Assessing Your Business Viability and Director Risk Guide

Will your business be financially viable at the end of lockdown? What challenges does 2021 pose? What are the next steps

Business Viability and Director Risk Act Now..........................................................................3 Financial Health Roadmap...........................................................................................................4 Assessing Viability and Business Risk........................................................................................8 Directors' Duties and Related Matters, in the Context of COVID-19........................................ 11 Summary of Government Financial Support Measures for Business and Employers.......... 17 OurTeam....................................................................................................................................... 39

This note is not intended to, and does not in fact, constitute legal advice. Should you require legal advice in relation to your specific circumstances, please do not hesitate to contact one of our Restructuring & Insolvency team members, whose contact details are at the end of this note, who would be happy to assist you. Squire Patton Boggs (UK) LLP accepts no liability for any losses occasioned to any person by reason of any action or inaction as a result of the contents of this note.

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Contents

Business Viability and Director Risk Act Now

Will your business be financially viable at the end of lockdown? What challenges does 2021 pose? What are the next steps?

Despite vaccines now being available, tough measures remain in place to deal with the ongoing COVID-19 pandemic, creating uncertainties for businesses and owners about what the future holds.

Demand

Cash Requirements

Supply

Lockdown Restrictions

Viable RiBsksufsorinDieresctsors

Deferred Liabilities

Additional Borrowings

Brexit

Employees

Many businesses have "survived" the difficult trading conditions of 2020, due largely to the financial support offered by the UK government, liability deferral and additional debt provided from their financiers, often backed by government guarantees. The measures in place to protect and support businesses have been extended more than once, but when they cease, deferred and new debt will have to be repaid.

In its announcement confirming an extension to the moratorium on forfeiture, the government also announced a call for evidence that will set out potential steps that it could take after 30 June, ranging from a phased withdrawal of current protections to legislative options. However, until the government confirms its proposals there is no certainty what support will be in place when protective measures come to an end.

Throughout the pandemic, business owners have had to make difficult decisions about the future viability of their business. This remains the case, and decisions remain challenging in the current environment, particularly when restrictions are imposed, lifted and then imposed again with little time to plan.

A key consideration for all business owners is that decisions have to be taken carefully in light of directors' duties to act in the best interest of the company and its creditors as a whole. If directors do not act in the best interests of the company and, in particular, its creditors, there is increased risk of personal liability for directors if the financial position of the company deteriorates.

However, there are a number of ways that directors can reduce the risk of personal liability, and positive steps that can (and should) be taken to protect the business.

Now, and in the coming weeks and months, businesses will be facing difficult decisions: Should the business borrow more? Should it make staff redundant? What about the furlough scheme should staff remain on furlough? Can the business pay back previous borrowings? What happens when temporary support measures come to an end? Will a business have time to "reset" itself before deferred and new liabilities become due many have already depleted reserves and exhausted borrowing avenues? Can the business sustain more loss? What impact has Brexit had on trade?

This brochure contains a number of guides to help navigate these difficult questions, but the key for all directors is to act now and take advice to minimise the risk of personal liability.

We have a team of experts who can help with decisions about employees, cash requirements and borrowings, can offer advice on restructuring options and can offer a furlough audit.

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Financial Health Roadmap

UK Business Key Dates To Manage Financial Health

This financial health roadmap helps identify key dates that may impact cash flow in the coming months and should be considered (alongside the specific financial needs of the business) when planning.

It highlights when the measures put in place by the UK Government and HMRC will change and consequently when creditor pressure may increase, when a business will be required to fund ongoing operational costs that are currently supported by the UK Government or where payment is deferred for instance by HMRC.

Brexit

Workforce

Financial

Tax

Issues

Creditor Pressure

Pensions

Real Estate

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Click on each date for more information

31 March 2021

1 April 2021

12 April 2021

17 May 2021

1 July 2021

1 July 2021

1 July 2021

21 June 2021

30 Sept 2021

1 Oct 2021

Key

Workforce Creditor Pressure

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Real Estate Pensions

Tax Road Map Out of Lockdown

5

1 Jan 2022

1 April 2022

Contents

Roadmap Destinations

March 2021

Payment of VAT on Deferrals between 20 March and 30 June 2020 Due

Any VAT payments that were deferred between 20 March and 30 June 2020 will have become due for payment on or before 31 March 2021, unless affected businesses opted-in to the VAT Deferral New Payment Scheme.

The Winter Economy Plan introduced a VAT Deferral New Payment Scheme that will allow affected businesses to spread the payment of unpaid deferred VAT in installments (from 2 to 11) through the financial year 2021-2022. The month the scheme is joined determines the maximum number of instalments that are available. For example, joining the scheme by 19 March will mean a business is able to pay the deferred VAT in 11 instalments; joining the scheme by 21 April will allow 10 instalments; and so on. No interest or penalties will be levied on the "late" payments. The new online scheme is open for businesses to join now and up to and including 21 June 2021.

A penalty equal to 5% of the amount of deferred VAT will be charged if the amount due is not paid, or the business has not opted into the new payment scheme, or made alternative arrangements to pay, by 30 June 2021.

Any cancelled Direct Debits should be re-established in good time for HMRC to process payment(s). Businesses spreading the repayment of deferred VAT should check their payment arrangements are appropriate for the VAT Deferral New Payment Scheme. VAT returns should be submitted as normal and on time. Any VAT due since 30 June 2020 should also be paid as normal and on time.

April 2021

The Pensions Regulator (TPR) Reverts to a Mandatory 90-Day Period for Reporting Late Payment of Money Purchase Pension Contributions

In response to the pandemic, TPR granted an easement extending the period for reporting the late payment of money purchase pension contributions from no later than 90 days after the due date to 150 days. From 1 January 2021, TPR asked trustees and pension providers to revert back to reporting the late payment of money purchase contributions no later than 90 days after the due date. This requirement becomes mandatory from 1 April 2021.

Step 2 of The Road Map Out of Lockdown

No earlier than 12 April 2021, non-essential retail, personal care premises and public buildings can re-open. Indoor leisure facilities will re-open, as will most outdoor attractions such as outdoor hospitality venues, zoos, theme-parks and drive in cinemas. Self-contained accommodation such as campsites and holiday lets will also re-open.

May 2021

Step 3 of The Road Map Out of Lockdown

No earlier than 17 May 2021, most businesses in all but the highest risk sectors will re-open. COVID-Secure guidance will be in place and businesses may not cater for groups bigger than the legal limits of either 6 people or 2 households. Indoor hospitality will re-open and remaining outdoor locations such as indoor entertainment venues, the rest of the accommodation sector and indoor adult sport will also re-open. Some large performances and sporting events in indoor venues will be allowed with a capacity of 1,000 people or with premises half-full and outdoor venues with a capacity of 4,000 or with premises half full.

June 2021

Step 4 of The Road Map Out of Lockdown

All restrictions will be lifted no earlier than 21 June 2021. All remaining premises will be permitted to re-open including nightclubs.

July 2021

100% Business Rates Relief in England Ends

From 1 July 2021, the 100% business rates relief available to certain businesses in the retail, hospitality and leisure sectors in England will come to an end.

From 1 July 2021 to 31 March 2022, 66% business rates relief will be available. The reduced rate relief is capped at 2 million per business (for properties that were required to be closed on 5 January 2021) or 105,000 per business for other eligible properties.

The next business rates revaluation in England, which had been due in 2021, has been postponed. However, affected businesses should also note that the government is consulting on a fundamental review of business rates which could result in significant changes being made to the system in the medium-to-long term.

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Recovery Action for Non-Payment of Rent Can Commence

From 1 July, the temporary restrictions on landlords taking forfeiture proceedings ends as do the temporary restrictions on pursuing Commercial Rent Arrears Recovery (CRAR) to recover unpaid rent.

Unless rent has been paid or new arrangements to pay outstanding rent have been agreed, landlords will be able to take recovery action against tenants for unpaid rent.

Restrictions on Debt Collection and Creditor Action Lifted

From 1 July the temporary restrictions on presenting a winding up petition for an unpaid debt (which apply where the reason for non-payment is COVID-19 related) end. In addition the temporary restrictions on presenting a winding up petition based on an unsatisfied statutory demand end.

Unless arrangements have been made to pay unpaid suppliers, HMRC or landlords, aggressive creditors may threaten or bring winding up proceedings.

NB: other enforcement action (court action/enforcement of retention of title) is not restricted.

