- The budget assumes the effect of COVID-19 on the UK Economy to be highly uncertain. Even though the effect could become significant at a point in time, it is assumed to be temporary.
- Since the UK has an open economy, the effects of the virus on the global economy are expected to be significant.
- There could also be direct economic impacts in case of a domestic outbreak. The disruption might include an interruption in global supply chains and absences from work resulting in a drop in the nation’s productive capacity
- To support the people concerned about these impacts, the Budget has announced a three-point plan to provide support to both Public Services as well as Business & Individuals.
- The plan includes a range of timely, targeted and temporary measures at a total cost of £1 billion
- The devolved administration is set to receive a share of any additional funding for support through the Barnett Formula.
- The budget also stands by the statement of UK Finance to offer banks, building societies, and credit card providers to offer support to customers like increasing an overdraft or allowing repayment relief for loan or mortgage repayments
1. Support for Public Services
(i) COVID-19 Response Fund: HM Treasury has created an emergency response fund, to ensure the National Health Service (NHS), as well as other public health service providers, have the resources needed to tackle the impacts of COVID-19.
(ii) R&D Funding: The Budget has promised £30 million of funding to facilitate rapid research into the novel COVID-19 virus
(iii) Diagnostic Testing Fund: The capacity and the capability of diagnostic testing is set to increase with additional funding of £10 million to DHSC
2. Support for Businesses
(i) SSP (Statutory Sick Pay): The Budget will support SMBs to cope with the additional costs for paying the COVID-19 related SSP’s by refunding the SSP Costs that are eligible. The criteria for eligibility is as follows:
- this refund will be limited to two weeks per employee
- employers with fewer than 250 employees will be eligible.
- employers will be able to reclaim expenditure for any employee who has claimed SSP
- employers should maintain records of staff absences, but should not require employees to provide a GP fit note
(ii) Business Rates Reliefs – The government had previously announced that the Business Rates retail discount shall be increased to 50% in 2020-21 which by the advent of COVID-19 has been further increased to 100% for 2020-21. The relief will also be extended to the leisure and hospitality sectors.
(iii) SMB Grant Funding: Since many small businesses either pay very little or no business rates owing to Small Business Rate Relief (SBRR), the government has promised to provide £2.2 billion to businesses eligible for SBRR so that they can meet their ongoing business costs.
(iv) Time to Pay: Her Majesty’s Revenue and Customs (HMRC), has agreed to a bespoken Time to Pay agreement by setting up a dedicated COVID – 19 helpline to help the self-employed individuals and businesses in financial distress due to their tax liabilities. Time to Pay was also implemented successfully earlier in response to flooding and financial crisis in The UK.
(v) Coronavirus Business Interruption Loan Scheme: A temporary Coronavirus Business Interruption Loan Scheme is set to support businesses by providing lenders with a guarantee of 80% on each loan.
3. Support for Individuals
(i) SSP (Statutory Sick Pay): The COVID-19 Bill will temporarily allow SSP to be paid from the first day of sick leave, rather than the fourth day, for people who are recommended self-isolation, owing to having or suspicion of COVID-19.
(ii) Medical Evidence for SSP: A GF Fit Note is being replaced by a notification via NHS111 which can be used as evidence for absence from work, wherever necessary. This notification would meet employers’ need for evidence, whilst taking pressure away from General Practices.
(iii) Support for SSP ineligible: Since the self-employed people and employees below Lower Earnings limit are not entitled to SSP, the ‘new style’ Employment & Support Allowance and Universal Credit will be provided to such people where 1) Allowance will be payable to people directly affected by COVID-19 or recommended self-isolation, from the first day of sickness rather than the eight-day 2) Universal Credit will be claimable without a jobcentre for people directly affected by COVID-19 or recommended self-isolation.
(iv) Hardship Fund: The Government has promised to provide local authorities with £500 million of grants to support people and households that are economically weak.
4. International Response:
The budget has already committed £91 million to international response. Moreover, the budget also made available £150 million from The UK’s ODA Budget of which £75 million is an immediate component. The government has vowed to provide further support as the situation develops, in it’s fully coordinated global response.
How Accountants should be prepared
As the pandemic evolves, accountants of the UK & Ireland are adapting measures to stay safe from the virus. Deloitte had a confirmed case of coronavirus in its London office. Each of the Big Four has asked their staff to practice good hygiene, avoid superfluous travel, and try to work from home whenever possible.
