The Covid-19 pandemic has had a huge impact on businesses across the UK, and many are still feeling the after-effects. From April 2020 to March 2021, a survey of firms across all sectors reported that sales were on average 21% lower and investment was on average 26% lower than would normally be expected. The wide-reaching consequences of Covid-19 have been unprecedented, and there is no doubt that the aftershocks of this tragedy will be felt within multiple sectors of the UK’s business landscape for decades to come.

Covid-19 and its impacts on UK business

The major causes of disruption to UK businesses as a result of the Covid-19 pandemic are twofold: most obviously, businesses across the UK have been forced to close or operate at lower capacities as a result of social distancing regulations enforced to reduce the spread of the virus.

However, UK businesses have also been hit by disrupted international supply chains; from as early as February 2020, when Wuhan was first locked down, many companies realised that the supply of parts and components manufactured in China would be sparse in the coming months. The downside of a globalised supply chain is that almost all UK businesses use items that are in some part reliant on other nations.

Thousands of businesses across the UK have been either entirely or partially closed for much of the last eighteen months. It’s not hard to imagine the effect this has had on those businesses’ finances; research conducted by Simply Business concludes that Covid-19 will cost SMEs an estimated £126.6 billion – which is double

Do we have an insolvency problem?

In many cases, the final result of Covid-19, and the restrictions that have been imposed on UK businesses for the past 18 months, will be insolvency.

Antony Batty, an insolvency practitioner based in the UK, is braced for a surge in problems, but only time will tell.

In 2020, the UK economy shrank by nearly 10%, with millions of people unable to work due to restrictions. Throughout the year, government loans and subsidies helped many businesses to stay afloat, but 12, 557 underlying company insolvencies still took place throughout the year.

In March 2021, more businesses across the UK were declared insolvent than earlier in the year, although levels were still below the 2020 peak. Figures showed that 992 companies in England and Wales went insolvent in March 2021; 925 in April 2021; 1,011 in May 2021; and 1, 207 in June 2021. With the number of insolvencies rising every month, it’s no wonder that UK business owners are worried about the coming months. As the UK’s support for businesses winds down this summer, including an end to the life-saving furlough scheme as well as reduced business rates and other sources of government help, what does the future look like for UK SMEs?

After crisis: The state of UK businesses

As of August 2021, it’s finally looking like the Covid-19 epidemic may be winding down, at least domestically here in the UK. Vaccination figures are up, cases are falling, and restrictions have almost been completely lifted for the first time since March 2020.

And yet, businesses across the country can’t rest easy just yet. As Covid-19 draws to a close, so does government help; but the UK’s high streets are not yet business as usual for many. Research by Springboard shows that retail footfall in the UK in the week leading up to 3 July 2021 was 72% of the level seen in the same week in 2019.

It’s not just that many consumers are still worried about Covid-19; it’s also indicative of a loss of trust in UK business by both individuals and business owners themselves. The UK’s tentative recovery still feels shaky at best, and the pandemic has served as a harsh reminder of the realities and risks that are undertaken by business owners up and down the country. During the pandemic, 81% of business owners felt they hadn’t had enough support from the government.

With our eyes opened to the true risks and pitfalls of running a business in the UK in 2021, it’s no wonder that insolvencies and bankruptcies remain so high. With dwindling support from the treasury and a lingering reticence in consumers, the challenges facing businesses across almost all UK sectors are sizeable. Perhaps the biggest beacon of hope for business owners across the UK – as well as individuals feeling burned out by the pandemic – is the promise of a relatively normal Christmas.

When the 2020 COVID-19 pandemic resulted in nationwide lockdowns and the resulting shutting down of businesses up and down the country, it became quickly evident that the majority of households in the UK would no longer be able to bring in a sufficient income.

This struggle extended to businesses both small and large, who very rapidly lost a large portion of revenue through not being able to operate as usual, either doing so on a reduced basis or not at all. The effect that this would have on the country’s economy would be disastrous; this is why the UK government decided to introduce a number of schemes designed to provide business directors with financial grants to ease the monetary burden.

Sadly, a number of directors and those in equivalent positions abused these schemes and misused the new income for purposes other than what they were intended for. It is due to this that a number of penalties are now being introduced to punish those taking advantage of the grants.

What are the planned penalties for the incorrect use of COVID-19 support packages

The penalties for the misuse of government financial grants have been proposed by the HMRC. If the HMRC has substantial reason to believe that a company has wrongly used a grant, a 100% tax rate will be imposed on those payments.

Further, the HMRC is also able to consider using its powers to prosecute those businesses or individuals that do not pay back the tax demands on the COVID-19 payments they incorrectly used.

How will these penalties affect you as a business owner?

If you either did not receive any COVID-19 financial aid from the government or you used it correctly and as you proposed you would, you should have no reason to worry.

However, the COVID-19 pandemic has understandably been a source of much stress for many business owners – not to mention how confusing the frequent changes to the schemes have been. Because of this, there is a possibility that there are some directors that have mistakenly used a COVID-19 support package they weren’t meant to, or have else used the money in a way other than what the scheme was intended to assist.

If you’re concerned you may be one of these businesses or individuals, it may be worth speaking to a professional that can advise you further.

Which schemes will HMRC be focusing its efforts on?

Predominantly, the HMRC will be introducing penalties for those that have incorrectly used the Self-Employment Income Support Scheme (SEISS) and Coronavirus Job Retention Scheme (CJRS).

In the case of the SEISS, HMRC will be seeking to reclaim incorrectly awarded grants through the aforementioned 100% tax rate on the payments. This tax rate will remain independent from the self-assessment tax return.

If you claimed anything from the CJRS on account of covering up to 80% of your employees’ wages while they were furloughed, you likely already underwent extensive checks to ensure that money was being used as it should have been.

However, some areas of the CJRS were left exposed, leading us to wonder…why now for the penalties? We cover that in more detail next.

Why are these penalties being enforced now?

Since the pandemic began back in March 2020, companies and individuals around the UK have been collectively awarded billions of pounds for business support. While much of this money would have been used as it was designated and with benevolent, honest intentions, there are some out there that used the support otherwise.

With England now once again open as normal and the rest of the UK steadfastly following, investigations are now beginning into how recipients of the schemes used their grants. This is especially true of the CJRS, wherein checks negated whether or not the employee in receipt of the furlough payments was actively working at the time, and how much was claimed through the scheme.

There have also been extensively reporting on businesses taking advantage of the CJRS furlough payments despite employees actively working still.

So what now?

The HMRC is now beginning to take action against those businesses that have used their financial help wrongly. It’s important to remember that the HMRC has the authority to carry out its own independent investigations into those individuals they believe may have misused the grants.

If this is the case, it is down to you either as the director of the company or as a self-employed business owner to prove that you were eligible to receive the funding you did, and also that you used the money as it was intended.

If you are concerned about anything mentioned in this article, then it might be best to search for Specialists in Director Disqualification and choose one to work with.