September 2021

Coronavirus Job Retention Scheme Ends (CJRS)

As the economic effects of the pandemic are proving much longer-lasting than originally anticipated, the government has extended the CJRS to give businesses greater certainty and protect more jobs. Support under the scheme has been extended until 30 September 2021.

October 2021

VAT Rate Reduction for Hospitality, Leisure and Accommodation Expires

From 1 October 2021, businesses in the hospitality, leisure and accommodation sectors that have been supplying food, non-alcoholic drinks, hotel and holiday accommodation or admission to certain attractions at the reduced rate (5%) of VAT, should ensure they have systems in place to reapply the standard rate (20%) for supplies made on and after that date and account for any VAT due accordingly.

Budget 2021 extended the period during which the reduced rate applies to 30 September 2021.

Businesses utilising the Flat Rate Scheme, the Tour Operators Margin Scheme or any other applicable special retail scheme should consider the impact of the reduced rate, and subsequent reversal, on their VAT calculations and accounting.

January 2022

Full Application of UK Border Operating Model

From 1 January 2022 businesses importing any goods will have to make full customs, safety and security declarations at the point of importation and pay all relevant taxes and duties.

April 2022

66% Business Rates Relief in England Ends

From 1 April 2022, the 66% reduced business rates relief available to certain businesses in the retail, hospitality and leisure sectors in England will come to an end.

Other Cost Considerations

Redundancy Costs

The government hopes that businesses will rely on the support offered by the UK government under the extended CJRS to avoid the need for redundancies over the next few months. Some businesses may, however, consider that some redundancies are still necessary. Proper advice should be sought and if redundancies are unavoidable, the costs will need to be factored into cash flow.

Deferred Payments or Forbearance

If a business has agreed to defer repayment, adjusted payment terms or agreed a period of forbearance with its creditors, the terms of deferral, repayment or forbearance should be reviewed, re-negotiated if appropriate and factored into future cash flow requirements including any agreement with the company's lenders, suppliers, landlord or time to pay agreements with HMRC.

StageTwo of UK Border Operating ModelTakes Effect

From 1 October 2021 imports of products of animal origin and other regulated animal by-products, plants and plant products will require pre-notification and the relevant health documentation.

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Assessing Viability and Business Risk

Key Points for UK Businesses to Consider

The purpose of this quick guide is to help organisations focus on key issues that impact viability and sustainability given the ongoing uncertainties created by the COVID-19 pandemic.

Opportunities

Cash Flow

Operational Costs

Business

Supply and Demand

Employees

Cash Flow and Financing

Directors should prepare new cash flow forecasts for best and worst case scenarios (i.e future national or local lockdowns), considering any expected changes to supply and demand, any changes to operational costs and factoring in any deferrals of historic liabilities, and any new debt which has been taken on. Forecasts and projections should be continually reviewed and updated to reflect changes in the market, lessons learnt and expected government changes.

Repayment of borrowing Use of government schemes (e.g. CBILS, CLBILS, Future Fund, etc.?) Other additional borrowing from existing lenders When and how will payments be met? Is there a need to restructure debt?

Rent Rent holiday/reduction agreed? Ability to meet future (and missed) rent payments Restructure future rent turnover or similar arrangements Aggressive action from landlords when restrictions are lifted (stat

demands, forfeiture, winding-up petitions)

Deferred payments Paying deferred VAT payments/rent/suppliers Meeting tax payments under `time to pay' agreements

Government restrictions

Impact of lockdown on supply chain and demand

Forbearance Repaying existing lenders forbearance may end and

payments need to resume

Impact of protective measures lifting, after 30 June 2021 i.e. restrictions on forfeiture and winding up petitions

Availability of government support Temporary extension trading loss carry-back relief

Cash Flow Pressures

Suppliers Catching up on payments to suppliers Agreeing and abiding by new terms Ability to meet future obligations increased costs Aggressive debt recovery action

Employees

Impact of required employer contributions for furloughed staff and furlough audits

Payroll funding following end of the Coronavirus Job Retention Scheme and impact on cash and employee requirements

End to contractual variations for paycuts

Is a redundancy programme going to be necessary? If so, when does any consultation need to start?

Debtors Have debtor days slipped during COVID-19? What action can/should be taken to address any potential bad

debt issues?

Reduced credit terms/payment on delivery/increased prices/ credit insurance

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Supply and Demand

Operational Identify key suppliers: business critical and

projected spend Staggered approach to resuming supply Able to meet expected demand Changes to delivery timescales Alternative sourcing? Costs consequences?

Pricing and payment Changes to payment terms/cost (e.g. cash

on delivery) Financial health of suppliers Ability to obtain credit

Stock Import/export tariffs and taxes

Termination of existing contracts Force majeure Material adverse change Termination rights

Government restrictions Impact of restrictions on supply chain

De-risking the supply chain for the future Review of whole supply chain Look to achieve greater diversity in supply

chain Potential investments in technology

Shape of demand What demand is there? Impact of lockdown on future demand

End-user/customer Decrease in consumer confidence Cash-strapped customers

Supply

Company

Demand

Changes to product and offering Changes to consumer habits

(e.g. e-commerce and importance of home delivery) Increase in appetite for online suppliers and delivery services

Pricing and payment terms Review pricing structure, are pre-

COVID-19 margins still achievable? Consider credit terms and customer

insolvency risk Is credit insurance still available? Is invoice discounting an option to

improve working capital?

Government/Other Restrictions Impact of any lockdown e.g reduced/no

footfall

Impact of restrictions e.g self-isolation Impact of social distancing measures

e.g. reduced operating capacity

Employee Considerations

Business requirement/need

Does the business need the same number of employees in light of any changes to supply/demand/business model? Are redundancies necessary?

Re-allocation of resource according to business plan

Availability/Costs

Impact of lockdown (existing, new, prolonged) Impact on employees (fear of infection, childcare

responsibilities, self-isolation, or shielding etc.) Will there be any permanent changes to working

patterns/habits that impact operational costs? i.e. increase in homeworking and decrease in office space Psychological support assisting employees to adapt, support with bereavement costs?

Long-term changes to contracts and remuneration

Flexible remuneration plans Agree reductions in salary and bonuses Lead from the top!

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Operational Costs

Licences

Renewals/periodic fees payable to ensure licence continuation Inability and capacity of named individuals/licence holders/trained individuals to carry out

role (e.g. long-term absences, sickness, self-isolation) Licence amendments to reflect changed trading arrangements (e.g. changes to hours

or activities)

Increased health and safety costs and compliance with social distancing

Strategies for effective social distancing screens, changing shift patterns, use of different parts of premises, monitoring symptoms, track and trace, etc

Travel to work and transport Sanitisation and cleaning programmes

Changes in operational practices and procedure

Changes to real estate footprint to accommodate changes to employee and working practices (e.g. reduced office space or larger warehouses)

Investment in technological capabilities to accommodate changes Greater automation of processes (or parts of processes)

Opportunities and Lessons Learnt from COVID-19

Statistics show that most consumers do not want a return to "normal" and we can expect significant behavioural changes.

Many businesses have already made changes to their day-to-day operations, many changes will be permanent or will require further adaption to meet new government guidelines but all will impact on future cash requirements.

Home deliveries and e-commerce

Permanent changes to working practice

Ability to operate from smaller footprints

Consumer analytics and choice

Streamlining business operations and efficiency

Use of technology and automation

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Directors' Duties and Related Matters, in the Context of COVID-19

Scope and Purpose of This Note

This note summarises the duties that directors of companies incorporated in England and Wales are subject to. This note explains those duties, and matters that directors should consider in relation to them, in the context of the COVID-19 pandemic.

Restriction on the Use of

Company Names: (s 216 IA 1986)

Trading Insolvently/

Wrongful Trading

Deposits and Trust Accounts

The Impact of COVID-19

Personal Guarantees

Directors' Duties

Possible Redundancies

Director Disqualification

Challengeable Transactions

Contingency Strategy

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Commentary

Directors' Duties

Directors have statutory duties that they owe to the company. Each director owes these duties individually. In the exercise of those duties, generally and while the company trades solvently, the directors must act in the way they consider in good faith would be most likely to promote the success of the company for the benefit of its members as a whole. Their statutory duties require that directors also take into account wider factors, such as the environment, employees, the standard of their business conduct, business relationships with suppliers and customers, and any other relevant circumstances.

If the company becomes insolvent, while these statutory duties are still owed legally to the company, they become subject to other interests to which the directors should have regard, such as those of the creditors of the company. However, the interests of the shareholders are still relevant.