There are several guides all over the Internet but we have come up with an exhaustive guide to pivot your accounting operations to cope up with COVID-19 without taking much financial damage.
- No more face to face conferences for Tax Prep is advised at least in a common setting
- The stock market is in turmoil, hence accountants need to ease the anxious clients who are worried about their finances.
- In preparation for any financial crises/crisis, accountants should also be prepared with “emergency plans” curated for their firm.
- Performing a financial health checkup of their company is a must for the accountants in order to place the business in the best possible position to navigate through the crisis.
- This can be done by analyzing the financial statements of the company through financial ratios.
- Accountants should re-do their budgets since the earlier assumptions might no longer be valid due to the crisis, new ones need to be made. Scenarios that would be previously unthinkable should be thought of and how each scenario might affect the cash flow of the business must be considered.
- After a Cash-flow forecast is done on a macro level, it should be done on the micro-level as well, weekly, thereafter to stay prepared for real-time circumstances.
- Debtor Management:
– Reach out to your debtors and ask them to pay you in advance.
– Invoice as soon as the product or service is delivered.
– Follow up promptly with aged debtors.
– Reduce debts by prompting customers to pay at the point of purchase.
- Creditor Management:
– Seek for payment extensions to your credit terms with your suppliers.
– Check with your supply contracts to find under which circumstances you can cancel orders, or at least delay delivery, if necessary.
– Negotiate installment plans with the tax authorities.
- Fill Cash Shortfalls:
– Reach out to your lender to request to increase your overdraft policy.
– Determine the cash position of the major stakeholders to see if they can inject cash into the business.
– Reach out to other investors to see if they can inject cash into the business.
- Get your accounting in the cloud:
To be very honest, there are very few reasons in 2020, one would like to run their accounting software on a Desktop or Server-based software. Various cloud-based accounting applications like Quickbooks, Intacct & Xero provide full accounting functionality in a secure and robust environment. With the pandemic situation on the go, various companies are carrying out their operations with their employees working from home on this cloud-based software with appropriate access levels.
- Automate your accounting processes:
One of the major advantages of working on cloud-based accounting systems is that they can be linked together in the cloud, thereby curbing the need for manual overheads. Modern Accounting Cloud solutions eliminate the need for reconciling paper-based banking statements and AI Tech embedded in these systems facilitates loading invoices and expense receipts from PDFs & photographs.
- Outsource your accounting processes:
Since your accounting operations are already in the cloud, outsourcing some or all of your accounting operations is an excellent way of reducing costs, risks, and time invested. Especially in light of the coronavirus, an outsourced accounting business, which has access to a virtual accounting team, runs seamless and unhindered. Moreover, such providers already leverage work from anywhere model, with various centers offshore, thereby providing a really low-risk solution unaffected by the globally spreading pandemic.
- Group Auditing:
As per ICAEW, here are some considerations Group auditors might find helpful:
– Identify Impacted Audits: December year-ends audits need to be considered immediately, but if the restrictions continue, March 2020 year-ends will also likely be affected.
– Audit Categorization: Impacted components should be reviewed and determined if they are immaterial, material but not significant, or material and significant for the group opinion.
– Understand Component Impact: An auditor should consider to what extent the component’s ability to prepare necessary information has been affected. Workforce shortages owing to illness or restrictions on travel can limit management’s ability to provide supporting evidence.
– Review Work Status: Work status should be reviewed to understand what work has been performed to date as part of the planning or interim audit work. For example – Closure of banks might result in an inability to confirm cash balances.
More recommendations, regarding group auditing by ICAEW can be found at https://www.icaew.com/technical/audit-and-assurance/audit/group-audit/coronavirus-guidance
- Financial Reporting Implications:
ICAEW provides the following guidelines for financial reporting at the times of coronavirus:
– For companies with a 31st December 2019 year-end, the emergence of coronavirus is a non-adjusting event.
– Companies that have 2020 year-ends though should consider the timelines with caution to assess the conditions that existed at the relevant balance sheet date.
– Entities that have close ties with the areas that are adversely affected by the COVID-19 virus, should be brought into consideration for additional disclosures of any material uncertainties which might cast doubt over the entity’s ability to continue as a going concern
– Companies also need to consider if they would like to refer the estimated impact of coronavirus in their report of principal risks and uncertainties in the strategic report
– For more recommendations, regarding financial reporting by ICAEW, visit: https://www.icaew.com/-/media/corporate/files/technical/financial-reporting/uk-gaap/the-financial-reporting-implications-of-coronavirus.ashx?la=en