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Accounting for COVID-19: Looking ahead

 

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As the chancellor yet again comes to the aid of many business owners, Richard Starkey takes a closer look at the financial details and offers some insight on how companies could adapt to thrive in a world where COVID-19 is becoming an enduring part of today’s business environment.

 

What’s it like out there in the world of business at the moment? It depends where you look. The unemployment figures released this week show a surge nationwide and there are undoubtedly areas where things are fairly bleak, but in Business Control’s corner of the world, I’m happy to say that things are looking fairly positive. The businesses we look after tend to be small- and medium-sized and – even though I would say this – they’re well managed financially. (And as I mentioned in a previous blog, this is a critical consideration.)

 

The situation is changing from day to day and in one of his most recent announcements, the chancellor Rishi Sunak announced a replacement for the furlough scheme. The new Job Support Scheme is a touch more complicated than the previous arrangement and it’s not as generous, but it’ll be nevertheless be welcomed by many. 

 

How it works

The Job Support Scheme will be open to employers even if they have not previously used the furlough scheme. 

 

Each employee – as long as they are not under notice and they work at least 33% of their regular hours – will receive at least 77% of their gross pay. The employers and the government will share the burden of paying for the unworked hours and essentially, for every hour not worked the employer and the government must each pay one third of the employee’s usual pay. Or to put it another way: the employer pays 55% of the wages and the government 22%.



The government contribution will be capped at £697.92 per month and employees cannot be made redundant (or put on redundancy notice) while the initiative is running – although it is possible to take an employee out of the scheme if redundancy does become necessary. 

 

Under scrutiny

Many have complained that it’s just not enough and that it’s nowhere near as generous as the previous scheme – which was initially 80% of the employee’s wages paid, PLUS their pension contributions. However, this is all about keeping jobs viable. It’s about providing employers with that slim lifeline that just might make the difference and keep the employee on the books until there’s an economic turnaround. 

 

In reality, I suspect that it will force many companies to take a tough look at their staffing arrangements. Is it worth sacrificing the hours of a higher earner and hoping that a lower earner can take up the slack, for example? We’ve been asked to run a few test scenarios in the Business Control offices in the past few weeks and there are arguments for and against. That said, these calculations are possibly a distraction for the actual job at hand… which is getting on with the day-to-day running of the business. 

 

Certainly, Mr Sunak’s scheme is welcome, as is the £1,000 Job Retention Bonus which businesses will be eligible for in January. (You may remember that this is the one-off taxable payment for each eligible employee that you have furloughed but kept continuously employed until 31 January 2021. More details here.) The real work comes in focussing on the costs and margins and on bringing in the revenue. I’ve heard a few of my clients say that they’re battling twice as hard to get the same results as they were last year. It’s hard work and it’s difficult to live with, but it’s just the nature of business right now. 

 

Positive steps

Moving away from that slightly downbeat assessment, it’s been heartening to see a lot of positivity out there in the business community. COVID has forced companies to make decisions that perhaps they should have addressed long ago, and businesses are becoming leaner and more streamlined. Working from home is now an option, for example, and downsizing can have a transformative effect on your bottom line. Even at the most elemental level, business owners are finding that a Zoom subscription can save £100s over the course of a year in telephone bills. 

 

Take a good, hard look at your outgoings. Is there anything you can trim? Is there a smarter, more effective way of working that would suit your business better? Could you perhaps remodel your business to make it more effective and profitable? These are questions that are definitely worth asking yourself in the coming weeks and months. 

 

Don’t forget to check out the rest of our Accounting for COVID-19 blogs here, and please check back periodically to get the very latest insight and information from the Business Control team.

 

Better still, you can access a whole host of resources for business owners including blogs, smart guides and infographics for free. Simply opt in here

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