A breach of any of the statutory duties is actionable by the company, and any right of action could be exercised by an appointed insolvency practitioner should the company later enter a formal insolvency process.

The law makes no distinction between executive and non-executive directors or shadow directors. All members of the board have the same duties to the company. A director must exercise reasonable care, skill and diligence. This means the care, skill and diligence that would be exercised by a reasonably diligent person with the general knowledge, skill and experience that may be reasonably expected of a person carrying out the functions carried out by a director in relation to the company and the general knowledge, skill and experience of that director.

While the interests of shareholders remain relevant during any period in which the company is or may be insolvent, the directors should not be influenced by any power any individual shareholder has to remove or replace the directors (or any of them) and must act in what they consider to be in the best interests of the company's creditors as a whole.

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Trading Insolvently/WrongfulTrading

A company is likely to be insolvent if:

It cannot meet all its present and due payment obligations (i.e. it is unable to pay its debts when they fall due), in which case it is likely to be insolvent on a cash flow basis.

The value of its assets is less than the amount of its liabilities (taking into account its contingent and prospective liabilities), in which circumstances it is likely to be insolvent on a balance sheet basis.

Within these two tests of insolvency, there is much case law (recent and historical) beyond the scope of this note, setting out exactly what must be taken into account. However, in the current COVID-19 environment, it will, in many cases, be incredibly challenging (if not impossible) for businesses to accurately project their cash flow forecasts and/or value their assets for the purposes of these tests. In those circumstances, directors should take a cautious approach on the solvency tests, and if in doubt, presume insolvency.

Directors should be aware that while there is no statutory prohibition against trading while insolvent, there could be some degree of risk of the directors being required to contribute personally to the assets of the company if they continue to do so.

If the directors continue to trade in circumstances where they knew or ought to have concluded that there was no reasonable prospect that the company would avoid going into insolvent liquidation, then they may be liable for wrongful trading under section 214 of the Insolvency Act 1986 (IA 1986).

In such circumstances, the directors could be personally liable for any losses suffered by creditors caused by continued trading unless they take every step possible with a view to minimising those losses that they ought to take.

The key consideration for directors is, therefore: "Is there a reasonable prospect of avoiding insolvent liquidation?" If there is, the directors will not be liable for "wrongful trading" so long as they hold that belief reasonably, having regard to information available to them and the standards of skill and care expected of them.

The directors should, among other things, consider whether:

The company is presently operating within existing facilities while managing the position with creditors generally

The company qualifies for the government's Coronavirus Business Interruption Loan Scheme (CBILS), Coronavirus Large Business Interruption Loan Scheme (CLBILS) or the COVID Commercial Financing Facility (CCFF)1 (while these measures are still available), and have received an indication from the company's bankers that they would support the company with those facilities

The company is eligible for any grants, rates relief or other support being made available by the government2 in response to COVID-19

The company's financiers have withdrawn any facilities previously made available to it (such as overdraft facilities) or have indicated that they will be unable to provide ongoing support

The impact on the company's cash flow will be material if the company has chosen to defer payment of any VAT for the period from 20 March to 30 June 2020 or the impact on cash flow of any other payments that the business has agreed to defer (note that the company will also have the option to apply to repay that deferred VAT liability in up to 11 monthly instalments between March 2021 and March 2022)3

The company is able to take advantage of the extended three year period for which trading losses (made by the company in accounting periods ending between 1 April 2020 and 31 March 2022) can be carried back against previous profits4

The company is able to apply for a "time to pay" (TTP) arrangement with HMRC to spread its current tax liabilities over a period of three to 12 months5

Its shareholders have been made aware of any additional working capital requirements and have indicated a willingness to extend facilities to the company

The company is able to furlough employees (i.e. grant them a period of leave instead of making them redundant) given that the government will pay up to 80% of wages

There is a realistic prospect that the company can be sold as a going concern at a value sufficient to ensure all creditors will be paid in full, with a return to shareholders, and have instructed advisors to market the business; note that this is likely to be far less achievable in the current climate compared to a non-COVID-19 impacted market

The directors should be aware that there may be a risk of challenge to their view if any assumptions that they were making relating to these points prove to be materially inaccurate, particularly as a result of the fast-developing situation with COVID-19. If the company subsequently enters into an insolvency process, then the period of trading prior to that formal insolvency process will be reviewed by an insolvency practitioner with the benefit of hindsight. To mitigate against this risk, the following matters should be carefully and regularly reviewed during this period of uncertainty to ensure that so far as possible:

Any new credit, supplies and services are necessary and bona fide for the purpose of continuing the business; if the business intends to take on further credit by way of CBILS, CLBILS or CCFF, the directors should be of the view that the funding will enable the business to survive the pandemic and continue on a business-as-usual basis once the pandemic recedes and normal trading patterns resume; the directors should ensure that when applying for funds under CBILS, CLBILS or CCFF, they provide full disclosure to its bankers regarding its financial position.

Any transactions out of the ordinary course of trade are the subject of particular scrutiny and avoided wherever possible.

The company is able to meet payroll for those employees that it has "unfurloughed".

It is appropriate for the company to utilise the Coronavirus Job Retention Scheme.

No creditors are specifically preferred (see below) or transactions entered into at an undervalue (see below) unless in good faith and that are critical to ensure the survival of the business and the prospects of achieving a turnaround and/or solvent disposal/restructuring.

1 Further detail can be found at www.businesssupport.gov.uk/coronavirus-business-support. 2 See above link for further detail.

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3 Further detail can be found at www.gov.uk/guidance/deferral-of-vat-payments-due-to-coronavirus-covid-19 4 Further detail can be found at https://www.gov.uk/government/publications/temporary-extension-to-carry-back-of-trading-losses-for-

corporation-tax-and-income-tax/temporary-extension-to-carry-back-of-trading-losses-for-corporation-tax-and-income-tax 5 Further detail can be found at https://www.gov.uk/government/organisations/hm-revenue-customs/contact/coronavirus-covid-19-helpline

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The directors work to develop expeditiously a credible business plan for the immediate term with as realistic and prudent assumptions as it is possible to make in the current circumstances, incorporating reasonably achievable options for a recovery for creditors and (if possible) a return to shareholders.

The directors consider what contingency strategies could be put in place to protect the interests of creditors should the new business plan prove unsuccessful (see below).

The directors consider the net deficiency position of the company's assets immediately and analyse whether it is believed continued trading will either reduce or increase that deficiency. The directors should keep this under regular review with a comparative analysis of the net deficiency compared against what would be the position if continued trading had not occurred and regularly forecasted for a week in advance. This will provide supporting evidence that losses to the company were constantly under review and corrective action to reduce losses was taken at an early stage. The analysis must show that any continued trading is intended to reduce the net deficiency of the company, but also that it is designed appropriately so as to minimise the risk of loss to individual creditors. This exercise should be further reinforced by circulating the net deficiency analysis to an insolvency practitioner each week for advice in respect of continued trading.

The board should keep full and accurate minutes of its reviews, decisions (including any dissenting views of individual directors), the reasons for those decisions and the information (particularly financial information that should be attached to the minutes) upon which such decisions are based.

Impact of Relaxation of WrongfulTrading Rules

On 25 June, the Corporate Insolvency and Governance Act received Royal Assent and temporarily relaxed the wrongful trading provisions under UK Insolvency Laws.

Under the initial temporary provisions (that applied from 1 March until 30 September 2020 to all companies (save for some exceptions such as building societies and banks)) when determining whether a director is liable to make a contribution to the assets of a company for wrongful trading, the courts had to assume that a director was not responsible for any worsening of the financial position of the company.

The measure enabled businesses to continue to operate and/or to be mothballed without creating additional unnecessary risks for directors, encouraging companies to take advantage of the unprecedented financial support offered by the government to help support cash flow if the directors reasonably believed that doing so was in the best interests of the company/creditors.

On 26 November, the temporary provisions described above were re-introduced, so that they applied to any trading during the period between 26 November 2020 and 30 April 2021. The temporary provisions have now been further extended, to expire on 30 June 2021. Note that the temporary provisions do not, therefore, apply to any trading between 1 October 2020 and 25 November 2020.

While the changes to the wrongful trading provisions may provide some comfort to directors concerned about incurring additional credit or borrowings during this period, directors should still adopt the best practice outlined in the section above. However, in all probability with far more leniency being shown, provided directors have properly evaluated and documented their decisions and they are reasonable in all the circumstances, the likelihood of liability for wrongful trading appears to be significantly reduced.

