Revised UK COVID-19 Relief Package Addresses Funding Gap Criticisms
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Editors note: This Advisory was updated June 9, 2020.
The UK government has introduced a number of schemes to support the economy, business, and workers through the COVID-19 pandemic. This Advisory contains a high-level summary of the current relief proposals along with links to the relevant government or other organisation's website. Please contact Stuart Axford, Henry Clinton-Davis, Sean Scanlon, Colin Tan, Ewan Townsend, or Jeremy Willcocks with any enquiries.
For more detail specifically in relation to employment matters, please see our previous Advisory.
1. The COVID-19 Corporate Financing Facility (CCFF)
With effect from 23 March, the UK government has operated a programme under which it purchases newly issued commercial paper from eligible companies. The CCFF is unlimited in size, and available to larger companies. It is therefore the facility that has been most widely taken up by large UK companies; indeed, the eligibility criteria make it clear that this facility is really aimed at the very large, UK incorporated, corporates that already have CP issuance programmes in place. It is expected to be available for twelve months.
Eligibility for the facility is based on firms' credit ratings prior to the COVID-19 pandemic. Regard is also given to whether the business in question:
- makes a material contribution to economic activity in the UK;
- has significant employment or headquarters in the UK;
- generates significant revenues, serves a large number of customers, or has a number of operating sites in the UK; and
- is UK incorporated (including companies with foreign-incorporated parents and with a genuine business in the UK).
2. Term Funding Scheme
The Term Funding Scheme with additional incentives for SMEs (TFSME) is offering four-year funding of at least 10% of the participants' stock of real economy lending at interest rates at, or very close to, the Bank of England Base Rate. For these purposes, the "stock of real economy lending" is based on the participant's flow of funding towards goods and services in the real economy. Additional funding is available for banks that increase lending, especially to small and medium-sized enterprises (SMEs), which are defined for these purposes as private non-financial companies with a turnover of under £25m and unincorporated businesses.
The Scheme is intended to:
- help businesses and households benefit from the Bank of England's Monetary Policy Committee's actions;
- provide participants with a cost-effective source of funding to support additional lending to the real economy;
- incentivise banks to provide credit to businesses and households to bridge a period of economic disruption; and
- provide additional incentives for banks to support lending to SMEs.
Eligible lenders are banks and building societies that are participants in the Bank of England's Sterling Monetary Framework (SMF) and that are signed up to access the Discount Window Facility (DWF). SMF participants that are not already signed up to the DWF can apply for access simultaneously with applying to use the TFSME. Institutions that are not currently SMF participants can also apply to join, subject to the Bank of England's usual eligibility criteria.
Applications can be made by completing this Application Form. Drawdowns under the TFSME can be made at any time up until 30 April 2021.
3. The Coronavirus Large Business Interruption Loan Scheme (CLBILS)
The government announced this scheme on 3 April 2020 to address criticism of the gap between the CBILS scheme described below (designed for corporates with maximum turnover of £45m) and the CCFF (which was largely aimed at very large corporates with existing commercial paper issuance programmes), both of which were announced on 17 March 2020. The CLBILS provides a government guarantee of 80% for banks to make loans of up to £25m to firms with an annual turnover of more than £45m. All viable businesses with turnover of more than £45 million per year can apply for up to £25 million of finance. Firms with a turnover of more than £250 million can apply for up to £50 million of finance.
Finance terms, which can last for three months to three years, are available as:
- term loans;
- revolving credit facilities (including overdrafts);
- invoice finance; or
- asset finance.
As with the CBILS, it will be delivered through commercial lenders, backed by the British Business Bank with the government providing lenders with an 80% guarantee on individual loans. .
Applications were open with effect from 20 April; as yet, there is no stated deadline.
In order to be eligible for CLBILS, the applicant must satisfy the following criteria:
- Annual turnover of more than £45 million;
- Self-certification that the business has been adversely impacted by coronavirus; and
- Has not received relief under the Bank of England's COVID-19 Corporate Financing Facility.
The applicant must also have a borrowing proposal that the lender:
- would consider viable, if not for the coronavirus pandemic; and
- believes will enable the applicant to trade out of any short-term to medium-term difficulty.
The applicant will also need to provide certain evidence that it can afford to repay the loan. This is likely to include:
- management accounts;
- cash flow forecasts;
- business plan;
- historic accounts; and
- details of assets.
4. Coronavirus Business Interruption Loan Scheme (CBILS)
On 17 March 2020, the government announced this scheme to support small- and medium-sized businesses (those with a turnover of less than £45m) with loans and overdrafts through the British Business Bank. On 3 April, the UK Chancellor announced two significant changes to the scheme: (i) lenders are prohibited from requesting personal guarantees for loans under £250,000, and (ii) an extension to all viable small businesses affected by COVID-19, and not just those unable to secure regular commercial financing.
