In this brief client alert, we look at which businesses are impacted by this announcement and what support the government is providing for UK businesses that have been impacted by this extraordinary event.
Non-essential businesses
The government had already mandated the closure of restaurants, cafes, bars, pubs and clubs. This has now been extended to all non-essential businesses in a bid to keep people in their homes. This incudes all retail businesses, with some limited exceptions. Based on government guidance that has been published, the following retail businesses are deemed to be essential and permitted to stay open:
- Food delivery and takeaway services
- Supermarkets and other food shops
- Pharmacies
- Banks and post offices
- Petrol stations
- Hardware shops
- Laundries and dry cleaners
- Bicycle shops
- Garages
- Car rentals
- Pet shops
- Corner shops and newsagents
The order also extends to leisure and entertainment businesses, including cinemas, theatres, gyms and betting shops.
A business operating in contravention of the Health Protection (Coronavirus, Business Closures) Regulations 2020 will be committing a criminal offence. The Coronavirus Bill is currently going through Parliament on an accelerated basis and will allow further measures on enforcement.
The government did not commit to a timeframe for these closures, but has said the measures will be reviewed in three weeks and will be relaxed if evidence shows this is possible.
Business support
In an effort to help businesses cope with these extraordinary circumstances, the government has announced an unprecedented level of support for UK business.
A number of different packages have been announced to date, including the following:
The Coronavirus Business Interruption Loan Scheme:
For small and medium-sized businesses, the new Coronavirus Business Interruption Loan Scheme (CBILS) is now available for applications. This scheme will help any UK based business with a turnover of up to £45 million to access government-backed finance of up to £5 million if they are experiencing lost or deferred revenues, leading to disruptions to their cashflow. This will be available on repayment terms of three years for overdrafts and invoice finance facilities and up to six years for term loans and asset finance facilities. The criteria for determining whether a business is ‘viable’ under this scheme are: were it not for the current pandemic, would the borrowing proposal be considered viable by the lender? And does the lender believe the provision of finance will enable the business to trade out of any short- to medium-term difficulty?
The government will make a business interruption payment to cover the initial 12 months of interest payments and any lender-levied fees for businesses, so smaller businesses will benefit from no upfront costs and lower initial repayments. Fishery, aquaculture and agriculture businesses may not qualify for this interest and fee payment.
The government will provide lenders with a guarantee of 80 per cent on each facility to give lenders further confidence in continuing to provide finance to SMEs. Whilst lenders will have to pay a fee to access the scheme, smaller businesses will not. The scheme is available through more than 40 accredited lenders, which are listed on the British Business Bank website and include most mainstream banks, including HSBC, Barclays, NatWest, Lloyds, Santander, RBS, TSB, Bank of Ireland and Bank of Scotland, as well as challenger banks, asset-based lenders and smaller specialist local lenders.
In order to access the scheme, businesses should approach their own bank in the first instance via the bank’s website and then approach other lenders if they are unable to access the finance they need.
The following trades and organisations are not eligible to apply: banks; building societies; insurers and reinsurers (but not insurance brokers); the public sector, including state funded primary and secondary schools; and employer, professional, religious or political membership organisations and trade unions.
Covid-19 Corporate Financing Facility
HM Treasury and the Bank of England’s new joint lending facility for larger firms – the Covid-19 Corporate Financing Facility (CCFF) – is also open for applications. Under the scheme, the government is offering to buy short-term commercial debt from eligible businesses. The scheme provides a quick and cost-effective way to raise working capital for companies that are fundamentally strong and make a material contribution to the UK economy, but are experiencing severe disruption to cashflows. The scheme is open to firms that can demonstrate that they were in sound financial health prior to the impact of the coronavirus. Companies that wish to use the scheme do not need to have issued commercial paper before. In practice, the companies that will meet the requirements for this facility will be UK incorporated companies that might have foreign-incorporated parents and have a genuine business in the UK; companies with significant employment in the UK; and firms with their headquarters in the UK. HM Treasury and the Bank of England will also consider whether the company generates significant revenues in the UK, serves a large number of customers in the UK or has a number of operating sites in the UK.
Coronavirus Jobs Retention Scheme
These support schemes sit alongside the announcement by the chancellor on Friday (20 March) of a Coronavirus Jobs Retention Scheme under which the government will provide a grant to employers to keep their workers on rather than make them redundant. All UK-wide PAYE employers are eligible for this scheme, including the public sector, local authorities and charities. The chancellor has pledged to place “no limit on the amount of funding available for the scheme and will provide grants to support as many jobs as necessary”. Salaries will be paid at 80 per cent of their current level up to a maximum of £2,500. These grants will be available by the end of April (but backdated to 1 March) for an initial three-month period.
Other schemes
In addition to the above, the government is also offering:
- An automatic business rates holiday for the tax year 2020-21 for the retail, hospitality and leisure sectors, including for properties mainly being used as shops, restaurants, cafes, drinking establishments, cinemas and live music venues; or for assembly and leisure; or as hotels, guest and boarding premises and self-catering accommodation.
- A cash grant of £10,000 to £25,000 to be automatically applied by the relevant local authority for eligible businesses in the retail, hospitality and leisure sectors.
- An automatic business rates holiday for the nursery sector for the tax year 2020-21 for properties that are occupied by providers on Ofsted’s Early Years Register and are wholly or mainly used for the provision of the Early Years Foundation Stage.
- A one-off Small Business Grants Fund (SBGF) of £10,000, which will be automatically applied by the relevant local authority to help small businesses that already pay little or no business rates because of small business rate relief (SBRR), rural rate relief (RRR) and tapered relief, to help them meet their ongoing business costs.
- A Statutory Sick Pay (SSP) rebate to allow small and medium-sized UK businesses (with fewer than 250 employees as at 28 February 2020) to reclaim SSP paid for staff sickness absence due to coronavirus. This refund will cover up to two weeks’ SSP per eligible employee who has been off work because of coronavirus. This rebate scheme is still being developed and further details will be provided over the coming months.
- An HMRC Time to Pay service under which all businesses and self-employed people in financial distress, and those with outstanding tax liabilities, may be eligible to receive support with their tax affairs. This arrangement is agreed on a case-by-case basis by HMRC and is tailored to individual circumstances and liabilities.
- VAT and income tax deferrals – see further our client alert on the UK finance package from 23 March.
This is a developing area and one we are keeping a close watch on for clients.
Our Reed Smith Coronavirus team includes multidisciplinary lawyers from Asia, EME and the United States who stand ready to advise you on the issues above or others you may face related to COVID-19.
For more information on the legal and business implications of COVID-19, visit the Reed Smith Coronavirus (COVID-19) Resource Center or contact us at COVID-19@reedsmith.com.
Client Alert 2020-151
