Is the Budget Simply About Business Survival or Will It Really Boost Turnaround and Recovery?

Hugh Jesseman one of our Insolvency Practitioners gives us his thoughts on this budget for recovery rather than payback of debt.

For many months now there have been concerns and worries about the prospects for businesses that have been badly affected by Covid-19, especially those small businesses in entertainment, leisure, travel and other related services. Indeed, the Federation of Small Businesses predicted earlier this year that as many as 250,000 small businesses could go bust without sufficient on-going Government support. For us as insolvency practitioners and business turnaround and recovery specialists the question about this budget is whether it will simply help damaged businesses to just about survive or whether it will really help businesses turn their fortunes around and really recover. One of our Insolvency Practitioners, Hugh Jesseman, gives his views.

Firstly, it was a Budget with few surprises.

“Most of the budget measures were well signposted in advance. Our view is that there were no real surprises and that, as a result it was a budget about recovery rather than debt payback. The key of course, is how much it will help affected businesses recover from the effects of Corvid.”

“Much of the talk over the last  year of three lockdowns, has been whether the huge levels of Covid related support for businesses would simply kick the can down the road for those that were either already in difficulties (for example the Zombie companies from the 2009/10 credit crunch recession) or very quickly got into difficulties. For example, the Furlough scheme and other measures have been crucial, but businesses have still had costs to cover, and for those where income has been zero, or close to it for many months it might already be too late.”

“Undoubtedly, the business-related measures that were announced will be a big help, and I briefly summarise them here:

The question is will this be enough? Only time will tell, of course. “One thing is for certain, and that is whilst the beginning of tapering for business support has already been announced, at some stage it will stop. And yet the Budget had no detail about the Government’s role once the COVID support measures are withdrawn.

As insolvency practitioners, we recognise the important role Government has in supporting viable restructuring and business rescue proposals and HMRC has not always taken a constructive approach to these proposals. Certainly, such long-term support will be needed.”

Two key things for businesses to be wary of

What About Business Asset Disposal Relief?

“Many commentators were expecting that this relief would be further curtailed or even stopped. It was not, and hence it is still an attractive option when closing solvent businesses down using a Members Voluntary Liquidation. It is still possible that the Chancellor might further curtail this benefit, if not cancel it, at some stage, and possibly as part of the Autumn 2021 statement.”

There was no mention of IR35

“In February 2021, HMRC confirmed that changes to IR35 will come into effect in April. The Chancellor said nothing about IR35 in the budget, so we must assume these changes will still happen.

The reform is designed to ensure private sector employers are responsible for assessing whether contractors need to pay income tax and national insurance contributions.

It is also aimed at preventing tax avoidance by “disguised employees” – contractors with permanent positions at companies without paying the same tax or national insurance as standard employees.

Many self-employed workers fear that the private sector will take a risk averse strategy as a result, and wrongly place contractors under the new regulations. The Association of Independent Professionals and the Self-Employed (IPSE) commented that: ‘the IR35 changes will have a disastrous impact on business. Not just the self-employed themselves, but also on their clients and the wider economy’.

If those likely to be affected by IR35 decide to close their solvent company, then of course an MVL could be the insolvency procedure to use, with Business Asset Disposal Relief still available for eligible applicants.”

Please contact our insolvency practitioners for help and advice on any of these matters

The recovery for many businesses from the damage wrought by Covid-19 is likely to be long and hard. Our first thought is always to see if turnaround and recovery is possible. If any of your clients are facing financial difficulty and you believe they would benefit from the advice of our Insolvency Practitioners, then we would be delighted to hear from you. The initial conversation is FREE of charge.

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