has produced a budget which has provided some positive news for the manufacturing sector.
We are running a Manufacturing & Engineering Survey which will help to compile a nationwide picture of what the sectors think. This is our seventh annual survey and although none of us have access to a crystal ball, your views in the here and now will help our specialist advisers gauge where the sector is and what can be done to support it through what may be an uncertain few years.
We will again be focusing on several core areas: Your business as a whole including business confidence and growth focusing on post Brexit, industry 4.0 and recruitment.
The survey should take no longer than 5 minutes and once we have done the analysis you will receive the full report detailing the findings with case studies and commentary from industry experts.
We are also delighted to confirm that Lloyds Commercial Banking are again supporting the MHA Manufacturing & Engineering Survey along with Institution of Mechanical Engineers.
You can read last year’s report here.
Durham-based Building Design Northern Limited (BDN) has welcomed a new Managing Director. This follows a management buy-out by the firm’s lead architect.
With support from our team here at MHA Tait Walker and North East-based commercial law firm Muckle LLP, Richard Marsden has taken over the reins from previous majority shareholders Clive Oliphant and Gary Ward.
The multi-disciplined firm currently employs 11 members of staff and has offices based in Durham’s Salvus House and the Lake District. They offer architectural, engineering and project management services to major retail chains and property developers.
Alongside the design and construction of residential developments, including a development of eight executive Eco Homes on a Hillside in Sunderland, Spire View, the firm is well-known for its structural and civil engineering work. It boasts a portfolio including developments from residential schemes to shopping malls worth in excess of £50 million.
Having worked at BDN since October 2011, Richard decided to take over the firm as the sole owner to continue with its growth both regionally and further into the North West, alongside maintaining current roles at its existing sites.
Richard Marsden said:
“I am delighted to have secured a well-established and thriving business. We have an exceptional team of loyal staff on board as well as some great clients with some exciting projects in the pipeline, I am very much looking forward to developing the BDN brand.”
Providing accountancy advice on behalf of MHA Tait Walker was Michael Smith and Paul Shields, with legal advice from Philip Clare and Sara Worsick of Muckle LLP.
Paul Shields, Associate Partner and head of MHA Tait Walker’s Durham office, added:
“We are delighted to be working with our long-standard client Richard in his acquisition of BDN and we’re looking forward to working alongside him in his future plans.
“It’s an exciting time for BDN and we’re pleased that we can continue to watch the firm grow with Richard heading it up.”
Phillip Clare, Corporate Partner at Muckle LLP, said:
“This is an exciting new chapter for this Durham-based business and we look forward to seeing Richard grow and further develop the firm.”