Where covid-19 income support has been erratic: a recap for rightly confused firms

With the covid-19 pandemic still in its second wave, Gareth Wilcox, partner at Opus Restructuring & Insolvency outlines the latest changes to Bounce Back Loans and the furlough scheme, both of which limited company contractors should get on top of to help them ride out this now underway second lockdown.

Furlough scheme extension (contrary to the government's promise)

Despite stating numerous times that the Coronavirus Job Retention Scheme (CJRS) would not be extended but would instead be replaced by the less generous Job Support Scheme (JSS), on October 31st 2020 as part of an announcement of new lockdown measures, the government said the CJRS would remain in place for a further month. 

It’s worth noting that the announcement was made on a Saturday afternoon, the day before the JSS was due to take effect. There were, therefore, precisely zero working days for HR departments and other business professionals to get their houses in order before the change.

Subsequently, just less than a week later on November 5th 2020, chancellor Rishi Sunak announced that actually JRS will remain in place until at least March 31st 2021. So not December as he specified previously, just a few days before.

The CJRS (or ‘furlough scheme’ as it is also called) is continuing in the ‘flexible’ form which has been in place since July 2020, with employees able to work part-time hours and receive the CJRS support on the balance of hours not being worked. 

The main difference for employers, however, is that the government is now once more covering the full 80% of ‘salary,’ leaving the employer only required to cover pension and National Insurance contributions.

The CJRS between now and Spring 2021: the details (cont.)

Crucially though, the Treasury has stated that the level of contributions will be reviewed in January 2021 to decide whether economic circumstances are improving enough to ask employers to contribute proportionally more, as they had been incrementally from August 1st 2020.

As to the small print, employees (including the directors of limited companies) must have been on the payroll by October 30th 2020 to qualify for the CJRS, but need not have been furloughed before. And employees who were employed on the payroll on September 23rd 2020 but were made redundant or stopped working subsequently, can be re-employed and placed on furlough.

Indicative of the suddenness of the announced extension until March, the continuing furlough scheme will be paid as a refund (i.e. after wage payments have been made) while the government updates its system, with the intention that it will shortly be converted to being paid up-front to cover employee costs. This will no doubt be welcome comfort to those directors of the many businesses struggling to maintain cashflow to make payments in arrears.

My previous article went into some detail as to how the (now shelved) Job Support Scheme was intending to operate. While it initially felt like my typing up of the JSS details had gone to waste, officially JSS has only been ‘postponed’. As such, businesses should expect (and possibly hope) that when the CJRS is finally withdrawn, support will continue in some form, such as the JSS. That’s going to be necessary, though, not just a ‘nice to have.’

The Job Retention Bonus is shelved until the appropriate time....

Although most employers will no doubt welcome the above, the Job Retention Bonus (JRB) of £1,000 per retained, previously furloughed employee due to be paid in February 2021, will no longer apply. 

While the majority of smaller businesses will probably prefer the extension of the CJRS, this will no doubt be detrimental to those limited company owners who have managed to adapt or recover sufficiently that they no longer require furlough, and had built the Job Retention Bonus into their cashflows for Q1 2021. The JRB has not been cancelled, however, and businesses can look forward to this incentive being deployed at the “appropriate time” (-- the government’s precise wording, so who knows when that might be).

SEISS grants have been upped

In addition to the extension of the CJRS, the generosity of the grants under the Self-Employed Income Support Scheme (SEISS) has also been increased, whereas it was previously being incrementally wound-down. It’s much less useful than the CJRS to the contractors and consultancies we know of, except for any operating as a sole trader.

Nonetheless, this third (taxable) grant will cover the period from November 1st 2020 to January 31st 2121 and be calculated at 80% of three months’ average trading profits, capped at £7,500. A portal to claim the third SEISS grant will open on November 30th 2020, with claimants required to confirm that they were:

  1. eligible for previous SEISS grants (although they need not have claimed); and
  2. that they intend to continue to trade; but
  3. are doing so at a reduced capacity, or are prevented from doing so, by the coronavirus pandemic.

A further fourth grant to cover the period from February 1st to April 30th 2021 has been announced, with detail to follow in due course.