With that in mind, if directors cannot satisfy themselves on the points listed under trading insolvently/ wrongful trading above, to mitigate against any risk, they should, at the very least:

Ensure that they monitor UK government advice that impacts their business and any new or amended UK government financial support that is made available

Seek professional advice at the earliest opportunity

Refrain from entering into transactions that are not in the ordinary course of their business

Minimise their outgoings and preserve cash as best they can

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Possible Redundancies

The directors should consider, at an early stage, whether redundancies to the company's workforce may be necessary in order to save the business, and if so, whether consultation is required pursuant to the Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA).

If the business is contemplating redundancies, but only because of the impact of COVID-19, they should also consider whether it is instead preferable to furlough those employees that would otherwise have been made redundant (this scheme is now available until 30 September 2021).

Under section 188 of TULRCA, there is an obligation on the company to inform and consult appropriate representatives of affected employees when 20 or more redundancies are proposed to take effect in a period of 90 days or less. The appropriate representatives of affected employees are either trade union representatives or, where no trade union is recognised, employee representatives elected for the purposes of consultation. The directors should consider what steps will need to be taken to effect collective consultation. Consultation must last for a minimum of 30 days where 20-99 redundancies are proposed (or at least 45 days if 100 or more redundancies are proposed) prior to any dismissals taking effect.

For completeness, where an employer proposes to dismiss fewer than 20 employees within a 90-day period, there is no requirement to consult collectively with representatives of affected employees. However, an employer is still required to follow a fair procedure if it wishes to avoid unfair dismissals.

Under section 193 of TULRCA, there is an obligation on the company to notify the Secretary of State (currently via the Department for Business, Enterprise and Industrial Strategy (BEIS)) in writing using Form HR1 in a collective redundancy situation. Again, notification is to be received by BEIS at least 45 days before the first dismissal takes effect where the company is proposing to dismiss 100 or more employees, reduced to at least 30 days for between 20 and 99 employees.

The directors should keep full and accurate minutes of the board's proposals, and in respect of decisions taken to make any employees redundant, ensure that consideration has been given to the company's obligations to consult collectively and to notify the Secretary of State. In the case of the collapse of parcel delivery firm City Link Limited, a prosecution was initially brought against the directors for not notifying the Secretary of State. While the City Link directors were eventually acquitted on the narrow facts of that case, there is a real risk that directors who are proposing to make redundancies could be prosecuted for failing to notify in the event of any delay in doing so. The directors may even wish to notify the Secretary of State as a protective measure. While it remains to be seen how strictly this requirement will be enforced in the current circumstances, directors should continue to comply with the notification provisions to avoid risk of prosecution.

Contingency Strategy

Given the ongoing restrictions in the UK placed upon businesses and individuals and the economic conditions as a result of the pandemic, directors should immediately consider what steps they should be taking in order to protect the business. A number of businesses in these circumstances will be at risk of trading while insolvent (and may be in real difficulty in assessing the company's financial position, given the dramatic impact caused to cash flows, trading and the value of assets). The directors will need to take every step to minimise losses to creditors. This does not necessarily mean an immediate cessation of trading, but a number of businesses are likely to need to restructure to address the changes in supply and demand and we would recommend taking urgent further advice on the options available.

Challengeable Transactions

General

Certain transactions that take place at a time when a company is insolvent, or becomes insolvent as a result of the transaction, are open to challenge by an appointed insolvency practitioner if the company subsequently enters a formal insolvency procedure.

Directors, to the extent responsible for such transactions, can be held personally liable for any loss suffered by the company as a result of the transaction, both under IA 1986 and as potential misfeasance.

Directors should be aware of the grounds for such challenges and, in considering any relevant transactions, determine whether it is appropriate for such transactions to proceed. Any such decisions should be carefully minuted.

Transactions at an Undervalue (s 238 IA 1986)

A transaction will be at an undervalue if it is a gift by the company, or the company receives no consideration, or the value of the consideration received by the company (in money or money's worth) is significantly less than the value of the consideration given by the company in the transaction. It will be challenging in the current circumstances to value certain classes of assets accurately, but directors should keep records of the basis on which the disposed asset was valued, and why.

Any such transactions taking place within two years of formal insolvency will be open to challenge, if they took place at a time the company was insolvent or became insolvent as a result of the transaction (which is presumed if the transaction was with a connected party).

However, the transaction will not be subject to challenge if: It was done in good faith for the purpose of carrying on the business The directors had reasonable grounds for believing that it would benefit the company

Therefore, in considering any asset disposal to raise liquidity (for example) at less than market value, the directors should address specifically whether it is justifiable on the grounds set out above. We recommend specific advice is taken in relation to any relevant transaction, and the decision is carefully minuted at the time.

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Preferences (s 239 IA 1986)

A preference is a transaction with a creditor (or a surety or guarantor of any of the company's liabilities) under which the creditor is placed in a better position than it would have been in if the transaction had not occurred and the company proceeds into insolvent liquidation.

A preference is open to challenge if the company proceeds into formal insolvency within six months of the transaction in question if the creditor is not a connected party, and within two years if the creditor is connected. This is provided the company was insolvent at the time, or became insolvent as a result of the transaction (which is presumed if the creditor is connected).

However, in effecting the preference, the company must have been influenced by a desire to give the creditor the preferential position. This is presumed for transactions with connected creditors, but can be rebutted.

In circumstances where decisions have to be made on a daily basis during cash flow difficulties as to which creditors to pay, preference issues are highly relevant. In this regard, the directors should consider the following:

Is the payment necessary for the continued operation of the business and, therefore, necessary to preserve the prospects of a going concern survival and payment in full to creditors, i.e. is it business critical? This may include payment to key suppliers of goods and/or services where such supplies are critical and cannot easily be resourced elsewhere at the speed and price required. Consideration should be given as to whether payment over time for historical debt can be agreed as a condition of continued supply.

Is the payment necessary to avert action being taken by the creditor, which may prejudice the survival of the business? If payment is made under threat of winding up proceedings, or legal proceedings that the company cannot defend or afford to defend, or to avoid distraint on goods, it is unlikely to be considered a preference. Evidence of this threat and the company's response should be documented.

Directors' Remuneration, Expenses and Employees

As connected creditors of the company, particularly careful attention should be paid to discharging outstanding expenses claims and arrears of remuneration to directors. If the company is continuing to trade on the basis that the directors hold a reasonable belief that the company will avoid insolvent liquidation and pay all creditors in full, it would be questionable if, at the same time, significant arrears of expenses and remuneration are discharged when other creditors are not being paid.

Employees, on the other hand, will be a necessary part of continuing to operate the business. As directors under a contract of employment are employees and a critical requirement to ensure the company is managed through this phase, ongoing payments of remuneration and expenses (and general payroll) may be appropriate to ensure continued services to the company. This is subject to any requirement identified in the business plan to effect employee cost reductions, in particular those resulting from the furloughing of employees, to take advantage of the government underwriting 80% of the employment costs of those furloughed employees. Payment of arrears of remuneration and expenses claims may be justifiable in the circumstances, if not to do so would cause genuine financial hardship for the director personally, such that the director could not continue with their responsibilities without seeking an alternative source of income. If such circumstances exist, any such director should consider taking independent advice on their personal position if the directors as a whole consider such payment cannot be made presently within the resources available.

Unpaid National Insurance Contributions (NIC)

If a company does not pay the correct amount of NIC, HMRC has the power under s121C of the Social Security Administration Act 1992 to issue Personal Liability Notices to recover the unpaid NIC plus interest and penalties from the directors or any other officers personally. Before issuing a notice, HMRC must be satisfied on the balance of probabilities that the failure to pay was due to fraud or neglect, judged by an objective test.

HMRC will consider issuing a notice where, in the face of persistent failure to pay NIC, a company made significant and/or regular payments to other creditors, connected persons or companies, or in the form of directors' salaries.

Offences Under the IA 1986

The directors should be aware that since 1 October 2015, the right to bring claims for certain offences under the IA 1986, including Fraudulent Trading and Wrongful Trading, has been extended to an administrator and/or can now be assigned by an appointed insolvency practitioner (i.e. either a liquidator or administrator). For the sake of completeness, we set out below a summary of the other main offences that will be investigated by the appointed insolvency practitioner if the company proceeds into formal insolvency:

Fraudulent Trading: (s213 IA 1986) It is an offence to knowingly carry on the business of a company with intent to defraud creditors and

any person who does so may be ordered by the court to make such contributions to the company's assets as it thinks fit.

