Has The Spring Budget 2021 Helped Struggling Businesses

Penny being put in a Piggy Bank with a bow on

The UK currently has the largest deficit it has had since the Second World War. This is hardly surprising given the vast financial support packages offered to businesses and individuals who have been affected by the COVID-19 restrictions. On 3 March 2021, the Chancellor delivered his Spring Budget 2021 proposal. Whilst there is some way to go until life goes back to normal, the government has had to start planning its strategy to reduce the deficit in the coming years but also being mindful of the need to still support businesses that are struggling and will continue to struggle as the restrictions ease.

We have reviewed the content of the Spring Budget in detail, and in particular in the context of how it affects a company that is considering a creditor’s voluntary liquidation (CVL) or, indeed, any other insolvency process. For many, the support offered by the government to date has propped up their companies and allowed them to avoid a formal insolvency process, such as CVL. It has had the desired effect. For others, such as those companies who were perhaps trading but struggling even before March 2020, the support packages may, regrettably, be delaying the inevitable.

So how does the government propose to balance the need to continue supporting businesses but also ensure that the support is only offered to those who have a hope of surviving? The answer appears to be a combination of:

  1. Investment to flush out the fraudsters – £100 million for a new Taxpayer Protection Taskforce to crack-down on COVID fraudsters who have exploited UK Government support schemes
  2. Employer contributions for extended furlough period (see further detail below)
  3. Providing lenders with a greater share of the risk (see further detail below)

What Are The Key Support Measures Announced In The Spring Budget?

  • Furlough – the scheme will be extended until the end of September, with state support beginning to taper down from 1 July. Between now and June the Government will continue to pay 80% of wages up to £2,500 a month. From 1 July, the Government will pay 70% of wages up to £2,187.50 per month, while employers will cover the rest. State support will decrease again on 1 August, with the Government paying 60% of wages up to £1,875 and employers covering the remaining 20%
  • Government-backed loan schemes – a new Recovery Loan Scheme has been announced, introduced as the Bounce Back Loan and Coronavirus Interruption Loan schemes come to an end this month. Businesses of any size will be eligible for loans from £25,000 up to £10m through to the end of this year, with the Government providing an 80% guarantee to lenders
  • Business rates relief – temporary 100% tax cuts for businesses in the hospitality, retail and leisure sectors will be extended until the end of June. For the remaining nine months of the year, business rates will still be discounted by two thirds, up to a value of £2m for closed businesses
  • Business grants – £5bn has been announced in grants for businesses in the hospitality, retail and leisure sectors. Non-essential retail businesses will be eligible for grants of up to £6,000, while grants of up to £18,000 will be offered to hospitality and leisure businesses, while English local authorities will be provided with an additional £425 million of discretionary business grant funding
  • Hospitality sector VAT – the temporary reduction from 20% to 5% will continue until the end of September. Following this, an interim rate of 12.5% will be in place for up to six months, until April 2022

You can view the complete Spring Budget 2021 proposal set out by the Chancellor on the Treasury website.

A Word Of Warning For Company Directors

Last year we released an article exploring furlough claims and bounce back loans – What Are the Risks for Directors. At that time, the crackdown on potential fraudulent furlough claims and misuse of bounce back loan funds was more of a common-sense speculation of what was to come and particularly in light of the statutory duties of an insolvency practitioner upon their appointment in a liquidation or company administration process.

Whilst the Chancellor may have only glossed over the issue within his Budget, the government has now sent out a clear message – abuse the support packages, there will be ramifications.

Even prior to the Spring Budget 2021, it was been widely publicised that HM Revenue & Customs have been undertaking surprise inspections or raids on business premises where they suspect either fraudulent furlough claims have been made and/or bounce back loans have not been used for legitimate business purposes. The investigative role of an insolvency practitioner in any insolvency procedure will not be too dissimilar.

In the context of a creditor’s voluntary liquidation, the insolvency practitioner (the Liquidator) has a duty to review the financial affairs and transactions of the company for the period leading up to their appointment. If the company received a Bounce Back Loan, for example, the Insolvency Service now has an increased interest on how these funds were used. If a clear misuse of the loan funds can be demonstrated this is likely to result in:

  • Director disqualification proceedings being commenced by the Insolvency Service
  • A claim from the Liquidator to recover funds into the liquidation for the benefit of creditors
  • Potential other action from the new Taxpayer Protection Taskforce

If you are unsure of the potential ramifications of accepting government support packages prior to entering a creditor’s voluntary liquidation, or any other insolvency process, please contact us for some free no-obligation advice immediately. For more on the ramifications of the Spring Budget 2021, be sure to check back in with us regularly.

What Insolvency Options Are Available To Struggling Companies?

At My Liquidation, we believe in providing our potential clients we simple yet reliable advice when contemplating an insolvency procedure. This is why we pledge that any advice you receive will be from a licensed insolvency practitioner, not a salesperson or unqualified professional.

If we believe that a formal insolvency procedure can be avoided with some carefully planned restructuring, support or finance package, we can assist you with this either directly or in conjunction with our highly respected strategic partners.

If it becomes apparent that a formal insolvency process is required, such as a voluntary liquidation, we can assist you in taking the necessary steps to achieve this. Alternatively, it may be possible to implement a rescue procedure to either rescue the business on a going concern basis or, at least, maximise a return to your creditors. A rescue procedure often takes the form of a company administration (including pre-pack administrations) or a company voluntary arrangement (CVA). Please read our previous article which explores how a CVA can rescue your company in a post-COVID 19 world.

Now, more than ever, it is important for appropriate support to be provided to all businesses and individuals affected by the global pandemic. If we can assist with your business concerns, even if you would just like to bounce something off us, please get in touch. We are here to help.

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