What directors need to know

Some people adapt immediately and embrace the new way of doing things. Others drag their feet or are even taken by surprise by new rules and systems no matter how much they have been advertised or trailed in advance of implementation. 

But change is the natural order of things and happens whether we like it or are prepared for it or not. 

So it is with the end of September and the final expiry of the Covid Job Retention Scheme, better known as the furlough scheme

Since the inception of the scheme in March 2020 over 11.6 million jobs have been supported in full or in part. 

The total cost will be announced in the coming weeks but so far running costs have reached £66 billion which is approximately 20% of all Covid-19 spending. 

According to the latest data from the end of July 2021, there are still 1.6 million workers attached to the scheme, which is 340,000 fewer than a month previously. 

Further research from the Office of National Statistics suggests that there has been no big fall in total furlough numbers over August with between 300,000 and 800,000 people completely off work.

The UK’s unemployment rate in the three months up to July was 4.6%, rising from 4.0% before the pandemic but the “inactivity rate” which measures those studying full time, people on long-term sick, with caring responsibilities or not working has risen to 21.1% up from 20.2% pre pandemic. 

Effects will be felt everywhere but not by everyone

Some sectors will be affected more quickly than others and with wider consequences. 

The travel industry, for example, is facing a significant challenge when furloughed staff are free to return from Friday. 

A recent survey of the industry from the Advantage Travel Partnership found that although 31% of respondents would have staff returning to their regular hours straight away, 12% would be forced to make redundancies and a further 57% would bring in temporary reduced hours and/or reduced pay for staff returning to work.

Kelly Cookes, leisure director, said: “The level of members saying they will need to make redundancies is less than we anticipated a few weeks ago and this is being helped by the improvement in trading, particularly late business, which is helping cash flow.”

The travel industry was particularly reliant on furlough throughout the pandemic and lockdown periods, possibly more than any other sector. 
28,900 travel staff were on furlough for the three months ending in June according to HMRC data and a survey from ABTA in August showed 43% of members staff on the scheme with another sample for September showing that 69% of travel companies with furloughed staff planned to make redundancies once the scheme ended. 

While more international travel routes are opening up and demand for Autumn breaks and Christmas holidays abroad is increasing, it will be easier for firms to reincorporate returning workers than before. 

Hospitality businesses are also going to get a sharp reminder on Friday about the changes occuring as their temporary VAT reduction finishes. 

In July 2020 the rate was reduced from 20% to 5% for the duration of the pandemic and will increase to 12.5% from October 1st for all hospitality businesses. 

This will then increase to the standard rate of 20% on April 1 2022. 

The temporary restrictions on the issuing and enforcement of winding up petitions will also change on September 30 with some restraints remaining in place for creditors. 

Winding up petitions return

From October 1, a winding up petition can be presented against a company that has failed to satisfy a statutory demand if it meets the following conditions:  

  • The debt owed to a creditor or group of creditors is £10,000 or greater
  • This debt is for a liquidated amount, has fallen due for payment and is not for rent or other payments like service charges that are due under the relevant tenancy agreement
  • The creditor delivers written notice to the company seeking payment of the debt within 21 days and this time has expired

This arrangement is in place until March 30 2022 but is the first time since June that winding up petitions are back as a legitimate creditor enforcement action albeit under strict circumstances.

Change is coming

Chris Horner, Insolvency Director with BusinessRescueExpert.co.uk said that these cumulative changes could mean big trouble for vulnerable businesses who ignore them and don’t take the opportunity to make changes while they still can. 

He said: “Individually these changes might not have huge effects on businesses that have planned for them or are only affected by one measure changing or expiring. 

“But taken collectively they are the finale of the extraordinary range of support measures rolled out to bolster businesses during the pandemic and a real change of attitude and mindset from the government to bring back a pre-covid economic landscape. 

“One trend we’ve immediately noticed is that some businesses were only being kept open by their owners and directors in order to facilitate furlough payments to their staff. Now the scheme has run its course, what is going to happen to these firms?

“Winding up petitions remain restricted but are no longer banned and directors should be aware that while courts aren’t keen on them being used as a method of debt collection, they are viable and active once again.

“A creditor, or group of creditors, that’s owed £10,000 or more for non-Covid-19 related debt can legally serve a petition so companies in financial difficulty need to have a plan to deal with demands if they arrive. 

“This could mean restructuring the debt through a CVA or an administration. If there’s no viable alternative for the business then a liquidation process that would see creditors receive some form of restitution payment could be pursued too.

“Now is always the best time to get some professional advice and implement it because on Friday we’re in a new world – and for companies that aren’t prepared it will be a painful one.”

12 weeks ago we first wrote that this consequential day was coming and now it’s arrived. 

A lot of fundamental changes are taking place this week that will impact individuals and businesses all across the country and could make life even more difficult for companies that are already struggling to meet their obligations. 

One thing that won’t change is our free initial consultation for directors and business owners.

Once we get a better understanding of the immediate issues you’re facing – we can help you build a smart, effective and efficient recovery strategy including decisions you can take which will have an immediate effect. 

Alternatively, if the problems facing the business are too much to overcome even with an insolvency moratorium and restructure then we can advise on the best alternative procedures including liquidation. 

Getting professional advice is the first step to moving your own business and career forward and it’s as easy as clicking a link.