Misfeasance or Breach of Fiduciary Duty: (s212 IA 1986) It is an offence for a director of a company to have misapplied or retained or become accountable for

any money or other property of the company or been guilty of an misfeasance or breach of fiduciary duty in relation to the company, allowing the court to order the director to repay, restore or account for the money or property together with interest or contribute to the company's assets by way of compensation.

Director Disqualification

Where a company proceeds into formal insolvency, the appointed insolvency practitioner has a duty to report to the Secretary of State on the conduct of each of the directors and former directors of the company. The Secretary of State must then decide whether to bring proceedings against the directors to disqualify any of them from acting as a director or in the promotion, formation or management of any company on the grounds of unfitness, for between two to 15 years.

The directors should, therefore, be aware that should it not prove possible ultimately to effect a solvent turnaround and/or disposal, their conduct as directors (particularly at this time and going forward) will be subject to such scrutiny.

It is, therefore, critically important for this reason, and to deal with risks in relation to all the matters raised in this note, that the directors regularly (i.e. at least weekly, and preferably every few days during the pandemic) review the ongoing financial position and progress of the business plan, any relevant transactions for which particular consideration should be given, and its continuing belief in the appropriateness of continuing trading (or continuing to "mothball", as applicable).

All such reviews should be carefully minuted, to include the information available to the directors, matters discussed, all views expressed and considered, any decisions reached and the rationale for such decisions having regard to the points and recommendations made in this note. The directors should also keep a notebook of daily discussions and matters, so that there is always a contemporaneous note to support their actions in the conduct of the business during this time.

1 April 2021 15 Contents

Personal Guarantees

Directors should be aware that any who have given personal guarantees may be personally liable for the company's debts under them.

Deposits andTrust Accounts

There is no case law or statutory authority that states, in the company's present circumstances, the directors are under a duty to protect deposit creditors by the operation of a trust account to "ringfence" deposit monies.

By contrast, there is case law authority that highlights the risk of a preference in creating a trust for such creditors and using company funds to place monies into a trust account for this purpose. Further, within the context of director disqualification, the courts have held that where directors are pursuing a reasonable prospect of avoiding an insolvent liquidation and a full return to all creditors, there is no legal obligation to depart from normal trading practice so as specifically to protect deposits and prepayments by a trust account.

Where there is uncertainty regarding the current position, we do not believe the directors could be criticised for seeking to protect deposits received going forward by the operation of a properly constituted trust account, but would make the following comments:

At the time of receipt of the deposit, it must be paid on an express trust obligation (or on terms that evidence a trust) such that the deposit is properly held on trust. This would require clear terms and conditions with such customers to this effect (which we would be happy to assist with) and making sure operational practices are in place to ensure those terms apply. Even if deposits have been received, and placed in a separate account, there would remain a preference risk if the account is not properly constituted as a trust account to avoid the fund being regarded as an asset of the company.

Placing deposits on trust would reduce the working capital available to the company with which to pursue a recovery strategy that protects all creditors and a return for shareholders, thereby shortening the time available to achieve this.

If, in light of these comments, the directors elect not to proceed with arrangements for placing deposits on trust, we would nevertheless recommend that an account be set up or kept open (as applicable) for that purpose should it prove necessary in due course. In the meantime, the directors should take care not to actively encourage higher levels of deposits than would ordinarily be experienced to avoid any criticism in that regard.

Should the company be at risk of trading while insolvent, we believe the courts are likely to consider placing deposits on trust as a step that "ought to be taken" to minimise losses to creditors.

Restriction on the Use of Company Names: (s 216 IA 1986)

In the event that the directors wish to consider a management buyout from insolvency practitioners, they should be aware that it is an offence for a director or shadow director of a liquidated company to be involved either directly or indirectly with a new company with a similar name for a period of five years beginning with the day on which the old company went into liquidation. If a director breaches this provision, the penalties include imprisonment, a fine or both, together with personal liability for the debts of the new company.

However, there are specific circumstances in which the above section will not apply and we can advise you further if required.

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16

Contents

Summary of UK Government Financial Support

Around the globe, many Governments have reacted quickly to try to mitigate COVID-19's impact by implementing financial support schemes and resources to help support local businesses. This guide summarises the financial support measures that are available to UK businesses.

Financing Facility Support United Kingdom

What help is available?

What does the help entail?

Which companies are eligible?

What is the criteria (if any) for applying?

How to apply

Recovery Loan Scheme (`RLS')

This will replace the existing COVID-19 loan schemes when they close.

The loans will be available through a network of accredited lenders, whose names will be made public in due course.

Ensures businesses of any size can continue to access loans and other finance up to 10 million per business.

The finance can be used for any legitimate business purpose, including growth and investment.

The government guarantees 80% of the finance to the lender, to ensure they continue to have the confidence to lend to businesses.

Trading in the UK.

Is viable, or would be viable were it not for the pandemic.

Has been impacted by the coronavirus pandemic.

Is not in collective insolvency proceedings further details to be provided.

Businesses that have received support under the existing COVID-19 guaranteed loan schemes will still be eligible to access finance under the scheme, if they meet the other criteria.

Please see column to the left.

Businesses which cannot apply:

Banks, building societies, insurers and reinsurers (but not insurance brokers);

Public-sector bodies; and

State-funded primary and secondary schools

Types of finance available:

Term loans and overdrafts between 25,001 and 10m per business.

Invoice finance and asset finance between 1,000 and 10m per business.

Finance terms are up to six years for term loans and asset finance facilities. For overdrafts and invoice facilities, up to three years.

No personal guarantees will be taken on facilities up to 250,000, and a borrower's principal private residence cannot be taken as security.

Not yet released, details are to be provided in due course.

When will the finance be available?

The scheme launches on 6 April and is open until 31 December 2021.

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Other Financial Support

What help is available?

What does the help entail?

Employment measures:

Coronavirus Job Retention Scheme (CJRS)

The CJRS has been extended until 30 September 2021.

Businesses that cannot maintain their workforce due to COVID-19 can continue to furlough their employees and apply for a grant under the scheme.

The level of grant available to employers under the scheme will stay the same until July 2021, namely, the government will pay 80% of wages up to a cap of 2,500 for hours not worked by employees, and employers must pay employees for any hours worked as normal, as well as employer National Insurance contributions and employer pension contributions for those hours. 2,500 cap is reduced proportionately to the number of unworked hours.

From July 2021, the level of grant will be reduced and employers will be required to contribute towards the cost of their furloughed employees' wages.

For July, CJRS grants will cover 70% up to a cap of 2,187.50, and in August and September this will reduce to 60%, capped at 1,875. These wage caps are proportional to the number of hours not worked, so someone working 75% of their normal hours in September, for example, would receive under the CJRS no more than 25% of that 1,875. For July to September, employers will be expected to top up the government's contribution so that furloughed staff continue to receive 80% of their usual wages for any unworked hours, up to the cap of 2,500 per month (or beyond it to 100% if the employer wishes). Employers must also continue to pay the associated employer National Insurance contributions and pension contributions.

Which companies are eligible?

All UK businesses whose operations have been severely affected by COVID-19.

Businesses will be able to use the extended scheme even if they did not use the CJRS previously and whether their businwesses remain open or are required to close under local or national restrictions.

Any entity with a UK payroll including businesses, charities, recruitment agencies and public authorities. The government expects that publicly funded organisations will not use the scheme, but partially publically funded organisations may be eligible.

There is no financial impact assessment test.

What is the criteria (if any) for applying?

For periods ending on or before 30 April 2021, eligible employers will be able to claim for employees who were employed and on their PAYE payroll on 30 October 2020. The employer must have made a PAYE Real Time Information submission to HMRC between 20 March 2020 and 30 October 2020, notifying a payment of earnings for those employees.

For periods starting on or after 1 May 2021, eligible employers will be able to claim for employees who were employees and on their payroll on 2 March 2021, as long as they made a PAYE Real Time Information submission to HMRC between 20 March 2020 and 2 March 2021, notifying a payment of earnings for those employees.

Employees do not need to have been furloughed under the CJRS previously.

Employees can be on any type of employment contract, including full-time, part-time, agency, flexible or zero-hour contracts.

How to apply

Applications will once again be through an online gateway.

Employers must keep a written record of any agreements with employees for at least five years. Records of the amount claimed and the claim period for each employee must be kept for 6 years.

Full guidance for the CJRS extension has now been published.

From 25 February 2021, the government will publish information about employers who claim for periods starting on or after 1 December 2020.