My previous article stated that the Coronavirus Business Interruption Loan Scheme (CBILS) and the Bounce Back Loan Scheme (BBLS) have both been extended to new applicants until November 30th 2020. In view of the ongoing pandemic and associated economic difficulties, the windows for new applications have now been extended by the government once more -- to January 31st 2021.

It has also recently been announced that from November 10th 2020, any businesses which borrowed less under the BBLS that it was entitled to (25% of turnover in the year to 31/12/2019 or £50,000), can now apply to ‘top up’ an existing facility to the maximum allowance. 

To recap, BBLs are loans designed to support businesses which were established prior to March 1st 2020 and have been adversely impacted by coronavirus by lending on the following terms:

  • Term of 6 years, but you can repay early without paying a fee
  • No repayments will be due during the first 12 months
  • The government guarantees 100% of the loan
  • No fees or interest to pay for the first 12 months
  • After 12 months the interest rate will be 2.5% a year.

There are 28 lenders participating in the scheme, including most high street banks, and Bounce Back Loans are obtained by contacting lenders direct.

The government’s extension of the BBLS anticipates that there will be some owner-managers and PSC contractors who initially borrowed at a relatively low level, anticipating a relatively short recovery from the pandemic. Which, of course, has not occurred.  It will be of little comfort to those who have already borrowed at the maximum level, however, and who are already suffering cashflow difficulties.

While they may not be a representative sample given my vocation, the vast majority of directors I have spoken to borrowed at the maximum level in the first instance, considering it prudent given the ability to make early ‘fee-free’ repayment in any event. As such, the recent changes may only provide comfort, or even just the necessary, for a small number of businesses.

For those who already have a Bounce Back Loan (some of whom will be due to commence their repayments within the next six months), it has been confirmed that when the first repayment is due, the lender will contact you with options to:

  • extend the term of your loan to 10 years;
  • move to interest-only repayments for a period of 6 months (you can use this option up to 3 times);
  • pause your repayments for a period of 6 months if you have already made at least 6 repayments (you can use this option once).

If, notwithstanding the above, you are concerned about your company’s ability to make repayments under a BBIL, or its financial position in general, you should consider consulting a licensed insolvency practitioner.

Meanwhile, loans under the CBILS (designed for larger businesses) can be offered as a number of different facility types. But there has been no major change made to these other than the application extension.

Other Support

In addition to the above changes, and as another coronavirus lockdown chalks up its first of three long weeks, the government also announced:

  • Cash grants of up to £3,000 for businesses forced to close under the new restrictions (calculated on the basis of rateable value); and
  • An extension to the application deadlines for the Kickstart Scheme and Coronavirus Future Fund to January 31st 2021.

Final thoughts (includes you paying your fair share)

The reintroduction of the CJRS is a necessary cushion for most employers, including PSC contractors, given the ongoing (and in some regions, worsening) pandemic situation and its economic implications. While the official removal of the JRB will give many a reason to groan, not least because it seems to exemplify the government’s support during the pandemic being erratic -- to say the least, it only ever gained a lukewarm reception. Indeed, since it was announced, many small businesses expressed the view that it would have made little difference.

As to the Bounce Back Loan offering being improved, I do not consider the ability to ‘top-up’ a BBL will make an enormous amount of difference to the average director’s comfort level right now. And certainly some businesses would have much preferred a relaxing of the lending criteria, having already spent their maximum allowance. This does not appear likely to be something the government will budge on,  however. This is particularly the case given criticism relating to the anticipated rate of default, with some commentators predicting that 40-50% of advances will never be recovered.

Given the anticipated default rate of BBLs, and with furlough costs expected now to rise to a difficult-to-fathom £50billion, it remains a sobering thought that these advances will need to be repaid through taxation -- at some point.  It seems that the success (or otherwise) of the covid-19 vaccine announced last night as being 90% effective, may have a direct bearing on whether the government will be able to start balancing the books as soon as the anticipated Spring 2021 Budget.

Tuesday 10th Nov 2020
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Written by Gareth Wilcox

Gareth Wilcox is a Partner and Licensed Insolvency Practitioner with Opus Restructuring & Insolvency.  As well as heading up Opus’ Birmingham office, he oversees the solvent restructuring team and has significant experience in this area

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