Coronavirus (COVID-19): Five essential issues for smaller firms

Nicholas Woolf
Nicholas WoolfNicholas Woolf & Co

Coronavirus is a global crisis, which is likely to affect us individually one way or another. Five essential issues that need consideration are:

Coronavirus (COVID-19): Five essential issues for smaller firms

Cash flow

Businesses rely on cash flow, no matter how large or small they are. Cash flow is often tight and, therefore, should be addressed early.

Most business’ largest cash flow items are rents, staff costs, VAT and other taxes, pressure from suppliers. It’s best to address these issues early.

The government’s Coronavirus Business Interruption Loan Scheme is now available.

The government has also announced a number of other measures to assist businesses of all sizes, including the self-employed, with regard to a number of ongoing expenses including staff, business rates, VAT and tax deferral.

The latest combined government response to coronavirus is its financial support for businesses during coronavirus.

This will continue to change as government information is being continuously updated and practitioners should monitor the government websites.

The Law Society has developed an online tool to assess the eligibility of firms for government business support measures.

It must be acknowledged that the package that the government has rolled out to date is both massive and exceptional.

However, there are still going to be many businesses and individuals for whom it will be insufficient or would receive the benefit of funds too late to save their businesses and livelihoods. This will undoubtably and sadly include a number of solicitors’ firms.

Rent and commercial mortgages

In respect of rent, it’s always possible to ask your landlord for an extension of time for payment of the rent and/or service charge or a reduction. This needs to be done carefully so there’s no breach of the lease.

Commercial and residential landlords may not now be able to start possession proceedings for three months until 30 June and there’s a moratorium on proceedings already started.

However, rents will remain due, so negotiation remains the better option for a number of reasons.

The moratorium is likely to apply to commercial mortgages, although this is not immediately clear. Assistance may also be found also be found through one of the loan schemes.

Staff costs

Staff are often a business’s greatest asset and need to be taken care of. The government are offering some assistance in regard to sick pay.

If staff become unaffordable and it’s necessary to consider redundancies, there are processes to go through to avoid claims.

However, there also may be practical alternatives to redundancy so that staff can be kept. These should be considered first.

The government scheme whereby, subject to their contractual and presumably other rights staff may be furloughed for a limited period is now open.

During that period, the government will pay 80% of furloughed staff wages to a maximum of £2,500 per month.

However, as part of this scheme, which is to encourage employers to keep staff, staff are not allowed to perform any work for the employer during the furloughed period.

Furloughing is a new concept in employment law and there is limited detail and understanding of the scheme at the moment. However, the government has now released further details.

See the Law Society’s guidance on the job retention scheme for law firms.

Although at first sight attractive, furloughing has some clear difficulties and advice should be taken from an expert employment lawyer and alternatives examined prior to taking any steps.

Taxes

The government has already indicated that they will put in place systems for time to pay taxes (including PAYE) without penalty or interest.

No firm guidelines have been published yet but it’s best to ask HMRC early.

The government have now promised a delay in payment for VAT and a deferral will apply from 20 March 2020 until 30 June 2020.

For the self-employed Income Tax Self-Assessment, payments due on the 31 July 2020 will be deferred until the 31 January 2021.

Pressure from suppliers

All businesses are going to be in the same boat. Some may have fewer resources than others. Understandably, kindness and practicality may go a long way in the long term.

Similarly, the banks appear to give the impression of being sympathetic to those suffering as a result of the crisis.

Hopefully, lenders will be taking a longer-term view.

It’s better to ask early and be first in the queue rather than late. In the case of rejection, it also gives time to look for alternative sources of funds.

Employment and self-employment issues

Staff are probably any business’ greatest asset. If your business can afford to keep its staff, then it should do so.

Notice periods and redundancies come at a cost – often an immediate cost – and alternatives should be considered.

Many of those working nowadays are technically self-employed rather than employees.

With few exceptions, all solicitor sole practitioners will either be self-employed or be the sole director of a limited company.

The government’s income support scheme announced on 26 March although generous in its terms, is very limited and appears to exclude:

  • new businesses
  • those who may have had a few successful years
  • individuals who run their one-man businesses through limited companies

However, subject to the conditions of the scheme being met, it appears to include those in partnership and consequently members of LLPs.

See the self-employment income support scheme FAQS for more details.

Location issues

Can your business operate from home or your staff’s homes? If you’re providing services then those services may be run remotely, assuming the IT is in place.
If you do not have the IT and the security to go with it, these should be acquired as soon as possible.

The larger the firm, the more difficult this may be for several reasons:

  • First is the acquisition and installation of the equipment, security and management software, all of which will come at a cost, if it can be afforded or a loan obtained.
  • Second is supervision. The Law Society has published a blog on supervising trainee solicitors during coronavirus.
  • Third is that it may not be possible to deal with some matters: either they have not been dealt with electronically due to age or firm practice or they are just impossible to deal with without the paper on a single screen. Document security issues and GDPR need to be considered.
  • Fourth is the cultural change of working alone. Zoom, Skype and Microsoft Teams are no substitute for personal contact.
  • Finally, is that some people will have no or insufficient personal space at home to work, or will have other more pressing duties towards their families. It’s far from straightforward and is unlikely to be a seamless transition to a new way of working.

Priority must be given following government guidelines and the safety of your staff. Failing to do so puts lives at risk. It may also result in either or both criminal and civil proceedings.

Home, hospital and court appearances should be avoided if possible and the greatest care should be taken if they are unavoidable.

The Law Society has produced a heatmap showing which courts remain operational during the crisis period.

Succession and continuation

It’s expected that many people are going to become ill to varying degrees and a proportion may not survive. This may well apply to you.

Preparation needs to be made so that your clients’ businesses can continue. This may involve ensuring they have suitable written and enforceable:

  • shareholder and partnership agreements
  • management processes
  • emergency plans

Can your firm manage if more than one partner is seriously ill or worse? What provisions are there in place?

The same applies to key staff. What would happen, for example, if the person who has control of the banking is no longer fit to do so, or the accounts team are ill?

Could alternatives be put in place or could trusted professionals assist you in such an event?

Solicitors have professional obligations and provision needs to be made. The SRA have made their position clear.

Do you and your clients have powers of attorney in place that would see your business and personal life through illness and, if so, are they lasting powers of attorney seeing you through any possible mental incapacity as well?

Finally, if you or your clients’ do not have an up-to-date will, you should do so.

You may have been putting off the making of a will and it may be the time to act. Now is generally the time to act. You’ll need to consider the current difficulties with execution of wills.

The Law Society is in discussions with the Ministry of Justice regarding the requirements for witnessing a will.

Compliance

The Solicitors Regulation Authority (SRA) has published some materials to support solicitors on regulatory compliance.

Sole practitioners’ attention is particularly drawn to the SRA’s coronavirus updates.

The SRA material should be read in combination with the Law Society information.