From 25 February 2021, employees will also be able to check if an employer has made a CRJS claim on their behalf.

When will the finance be available?

Support under the extended scheme will be available until 30 September 2021.

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What help is available?

Statutory Sick Pay (SSP)

What does the help entail?

Which companies are eligible?

What is the criteria (if any) for applying?

How to apply

Refund to cover up to two weeks' SSP per eligible employee off work due to COVID-19.

Refund would cover employees in a variety of circumstances, including those who are eligible for SSP because they or someone they live with has coronavirus symptoms or has tested positive for coronavirus, they have been notified by the NHS or public health authorities that they have been in contact with someone with coronavirus, etc.

A business can claim from the first qualifying day the employee is off work. A `qualifying day' is a day an employee usually works on. Employees must self-isolate for at least four days to be eligible for SSP.

The current weekly rate is 95.85, but it will increase to 96.35 from 30 April 2021. Employers who pay more than the weekly rate of SSP can only claim up to the weekly rate paid.

The scheme covers all types of employment contracts, including full-time employees, part-time employees, employees on agency contracts and employees on flexible or zerohour contracts.

Businesses must be UK based.

Business must be an SME.

Businesses must have a PAYE payroll scheme that was created/started on or before 28 February 2020.

Businesses must maintain records of the statutory sick payments for at least 3 years following a claim.

To be eligible for the grant, employers must have confirmed to their employee (or reached collective agreement with a trade union) in writing that they have been furloughed or flexibly furloughed.

Employers must have fewer than 250 employees determined by the number of people employed as of 28 February 2020.

The scheme covers period of sickness starting on or after 13 March 2020.

Employers should maintain records of staff absences and payments of SSP, but a GP fit note is not required from employees.

There is an online service to claim back SSP.

Records of all SSP will need to be kept including: reasons why an employee could not work, details of each period when an employee could not work including start and end dates, details of the SSP qualifying days when an employee could not work, National Insurance numbers of all employees SSP has been paid to.

If evidence is required by an employer, those with COVID-19 symptoms can get an isolation note from NHS 111 online and those living with someone that has symptoms can obtain a note from the NHS website.

When will the finance be available?

There is an online service to claim the rebate. The Chancellor confirmed in the Spring Budget that the scheme will continue to support employers while sickness levels are high, but it will be closing in due course.

1 April 2021 19 Contents

What help is available?

What does the help entail?

Which companies are eligible?

SelfEmployment Income Support Scheme (SEISS) grant extension

The grant extension is for self-employed individuals who are currently eligible for the Self-Employment Income Support Scheme and are actively continuing to trade, but are facing reduced demand due to coronavirus (COVID-19).

The extension will provide two grants and will last for six months, from November 2020 to April 2021. Grants will be paid in two lump sum instalments each covering a three-month period. The first grant will cover a three-month period from 1 November 2020 until 31 January 2021. The second grant will cover a three-month period from February 2021 to April 2021. The Government will provide a taxable grant calculated at 80% of 3 months average monthly trading profits, paid out in a single instalment and capped at 7,500 in total.

The first grant will be increased from the previously announced level of 55% of trading profits to 80% for November 2020. This therefore increases the total level of the grant from 55% to 80% of trading profits for 1 November 2020 to 31 January 2020.

The second grant will cover a three-month period from 1 February 2021 until 30 April 2021. HMRC will review the level of the second grant and set this in due course.

The grants are subject to Income Tax and National Insurance Contributions.

As of 3 March 2021, the fourth grant will be worth 80% of three month's average trading profits, paid out in a single instalment and capped at 7,500 in total. The grant will cover the period February to April.

People whose turnover has fallen by less than 30% will receive a 30% grant, capped at 2,850.

Must have submitted an Income Tax Self-Assessment tax return for 201819 tax year and for the fourth grant, filed a 2019-20 Self-Assessment tax return,

Must have traded in 2019-20 tax year.

Must either be trading when applying or would be trading were it not for COVID-19.

Must intend to continue trading in 2020-21 tax year.

Must have lost trading/partnership profits as a result of COVID-19.

What is the criteria (if any) for applying?

To be eligible for the grant extension self-employed individuals, including members of partnerships, must:

have been previously eligible for the SelfEmployment Income Support Scheme (although they do not have to have claimed the previous grants); and

declare that they intend to continue to trade and either:

- are currently actively trading and intend to continue to trade; or

- Were previously trading but are temporarily unable to do so due to coronavirus.

How to apply

Claims for the first, second and third grant have now closed.

Further guidance can be found on GOV.UK here.

When will the finance be available?

The scheme has been extended. The extension will last for six months, from November 2020 to 30 April 2021.

Claims for the fourth grant can be claimed from late April 2021.

The fifth and final grant can be claimed from late July 2021.

1 April 2021 20 Contents

What help is available?

What does the help entail?

Which companies are eligible?

What is the criteria (if any) for applying?

How to apply

Tax measures:

Temporary extension to carry back of trading losses

As of 3 March 2021, the fifth and final grant will cover May to September. The value will be determined by a `turnover test'. People whose turnover has fallen by 30% or more will continue to receive the full grant worth 80% of three months' average trading profits, capped at 7,500.

Temporary extension to carry back of trading losses for Corporation Tax for incorporated businesses (and Income Tax for unincorporated businesses).

Subject to certain caps, businesses will be able to carry trading losses arising during company accounting periods ending in the period 1 April 2020 to 31 March 2022 (and, for unincorporated businesses, during tac years 2020-21 and 2021-22) back for relief against profits of earlier years to get a repayment of tax paid. The normal restriction on the carry back of trading losses will be extended from the current one year entitlement to a period of three years. Losses will need to be carried back and utilized against later years first.

All companies (unincorporated businesses) making losses from carrying on trades (or professions or vocations) during the relevant two year period.

No formal criteria other than making trading losses during the relevant two year period. However, certain caps apply to the amount of relief available.

The amount of trading losses that can be carried back to the preceding year remains unlimited. However, after carrying losses back to the immediately preceding year, a maximum of 2,000,000 of unused losses will be available for carry back under the extension against profits of the same trade to the earlier 2 years. The 2,000,000 limit applies separately to the unused losses of each 12 month period during the extension. In corporate group scenarios, the 2,000,000 cap will be subject to a grouplevel limit that, in certain circumstances, will require the cap to be apportioned between group companies.

There is no formal application process. Businesses should apply the loss carry back in the course of completing their normal business tax computations and returns.

When will the finance be available?

The extension applies to trading losses made by companies in accounting periods ending between 1 April 2020 and 31 March 2022 (and by unincorporated businesses in tax years 2020 to 2021 and 2021 to 2022. Legislation making provision for the temporary extension will form part of the Finance Act 2021.

1 April 2021 21 Contents

What help is available?

Value Added Tax (VAT) Deferral New Payment Scheme

What does the help entail?

Which companies are eligible?

What is the criteria (if any) for applying?

The VAT payments deferral scheme ended on 30 June 2020. The deferred VAT is due for payment in full by 31 March 2021. However, in the Winter Economy Plan, the Chancellor announced businesses who deferred VAT due from 20 March to 30 June 2020 have the option to pay in smaller payments over a longer period by opting into a new VAT deferral payment scheme.

Instead of paying the full amount by the end of March 2021, businesses that deferred VAT due from 20 March to 30 June 2020 will be able to opt to pay the deferred VAT in up to 11 equal, interest free, monthly instalments.

The month a business decides to join the VAT deferral new payment scheme determines the maximum number of instalments available to it:

A business that joins by 19 March 2021, will have a maximum of 11 instalments available;

A business that joins by 21 April 2021, will have a maximum of 10 instalments available;

A business that joins by 19 May 2021, will have a maximum of 8 instalments available.

All UK VAT-registered businesses that deferred VAT due from 20 March 2020 to 30 June 2020.

The business must have (or create) its own Government Gateway account.

On our before 31 March 2021, any VAT payments that were deferred between 20 March and 30 June 2020 will be due, unless affected business opt-in to the Scheme.

The business must be up to date with their VAT compliance obligations including the submission of VAT returns from the last 4 years, and the correction of any errors.

The first instalment must be paid when joining the scheme.

How to apply

When will the finance be available?

Eligible businesses need to optin to the scheme.

To join the scheme, business must follow the steps set out on the government website.

The Value Added Tax (VAT) Deferral New Payment Scheme is optional. Businesses must opt in before 21 June 2021. Agents cannot opt in on behalf of a business.

