Budget 2020: Short on specific immediate initiatives to help struggling businesses
Budget 2020
Budget contained eye-watering levels of debt-funded spending for struggling businesses …
May 2020
As expected, the government has agreed to extend the wage subsidy scheme for a further eight weeks in addition to the twelve weeks in place currently. The catch, to qualify you must now demonstrate a 50% reduction of turnover in the thirty days prior to application when compared to previous years.
This appears to be the mechanism that the government has chosen to target support to sectors most in need.
Its cold comfort though for businesses that don’t meet the 50% turnover reduction threshold but equally, won’t be able to keep existing staffing levels given the pressure they are under.
Whilst the government supported loan scheme remains a welcome initiative with a few added enhancements announced, it is our experience thus far that firms are wary of taking on further debt to meet overhead costs when they do not have certainty around their own ability then to meet future repayment obligations. This may account for the low uptake of the government loan scheme.
Despite ongoing promises that more work is being done, there was no further announcement on rent relief for commercial tenants.
Anecdotally, we are hearing that many commercial landlords have made significant concessions to assist tenants but this is certainly not universal given differences in lease obligations and different levels of solvency amongst the landlords themselves.
The call to address hardship on residential landlords dealing with defaults from tenants that have, or will, lose incomes by postponing the introduction of residential loss ring fencing also appears to have gone unheeded.
Interestingly, no attempt was made by the government to address the revenue side of their equation by increasing taxes. That said, the prospect of any tax cuts in election year has been abandoned and a clear signal has been sent that the government may look to increase taxes, stating that they will not look to the low income sector to bear the effects of the downturn and the need to borrow to support the economy.
We feel it is only a matter of time before government will increase taxes in an attempt to address its ballooning deficit. For profitable firms with reserves in the form of retained profits that have been taxed at the corporate rate of 28%, it may be appropriate to consider dividend distributions while personal and trust tax rates remain at 33%. Whilst any dividend gives rise to the need to pay an additional 5% withholding tax to cover the difference between the 28% already paid by companies and the 33% owed by the shareholder, this may be prudent where cash is available to do so as it would ensure that retained profits don’t attract higher taxes if distributed down the line when tax rates may well have been increased.
Initiatives to help struggling businesses cashflows
