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‘Red Flag’ of Mounting Debts for UK SMEs Amid COVID-19 Lockdown, Accountancy Experts Warn

© Photo : Mohamed ElmaaziSmall and Medium Sized Enterprises in camden on 30 May 2020.
Small and Medium Sized Enterprises in camden on 30 May 2020. - Sputnik International
14 per cent of Small and Medium-Sized businesses won’t have enough cash 'to last four weeks of lockdown', according to the latest business survey conducted by two country-wide accountancy networks with tens of thousands of members.

99 per cent of all UK employment is within Small and Medium-Sized Enterprises (SMEs), businesses employing 250 people or less.

The Association of Certified Charters Accountants (ACCA) UK and the Corporate Finance Network (CFN) produce weekly reports tracking the financial health of SMEs in the UK amid the COVID-19 lockdown. ACCA UK explains to Sputnik that while there has been much effort from the government to assist small businesses, many remain unable to receive the financial support that they require, with the number of SMEs planning to liquidate now reaching 5 percent.

Sputnik: The latest joint ACCA and Corporate Finance Network report says that cashflow is a key concern for SMEs across the UK.

How serious is the situation and has it been alleviated at all since April when you reported that one in ten SMEs had closed due to the lockdown and inability to access funds?

ACCA: The situation is serious, hence the government’s recent policy interventions.

What we’ve seen over the time of this Tracker is a slow and steady increase in the percentage of SMEs deciding to close or liquidate – to 5% on 27 May compared to 4% the week before, and 3% the week before that.

Sputnik: Your previous reports noted that very few SMEs in the UK were getting the financial support being promised by the government. To what extent has that changed?

ACCA: Let’s look at [the Coronavirus Business Interruption Loan Scheme] CBILS as this appears be one of the most contentious: our latest Tracker shows that 26% have been declined, up from 13% two weeks before. When CBILs were launched we saw 61% of firms that had made enquiries for them were awaiting a response, with just 4% progressed to full application and 9% accepted (13 May).

So, what we’re seeing here is a very unsteady picture. Members report time-consuming application procedures, long periods waiting for decisions and often for those that do get approved there can be a further wait for funds to arrive.

Sputnik How can the process of financial support to SMEs be simplified and streamlined?

ACCA: This is a challenge, because of the sheer volume of what is needed.

A hold-up and frustration has been the admin associated with the applications for support, but we know that everyone is under incredible pressure to work at a faster pace than normal in very unusual circumstances.

As we begin to look to resume business operations it’s vital that government looks at the range of financial instruments available to SMEs. There’s also some actions SMEs can be taking to help put themselves in the best financial position they can be. It is important that businesses are planning ahead and seeking advice from professionals that have experience helping businesses to plan ahead financially.

There are currently a lot of liabilities such as tax deferrals, rent holidays, interest incurred on recent debts and PAYE bills that haven’t hit home for many businesses yet and a good financial forecast and regularly revisited business plan will help them understand where their limits lie.

Sputnik: Is the government’s flagship furlough programme working as it should be; are all businesses getting the funds needed to pay their staff under it?

ACCA: The Treasury reported on the 27 May that nearly 8.4 million workers are covered by the furlough scheme, up from eight million a week earlier. We’re glad it’s been extended to October and that people are getting the support they need. But there is a group who have been forgotten in all this – the people who set themselves up as limited companies who are not covered by the various schemes.

Sputnik: What is the reaction of the ACCA and your clients to the news that the Job Retention Programme may soon be closed to new applications along with a reduction in the pay contributed by the Treasury to 60% of salaries?

ACCA: We have sent comms to members reminding them to complete applications and the reality is that many employers have relied on the furlough payments to stay afloat and it’s important that the Treasury works with business to ensure this extensive government spend wasn’t for nothing, particularly where business-as-usual revenue streams will continue to be impacted in the long-term.

While businesses need to be supported to come out of lockdown, businesses need to develop a tailored action plan for how they can start to transition out of lockdown.

Sputnik: Some have argued that the government should be giving grants to SME's and not merely loans. What is your organisation calling for and what are the consequences for businesses taking these loans?

ACCA: The obvious issue with a loan is that it has to be paid back, and together with SMEs looking to defer their tax payments, there is a sense of future payments stacking up – this is a red flag. 

The issues with many of the financial support measures have been a consequence of the speed with which government has had to roll them out. While we appreciate that it was difficult to cover all bases in the immediate term, ACCA continues to advocate for those that have slipped through the gaps of government support.

At this time, from an economic and societal perspective, it makes sense to target support for businesses on the basis of their function as economic actors, rather than their legal form. Government should consider how support packages could be replicated for directors of SME incorporated entities, naturally taking into account the cap on support that exists for employees and the unincorporated self-employed.

Sputnik: Is there any positive news that you can report?

ACCA: We think HMRC has done a really good job with SEISS – despite the fact accountants could not apply for this on behalf of their clients. This was a sense of frustration for our members, but the solution seems to be working well and we know that HMRC managed to handle the influx of claims really quickly.

ACCA was able to raise this issue directly with government and heard back that grants have been a significant part of the government response via local authorities. We’ve certainly heard of instances from members where grant funding has been delivered particularly efficiently, particularly to community and enterprise organisations that enrich local areas.

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