The VAT deferral new payment scheme is operated online and is now open up to and including 21 June 2021.

1 April 2021 22 Contents

What help is available?

What does the help entail?

Which companies are eligible?

What is the criteria (if any) for applying?

How to apply

Temporary reduced rate of VAT for hospitality, holiday accommodation and attractions

On 8 July 2020, the government announced that it would introduce a temporary 5% reduced rate of VAT for certain supplies of hospitality, hotel and holiday accommodation, and admissions to certain attractions.

At Budget 2021, the government extended the temporary reduced rate until 30 September 2021.

From 1 October 2021, a new temporary rate of 13.5% will apply until 31 March 2022.

From 1 April 2022, affected supplies will revert to the standard (20%) rate of VAT.

The following supplies will benefit from the temporary reduced rates of VAT:

food and non-alcoholic beverages sold for on-premises consumption, for example, in restaurants, cafes and pubs

hot takeaway food and hot takeaway non-alcoholic beverages

sleeping accommodation in hotels or similar establishments, holiday accommodation, pitch fees for caravans and tents, and associated facilities

admissions to the following attractions that are not already eligible for the cultural VAT exemption such as:

- theatres

- circuses

- fairs

- amusement parks

- concerts

- museums

- zoos

- cinemas

- exhibitions

- similar cultural events and facilities

Being an organisation that make supplies of hospitality, hotel and holiday accommodation or provides admission to certain attractions.

No formal application

Operation through Normal VAT returns and compliance

When will the finance be available?

The temporary 5% reduced rate of VAT applies now until 30 September 2021.

The temporary 12.5% reduced rate of VAT will apply from 1 October 2021 until 31 March 2022.

1 April 2021 23 Contents

What help is available?

What does the help entail?

Which companies are eligible?

What is the criteria (if any) for applying?

How to apply

Enhanced Time to Pay (for SelfAssessment taxpayers)

Support for Businesses Paying Tax

1 April 2021

Subject to agreeing a payment schedule with HMRC's self-service Time to Pay facility, self-employed taxpayers who deferred their payment on account due on 31 July 2020 will, be allowed to pay the tax due over an additional 12 month period with deferred amounts not due to be paid in full until the end of January 2022.

Any balancing payments due for payment in respect of the 2019-20 tax year and the first payment on account due for the 2020-21 tax year, also due on 31 January 2021, are also eligible for Enhanced Time to Pay.

Enhanced Time to Pay is available for self-employed taxpayers (with at least 32, and up to 30,000, of SelfAssessment liabilities due) who deferred their second payment on account for the 2019-20 tax year, originally due by 31 July 2020.

Taxpayers can set up an Enhanced Time to Pay payment plan online.

Any balancing payments due for payment in respect of the 2019-20 tax year and the first payment on account due for the 2020-21 tax year, also due on 31 January 2021, are also eligible for Enhanced Time to Pay.

Taxpayers must have no outstanding tax returns (including their 2019-20 tax return), no other tax debts or HMRC payment plans.

The Enhanced Time to Pay payment plan must be set up within 60 days after 31 January 2021 (i.e. by 1 April 2021).

Tax due under Enhanced Time to Pay will be subject to interest. Interest will be applied to any outstanding tax from 1 February 2021.

Any deferred amount will need to be paid in full on or before 31 January 2022.

Support made available for businesses and self-employed people in financial distress with their outstanding tax liabilities.

All arrangements are to be agreed on a case-by-case basis.

Arrangements will be tailored to individual circumstances and liabilities.

Businesses and selfemployed people in financial distress with outstanding tax liabilities.

Calls can be to HMRC's dedicated helpline on 0800 024 1222 (Monday to Friday 8am to 4pm).

Support is provided through HMRC's Time to Pay service.

This allows businesses and individuals to enter an agreement to pay outstanding tax liabilities in instalments, over a period of time, with the possibility of delaying the first payment for up to 3 months.

24

When will the finance be available? Enhanced

Time to Pay payment plans can be set up now.

Calls can be made as of now.

Contents

What help is available? Expanded Business Rates Retail Discount (Retail, hospitality and leisure sectors)

Business Rates Relief Fund

What does the help entail?

Which companies are eligible?

What is the criteria (if any) for applying?

A business rates discount relief for retail, hospitality and leisure businesses for 2020/21 and 2021/22 tax years.

For 2020/21, the discount for eligible businesses is 100%

Retail, hospitality and leisure businesses.

Properties that will benefit from the relief will be occupied properties wholly/mainly used as:

For 2021/22, the discount for eligible businesses is:

100% (without any cash cap) from 1 April 2021 to 30 June 2021; and

66% (capped at 2m per business where the business occupies a property that was required on 5 January 2021, or, in all other cases, capped at 105,000 per business) from 1 July 2021 to 31 March 2022

Shops, restaurants, cafes, drinking establishments, cinemas, live music venues, properties for assembly and leisure, hotels, guest and boarding premises, and selfcatering accommodation.

A nationwide fund of 1.5bn for businesses outside the retail, hospitality and leisure sectors that have been adversely affected by COVID-19

The pot will be allocated to local authorities based on the stock of properties in the area whose sectors have been affected by COVID-19.

All rates paying businesses in England, outside of the retail, hospitality and leisure sectors, that have been adversely affected by COVID-19.

Eligibility for the relief is related to occupation of a rateable property by an eligible business.

Business must be based in England.

Similar schemes are available in Scotland, Wales and Northern Ireland.

Relief will be targeted at sectors that have suffered most economically. It will not be based on falls in property values.

Businesses must be based in England.

Similar schemes are available in Scotland, Wales and Northern Ireland.

How to apply

No action to be taken. Local councils will apply the discount automatically.

A business rates calculator is available here to calculate the charge saved.

Businesses will need to apply to their local authority.

Local authorities will then use their knowledge of local businesses and the local economy to make awards.

When will the finance be available?

Relief is currently available in accordance with local schemes operated by local authorities.

Ratepayers will be able to apply to their local government once local authorities have set up local relief schemes.

The government have stated they are working with "local government to enable ratepayers to apply as soon as possible this year".

1 April 2021 25 Contents

What help is available?

What does the help entail?

Which companies are eligible?

What is the criteria (if any) for applying?

Grant measures:

Local Restrictions Support Grant (LRSG) schemes

The various LRSG schemes are designed to support business providing in-person services to customers from their business premises that are either:

Required to close under widespread national `lockdown' restrictions or Local Covid Alert Level `Very High' restrictions the Local Restrictions Support Grant (Closed) scheme, or

Able to remain open but have been severely impacted by Local Covid Alert Level `High' or `Very High' restrictions the Local Restrictions Support Grant (Open) scheme.

The grants are discretionary. Local Authorities will determine which businesses are eligible for grants from this additional funding. Local Authorities will also have discretion on how, and how much, funding will be provided.

Eligible businesses include closed businesses that don't pay business taxes and businesses that have not been required to close, but are still severely impacted.

Please see column left.

Businesses which cannot get funding:

In administration, insolvent, or have been struck off the Companies House register.

Have exceeded the permitted subsidy limit.

When national restrictions are introduced and businesses are required to close, the above mentioned schemes are superseded by the Local Restrictions Support Grant (Closed) Addendum scheme.

A special scheme, the Local Restrictions Support Grant (LRSG (Sector)) scheme is available for particular businesses (namely, nightclubs, dance halls and discotheques, adult entertainment venues and hostess bars) that were not required to close due to the national restrictions introduced in March 2020. The LRSG (Sector) scheme is not considered further in this guide.

The various LRSG schemes work in combination with an adjustment mechanism that takes into account support already provided.

It should be noted that any grant income received by an eligible business is taxable.

How to apply

Applications are made through the business's local councils.

When will the finance be available?

Funding is currently available.

1 April 2021 26 Contents

What help is available?

LRSG (Closed) Addendum Scheme

What does the help entail?

Which companies are eligible?

What is the criteria (if any) for applying?

The LRSG (Closed) Addendum grant supports businesses that have been required to close due to the national lockdowns:

between 5 November and 2 December 2020, and

from 5 January 2021 onwards

Eligible businesses that were open as usual, but then required to close due to national restrictions imposed by the government may be entitled to a cash grant from their local council for each period under national restrictions.

The grant will be based on the rateable value of the property on the first full day of restrictions.

