What Will Happen When Furlough Ends?

Financial aid has been thrown out like confetti ever since the coronavirus pandemic really started to take effect. It’s easy to lose sight of logic in the wake of such unprecedented situations, but have people really thought about the impact using furlough schemes could have on their business in the long-term? Possibly not! And as the world is starting to resume normality, that means financial parameters are set to take on a more familiar framework.

So, are you prepared?

You’d better be!

The furlough scheme was brought in to help businesses pay their staff. In basic terms, the government offers 80% of people’s wages, relieving the strain for industries where revenue has been severely hampered. Sounds great! Although using this may have constituted a false notion about where you’re heading as a business.

And, what happens when the world goes back to “normal”? Will turnover suddenly increase to pre-Pandemic Levels? Can all businesses expect to suddenly pay 100% of staff wages? In most cases, you won’t be able to, and that means laying staff members off with redundancy packages. So, just as you thought this financial heartache couldn’t get any worse, you may be expected to offer them one weeks’ wage for each year they have worked, so long as they were over the age of 22 and been employed for at least two years.

So that’s many companies! And recovery can only really happen by pushing up turnover and profitability and ensuring that cash flow is sufficient to support the business. However, with many businesses struggling to employ staff and with burgeoning debts, is that even possible? Some businesses with similar resources also may have adopted far more robust strategies, so it really could be a matter of time before you wave the white flag and close down your company.

What about furlough fraud? When people misinterpret something as ‘free money’, the natural instinct would be to jump on this even though the proverbial is likely to hit the fan later down the line. It’s therefore important to really get to grips with the authenticity of any financial support that your company has obtained, because robust investigations will be made when the pandemic begins to abate.

A responsible director needs to ask themselves; did employees carry on working for me during the scheme? Did they work for someone else? If yes, you haven’t followed the strict guidelines set out by HMRC! Employee rights which were in place before they were put onto furlough should also have been provided for, such as statutory sick pay, annual leave and rights against unfair dismissal.

Ok, so you can’t pay staff wages and your debt pile is building up every single day.

Now what?

It’s time to think about company insolvency, and how this will affect your credibility as a director, as well as your prospects for future involvement within the world of business. It may be that that an Administration is a better option than a Liquidation as this is often seen as a business rescue tool.

With Administration it is possible for the company to carry on trading and even retain staff members. The process of putting a company into Administration, can also be quick. Once placed in administration, the company will be protected against creditor and legal action.

Dealing with HMRC is crucial, as they are an involuntary creditor on over 95% of all insolvencies. During the pandemic, HMRC put and they do have initiatives designed to ease problems revolving your cash flow. Using HMRC time to pay, you can formulate a flexible plan which means payments can be made over a 2-12 month period. Breathing space will once again be in effect, giving you the capacity to focus more on re-energising your business moving forward.

Failure to deal with the company’s problems may lead to the court issuing a “winding up” order.  If this happens, company assets will be realised with the proceeds of their sale given to creditors. To retain some form of credibility during the process, many business leaders have opted for a voluntary liquidation programme, since this can reflect better on them, and also hands them more control. Whatever your current situation, it’s important to realise that this really is ‘current’ and the alarming uncertainty surrounding the future of our economy means proactive action is vital.

As always, you can contact RG Insolvency, where our team can help you through key insolvency procedures, giving you concrete advice which centres around providing you with the best possible outcome for both you and your business.