Covid-19 cash flow – 6 key dates for businesses over the next 12 months

As lockdown measures begin to ease – some businesses have started up again already, and others will follow suit over the next few weeks – Mark Neath, director at financial experts Old Mill says businesses owners need to start planning now for the impact on cash reserves and below has set out six key dates that businesses should be planning for over the next 12 months.

September 21, 2020

“For many businesses, the actual lockdown itself will not be the worst period for cash flow, instead it will be when things start up again. As the working capital cycle begins, there will be certain commitments, and the reserves you would normally rely on have already been depleted.

“If we assume that most businesses are going to get back to some sort of ‘normal’ in June or July, the peak effect of the working capital rebuild is probably going to hit in September. And therefore, the last week of September is a key date that businesses should start planning for now.”

October 1, 2020, / January 1, 2021

“As most UK companies have December or March year-ends, 1 October this year and 1 January next year are key dates as they are when Corporation Tax payments are due.

“The crisis hadn’t kicked in back in December and was only just taking hold in March, so profits were probably higher then, and the tax bill most likely larger. Since then, the lockdown may have depleted the cash generated in your last financial year meaning it is no longer there to pay the tax.

For December year-ends, who have just gone through the September working capital peak, cash could be particularly tight.”

Mark says that as these dates are either three or six months away, there is time to plan and manage cash if possible, which may involve agreeing a Time To Pay arrangement with HMRC to spread it over a number of months.

November 7, 2020

For businesses with a March/June/September/December VAT stagger, which is the most common, 7 November is the due date for the VAT on the September quarter.

“The September quarter is likely to be the first quarter with a significant liability from returning to normal trading,” warns Mark. “Bearing in mind that this payment is going to be following hot on the heels of the September working capital peak and potentially the October Corporation Tax payment, the VAT payment will need to be planned for.”

Mark says that whilst it may be possible to spread the payment with a Time To Pay arrangement with HMRC, or short-term borrowing, these tactics are potentially dangerous to enter into.

“If there’s one thing that I’ve seen push businesses into insolvency more than any other, it’s getting behind on their VAT. This is because paying off last quarter’s VAT using this quarter’s cash flow is using up the cash needed when the VAT on those sales comes due. If necessary, transfer the VAT element of your customer receipts into a separate account so it’s there when you need it.”

January 31, 2021

The end of January is the payment date for income tax. And while this is a personal liability, not a company one, for many owner-managers, all income comes from the business, so there is usually a knock-on effect.

“Since the government made it possible to defer the 31 July 2020 payment on account, the amount that will be due on 31 January 2021 will potentially be that much higher. In an ideal world, we would all put our 31 July 2020 payment into a separate bank account so we have it ready, but if you have reduced your drawings to protect the company, that may not have been possible so you may need to draw money from the company to pay the tax, causing more issues with cash flow.”

Mark says that while you could potentially agree a Time To Pay arrangement with HMRC, that is spreading not reducing.

“The January 2021 payment will be based on your income to 5 April 2020, which was pre-crisis and may well be higher than your income for the tax year 5 April 2021. It may, therefore, be possible to reduce the payment on account that needs to be made on 31 January alongside the 2019/20 final payment. Also, get your tax return done as soon as possible so that you know what the amount is.”

March 31, 2021

One of the first things the Chancellor announced was that no VAT that was due during lockdown needed to be paid until the 31 March 2021, so this is a significant date, and, given the various drains on businesses’ cash flow that have already had a significant impact, has the potential to be one of the most critical dates in the COVID-19 crisis, as Mark explains: “I fear there’s a risk that more businesses could be pushed into insolvency on March 31 than during the actual lockdown. This statement may seem a little negative but it’s essential to confront the realities of the situation now and as it’s more than nine months away, you have time to plan, put money aside or arrange facilities to fund it. The worst thing you can do, as a business owner, is to put your head in the sand and ignore this potential issue that’s coming towards you.”

Other dates to keep in mind are rent quarter days; traditionally in the UK, quarterly rent is payable on 25 March, 24 June, 29 September and 25 December.

“If your business pays rent quarterly, then three of these quarter days closely coincide with the key dates we have identified at the end of September 2020, December 2020 and March 2021,” says Mark. “If your forecasts indicate that these dates could be a problem for your business, now might be the time to start negotiating with your landlord to switch to monthly rentals to smooth the cash flow effect.”

May 1, 2021

The final date to be aware of is the year anniversary of the CBILS (Coronavirus Business Interruption Loan Scheme) and BBLS (Bounce Back Loan Scheme). These started to be advanced in April and May 2020, mostly with twelve-month repayment holidays, so most repayments will start around May 1.

Mark said “The CBILS loans were assessed for affordability, often assuming a return to 2019 trading levels by the time the loan payments commence while the BBLS loans were issued with no checks on affordability at all. “Due to the significant impact on the economy, it’s quite likely that 2019 sales levels will not return, and that, combined with the aforementioned pressure on cash flow, many businesses could find themselves unable to repay their loan and I fear this could result in a second wave of business failures over the course of summer.”

Mark concludes: “I may sound alarmist, and while the situation is not ideal, those businesses that are prepared to confront the brutal facts of their current reality will be the ones that prevail. The dates above are key; highlight them in your calendars now and start thinking about how you might navigate through a series of ‘pinch points’ from a cash flow perspective.

“The key to business resilience will be to address these challenges head-on and it all starts with planning.”