For national restrictions from 16 February 2021 to 31 March 2021 (second payment cycle):

If your business has a property with a rateable value of 15,000 or less, you may be eligible for a cash grant of 2,096 for this 44-day qualifying restrictions period

If your business has a property with a rateable value over 15,000 and less than 51,000, you may be eligible for a cash grant of 3,143 for this 44-day qualifying restrictions period

If your business has a property with a rateable value of 51,000 or above, you may be eligible for a cash grant of 4,714 for this 44-day qualifying restrictions period.

The business is based in England and occupies property on which it pays business rates.

The business has been required to close because of the national restrictions.

The business is unable to provide its usual in-person customer service from its premises.

When national restrictions are introduced and businesses are required to close, the LRSG (Closed) Addendum schemes supersedes the LRSG (Closed), LRSG (Open) and LRSG (Sector) schemes.

Businesses which cannot get funding include those that:

Continue to operate during the lockdown period because they do not depend on providing direct in-person services from premises;

Chose to close (but have not been required to close) as part of national restrictions;

Are in administration, insolvent, or have been struck off the Companies House register; or

Have exceeded the permitted subsidy limit.

How to apply

Businesses can apply through their local council.

When will the finance be available?

The deadline to apply for the second payment cycle for the national lockdown between 16 February and 31 March 2021, is 31 May 2021.

The deadlines have passed for the previous payment cycles.

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What help is available?

Additional Restrictions Grant scheme (ARG)

What does the help entail?

Which companies are eligible?

What is the criteria (if any) for applying?

The ARG provides additional funding for local authorities subject to national lockdown or Tier 3 restrictions, to support businesses that have had their trade affected by the restrictions.

The ARG supports businesses that are not covered by other grant schemes or where additional funding is needed.

Eligible businesses include businesses that do not pay business rates, businesses that have not received wider grant support and businesses from any sector severely impacted by restrictions.

The grants are discretionary. Local Authorities will determine which businesses are eligible for grants from this additional funding.

Local Authorities will also have discretion on how, and how much, funding will be provided.

Businesses which cannot get funding include those that:

Are in administration, insolvent, or have been struck off the Companies House register; and/or

have exceeded the permitted subsidy limit

How to apply

Applications are made through the business's local councils.

When will the finance be available?

No deadline published yet.

The Restart Grant scheme

The Restart Grant scheme supports businesses in reopening safely as COVID-19 restrictions are lifted.

A one-off cash grant of:

Up to 6,000 for businesses in the nonessential retail sector, or

Up to 18,000 for businesses in the hospitality, accommodation, leisure, personal care and gym sectors.

Grants will be available but you can submit applications in advance.

Eligible businesses must be (similar schemes are also expected to be available in Scotland, Wales and Northern Ireland):

Based in England;

Occupy premises subject to business rates;

Operate in one of the following sectors:

Non-essential retail Hospitality Accommodation Leisure Personal care, or Gyms Trading on 1 April 2021

A business will not be eligible for the grant if it:

Is in administration, insolvent or has been struck off the Companies House register, or

Has exceeded the permitted subsidy allowance

The scheme will be administered by local authorities. Businesses should apply to their local authority. Local councils will use their discretion to determine whether businesses meet the eligibility criteria for a grant.

Available from 1 April 2021

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What help is available?

What does the help entail?

Which companies are eligible?

What is the criteria (if any) for applying?

How to apply

Other measures:

Insurance

Government has stated that since advice to avoid social gatherings on 17 March 2020, businesses with insurance cover for both pandemics and government-ordered closure will be able to make claims.

SME Brexit Support Fund

A 20 million fund providing a cash grant of up to 2,000 per trader business.

The grant must be used to help with training on:

How to complete customs declarations

How to manage customs processes and use customs software and systems

Specific import and export related aspects (including VAT, excise and rules of origin)

It can also be used to obtain professional advice on how the business can meet its tax and customs obligations (including customs duties, excise duties, import VAT and safety and security declaration requirements).

Businesses with insurance cover for pandemics and/or governmentordered closure.

A 20 million fund providing a cash grant of up to 2,000 per trader business.

The grant must be used to help with training on: How to complete customs declarations How to manage customs processes and use customs software and systems Specific import and export related aspects (including VAT, excise and rules of origin)

It can also be used to obtain professional advice on how the business can meet its tax and customs obligations (including customs duties, excise duties, import VAT and safety and security declaration requirements).

Businesses will need to check the terms and conditions of their specific policies.

The business must have been established in the UK for at least 12 months, or currently hold Authorised Economic Operator status.

In addition, the business must be one that:

Imports or exports goods between Great Britain and the EU, or moves goods between Great Britain and Northern Ireland

Completes (or intends to complete) import or export declarations internally (or relies on someone else but also requires additional internal capability, such as specialist advice, to do so)

Has met all of its previous tax and customs obligations

Traders in services are not eligible for a grant.

Businesses will need to contact their insurance providers.

Applications can be made online via the scheme administrator, PricewaterhouseCoopers (PwC).

When will the finance be available?

Claims can be made as of now.

Funding is available now. Applications close on 30 June 2021 (or earlier if all available funding is allocated before that date)

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Additional Guidance

The below alerts and blogs are particularly helpful to those businesses working in the retail and hospitality sector, looking at some of the practicalities around re-opening premises, from licencing to employment issues that could impact cash requirements and business viability.

Hospitality Specific

Key Issues for Closures (and Re-Openings) of Licensed Premises

This alert considers health and safety risks that may have accrued during the period of closure such as lack of maintenance and hygiene/cleaning, expired safety certification and/or overdue inspections or tests before re-opening.

Pavement Licences and Consumption Off the Premises

The Business and Planning Act 2020 was introduced by the government in the wake of COVID-19. This insight highlights the main changes that operators of licensed premises need to be aware of, especially as `al fresco' dining will be allowed sooner than indoor dining as restrictions are lifted in the coming months.

Retail Specific

The Impact of Brexit on E-Commerce

The UK-EU Trade and Cooperation Agreement provides free trade between the UK and EU but there are a number of caveats that retailers must consider. This guide highlights the key questions that all e-retailers need to consider including tariffs, rules of origin, customs compliance, VAT and the impact on e-commerce.

UK/EU Trade Deal Analysis What This Means for Retailers

This guide discusses the implications of the UK-EU trade deal on retailers including tariffs, red tape, cross-border e-commerce and EU trade deal extensions.

Both Sectors

Compliance

NHS Track and Trace system

As businesses in the hospitality and leisure industries are permitted to re-open, they will need to continue to support the NHS Test and Trace system by keeping temporary records of their customers and visitors. The costs of compliance will need to be factored in to ensure data protection legislation is adhered to. This blog examines the collection and use of this data.

Key considerations around alternative sourcing; supply chain visibility; regulatory compliance; force majeure and material adverse change provisions; and financial support

Cash flow

Business Interruption Insurance: A Lifeline for Struggling Landlords and Tenants?

This alert considers the Supreme Court judgment on business interruption insurance that clarifies the circumstances when a business can claim under their business interruption insurance.

Turnover Rent

A move towards turnover rent could offer a genuine solution to challenges presented by the market. This alert highlights points for tenants and landlords when considering a move to a turnover rent.

Employment

Practical considerations for employers making redundancies

This blog sets out considerations for decision-makers when contemplating redundancies.

Employment law considerations around COVID-19 vaccine

This series of blogs discusses whether employers are required to provide the vaccine to their employees, whether the refusal to take the vaccine will be unreasonable failure to comply with managements' request, and finally, what can an employer do when an employee refuses to take the vaccine.

1 April 2021 30 Contents

Our Team

John Alderton Partner, Leeds T +44 113 284 7026 M +44 788 505 8896 E [email protected]

Russ Hill Partner, Birmingham T +44 121 222 3132 M +44 792 160 0409 E [email protected]

Caroline Noblet Partner, London T +44 20 7655 1473 E [email protected]

David Whincup Partner, London T +44 20 7655 1132 E [email protected]

Paula Laird Partner, London T +44 207 655 1255 E [email protected]

James Collis Partner, London T +44 207 655 1355 E [email protected]

Mark Simpson Partner, Leeds T +44 113 284 7046 E [email protected]

Robert O'Hare Senior Tax Policy Advisor, London T +44 207 655 1157 E [email protected]

Blogs

For the latest updates on legal issues and business risk during COVID-19, subscribe to Restructuring GlobalView.

For the latest unique global insight into practical and legal HR issues relevant to employers everywhere, subscribe to our Employment Law Worldview

For the latest discussion on legal issues that arise in the supply chain, both those that cut across industries and those that are industry specific, subscribe to Global Supply Chain Law

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