- Provides loans of up to £5 million. The UK government will cover the first 12 months of interest payments;
- The UK government will also guarantee the repayment of 80% of each loan to induce lenders to participate;
- No charge for the guarantee for either lender or borrower.
In order to qualify for CBILS, the applicant/loan must satisfy the following criteria:
- Loan must be for business purposes;
- Loan must be used to support primarily trading in the UK;
- Applicant must be a UK-based SME with annual turnover of up to £45m;
- Business must generate more than 50% of its turnover from trading; and
- Applicant must have a borrowing proposal which, were it not for the COVID-19 pandemic, would be considered viable by the lender, and for which the lender believes the provision of finance will enable the borrower's business to trade out of any short-to-medium term difficulty (a Borrowing Proposal).
The applicant must be able to provide the following information as part of its application:
a) a cash flow statement showing the projected impact of COVID-19 over the next 3-6 months;
b) a Borrowing Proposal;
c) the latest year end accounts; and
d) the latest management accounts (full P&L and Balance Sheet).
CBILS fully delegates decisions for borrowers' eligibility to the Scheme Lenders, which include; high-street banks, challenger banks, asset-based lenders, and smaller specialist local lenders. Please see a list under the link for "British Business Bank" below.
Sole traders and freelancers are eligible as long as they operate their business activity through a business account and meet the same eligibility criteria.
However, the following are not eligible under CBILS: Banks, Insurers and Reinsurers (but not insurance brokers); public sector bodies; and further educational establishments if they are grant-funded and state-funded primary and secondary schools.
5. Future Fund
On 20 April, the UK government announced a new scheme called the "Future Fund" which launched in May 2020.
The Future Fund will provide government loans, convertible into equity, ranging from £125,000 to £5 million to UK-based companies, subject to at least equal match funding from private investors.
These convertible loans may be a suitable option for businesses that rely on equity investment and are unable to access the Coronavirus Business Interruption Loan Scheme.
The scheme has been delivered in partnership with the British Business Bank.
In order to be eligible for the scheme, an applicant must:
- be incorporated in the UK (if the business is part of a corporate group, then only the parent company is eligible);
- have previously raised at least £250,000 in equity investment from third-party investors in the last five years;
- not have any of its shares traded on a regulated market, multilateral trading facility or other listing venue;
- have been incorporated on or before 31 December 2019; and
- satisfy at least one of the following criteria:
- half or more employees are UK-based
- half or more revenues are from UK sales
6. Innovate UK COVID-19 Business Support
In addition to the Future Fund, the UK government also announced on 20 April that it will make available £750 million of targeted support for SMEs focusing on research and development. The government will disburse the funds through Innovate UK's existing grants and loan scheme.
Under this program, Innovate UK, the national innovation agency, will accelerate up to £200 million of grant and loan payments for its 2,500 existing recipients on an opt-in basis. An extra £550 million will also be available to increase support for existing customers and £175,000 per firm will be offered to support approximately 1,200 firms not currently receiving of Innovate UK funding.
The government has advised existing recipients of the Innovate UK award to contact their monitoring officers or local Enterprise Europe Network (EEN) for "assessment of support"
Continuity grants were available until 29 May 2020. Continuity loans are still available to SMEs and third sector organisations that have a challenge in continuing a live project for which they have an award from Innovate UK. Up to £210 million is available and applications are open until the date on which all the money is allocated or 31 December 202o, whichever is earlier. Useful links
7. Bounce Back Loan scheme
The Bounce Back Loan Scheme is intended to provide loans of up to £50,000 to small and medium-sized businesses. The loans will be 100% guaranteed by the government, will be interest free for the first 12 months and will have no repayments due during this time.
A business can apply if:
- it is based in the UK
- it has been negatively affected by coronavirus
- it was not an ‘undertaking in difficulty’ on 31 December 2019
A business cannot apply if it is already claiming under the CBILS.
8. Support for Small Businesses
The UK government has committed to provide additional Small Business Grant Scheme funding for local authorities to support small businesses that already pay little or no business rates because of small business rate relief (SBRR), rural rate relief (RRR) and tapered relief. This will provide a one-off grant of £10,000 to eligible businesses to help meet their ongoing business costs.
A business is eligible if:
- it is based in England;
- it occupies property; and
- it was receiving small business rate relief or rural rate relief as of 11 March 2020.
9. ESFA Post-16 Provider Relief Scheme
The UK government has introduced this scheme with a view to retaining capacity within the apprenticeships and adult education sector.
The scheme is aimed at further education colleges, independent training providers, higher education institutions and other organisations who hold contracts for services to deliver adult education or apprenticeship provision for smaller employers. The scheme takes the form of a payment relief scheme.
To be eligible to apply for support a provider must hold a direct contract that was procured as a service under Public Contract Regulations 2015. There are also more detailed eligibility criteria (set out in the link below) relating to the organisation’s educational achievement standards.
10. VAT Deferral
All UK businesses are entitled to defer their VAT payments for three months without interest or penalties. There are no eligibility criteria—this relief is available to every UK business automatically without notice to HM Revenue and Customs (HMRC).
11. HMRC Time to Pay Scheme
All businesses and self-employed individuals in financial distress, and with outstanding tax liabilities, may be eligible to receive support with their tax affairs through HMRC's Time To Pay service. These arrangements are agreed on a case-by-case basis and are tailored to individual circumstances and liabilities.
A business or self-employed person is eligible if they:
- pay tax to the UK government; and
- have outstanding tax liabilities.
12. Business Rates: Expanded Retail Discount
Businesses in the retail, hospitality, and leisure sectors will pay no business rates in England for the 2020/2021 tax year. There is no rateable value threshold on this relief and it is available to all businesses irrespective of size.
13. Coronavirus Job Retention Scheme
The Coronavirus Job Retention scheme allows all UK-based businesses to designate employees as "furloughed" following which the UK government will reimburse up to 80% of the furloughed workers wage costs up to £2,500 per month.
Once the scheme is implemented, employers will be able to claim a grant from HMRC to cover most of the wages of their workforce who remain on payroll but who are temporarily not working during the coronavirus outbreak. The scheme will run until at least October 2020 and payments can be backdated to 1 March 2020 provided that employees met the eligibility criteria at the time. Any employer in the country is eligible for the scheme, provided that it had an HMRC Pay As You Earn scheme in operation on 19 March 2020 (extended from the original date of 28 February 2020).
An employer can claim the grant only in respect of furloughed employees. The employer must notify the employees in writing that they are furloughed, and must keep a copy of that communication. HMRC has established a new online portal for the purposes of this notification.
14. Statutory Sick Pay
The UK government has introduced legislation to allow small- and medium-sized businesses and employers to reclaim expenditures for Statutory Sick Pay (SSP) for up to two weeks' sickness for any employee whose absence is due to COVID-19. Employers should maintain records of staff absences and payments of SSP, but employees will not need to provide a GP fit note.
To be eligible, an employer must have had fewer than 250 employees as of 28 February 2020.
15. Self-Employed Income Support Scheme
The Self-Employment Income Support Scheme (SEISS) will support self-employed individuals (including members of partnerships) whose income has been negatively impacted by COVID-19. The scheme will provide a grant to self-employed individuals or partnerships of 80% of their profits up to a cap of £2,500 per month.
HMRC will use the average profits from tax returns in 2016-17, 2017-18 and 2018-19 to calculate the size of the grant. The scheme will be open to those for whom the majority of their income comes from self-employment and who have profits of less than £50,000. The scheme will be open for an initial three months; individuals can make their first claim by the beginning of June 2020.
In order to be eligible, an applicant must:
- be self-employed or a member of a partnership;
- have lost trading profits due to COVID-19;
- file a tax return for 2018-19 as self-employed (those who have not yet filed for 2018-19 will have an additional 4 weeks from the date of the announcement to do so); and
- have traded in 2019-20; be currently trading at the point of application (or would be except for COVID 19); and intend to continue to trade in the tax year 2020 to 2021.
16. Income tax deferral
Those individuals due to make a payment on account of income tax in July 2020 may defer the payment to January 2021 without interest or penalties.
17. Mortgage Holidays
The UK's Chancellor of the Exchequer has announced an agreement with mortgage lenders that they will offer a three month mortgage holiday for borrowers in financial difficulty due to coronavirus. Payment holidays will be available to all customers who are up to date on their mortgage payments.
Payment holidays will also be available to all Buy-to-Let landlords whose tenants have lost income because of the impact of COVID-19. Landlords are expected to pass on this relief to their tenants. Mortgage borrowers will still owe the money where a payment holiday has been granted and interest will still accrue.
18. Companies House
Companies House has announced that it will allow companies affected by COVID-19 to apply for an automatic and immediate 3-month extension for submitting their accounts. Applicants will need to provide information for their inability to file timely.
19. FCA Rule Relaxation
The UK Financial Conduct Authority has highlighted that, as a result of coronavirus, a company's Annual General Meeting (AGM) may need to involve the use of virtual methods, and that this is particularly relevant for premium listed companies that are required to engage with shareholders on certain matters.
The FCA has published guidance that explores five options for AGMs and encourages companies to work on contingency plans. It includes helpful considerations for these plans, as well as information about the legal status of each of the five options.
In addition, the FCA has recognised that there may be a need to relax rules on extraordinary general meeting approval of capital raises given the current difficulty in convening physical meetings.
Most commercial insurance policies are unlikely to cover pandemics or unspecified notifiable diseases, such as COVID-19. However, those businesses that have an insurance policy covering government-ordered closure and pandemics or government-ordered closure and unspecified notifiable disease should be able to make a claim (subject to the terms and conditions of their policy).
The UK government does, however, advise that insurance policies differ significantly, and businesses are encouraged to check the terms and conditions of their specific policies and contact their providers.
© Arnold & Porter Kaye Scholer LLP 2020 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.