6 Key Dates for Business Recovery over the next 12 months

Lockdown measures are beginning to ease across the UK and businesses are now turning their thoughts to the “other side” of the pandemic and how best to start trading again. Depending on the industry you work in, you will have different expectations of cash flow requirements over the next 12 months.

Below are six key dates, for the remainder of this year and into 2021, which highlight potential tax liabilities that a business will face post pandemic and should consider planning for, if they are to survive.

Date 1: Mid-September 2020 - working capital squeeze

For many businesses, the lockdown itself may not prove to be the toughest period for cash flow, mostly due to the extensive and wide ranging government financial support in place to support businesses during COVID-19.

If most businesses start trading again from June or July, the working capital cycle - or the funds required to trade - will kick start, but businesses will have little reserves to call on since the Great Pause at the end of March; rather the money cushion provided by government is likely to be used.

The peak effect of the lack of working capital reserves is likely to hit mid to late September.

Date 2: 1st October 2020/ 1st January 2021 - Corporation Tax due

These two dates are key for those limited companies who have a 31 March or 31 December accounting year-end, when corporation tax payments are due to HMRC.

Remember, the lockdown did not start till the middle of March 2020, and businesses with strong sales in December will be lumbered with a corporation tax liability related to pre-pandemic trading days.

If you are December year-end business, you have also experienced the September working capital peak mentioned above in Date 1, so cash flow could be particularly tight.

There is still time to plan and manage cash flow, whilst also making use for the Time To Pay arrangement with HMRC to help spread your corporation tax bill over a number of months.

See more information on Time To Pay here.

Date 3: 7 November 2020 - first VAT liability due since lockdown

For businesses with a March/June/September/December VAT submission deadlines, these dates being the most common amongst limited companies, the 7th November 2020 is the due date for the September VAT quarter, and also the first VAT bill due post pandemic.

Again, this VAT payment is following hot on the heels of Date 1 in mid to late September with a working capital squeeze, plus potentially an October corporation tax payment due, this VAT payment is definitely one you need to plan for.

HMRC have shown willingness to support businesses over a period of time and Time To Pay, but ideally you should try and avoid mounting tax bills, as these will only be deferred versus written off by HMRC.

Businesses have already been given a tax holiday for VAT payments over the period of March to June inclusive, with this VAT liability due to be paid by March 2021.

Date 4: 31 January 2021 - Income tax and National Insurance Contributions (NICs)

The end of January is well know as the deadline for the self assessment tax return where individuals are due to pay income tax and national insurance contributions on income they have received personally. While this is a personal liability versus a company one, for many owner-managed business owners, most income comes from the business, so there is usually a knock-on effect.

During the pandemic, the government have deferred the payment on account due on 31 July 2020 to January 31 2021, which means when 31 January comes round, it is likely your tax bill will be much higher than usual.

If you have the cash flow now, ideally you should put the tax due for payment on account aside now ready to pay in January, but this may not be possible as cash flow will be tight in the business and because there are business tax liabilities, such as VAT and corporation tax.

Remember the 31 January payment will be based on your income up to 5th April 2020, and the pandemic and lockdown only hit towards the end of this period, and so your tax liability will therefore reflect pre-crisis income.

You do have the option to reduce your payment on account if you think it is too high. We strongly suggest you complete a tax return now for tax year 19/20 versus waiting to 31 January 2021 deadline so you fully understand your tax position and you can plan cash flow accordingly.

Date 5: 31 March 2021 - deferred VAT payment

There is a real concern that by 31 March 2021 there will be lots of business going into insolvency. By this date, businesses may have already paid out or paying off various tax liabilities as noted above and then the deferred VAT payment offered by government at the height of the health crisis will be due. This is all in the context of potentially lower trading activity due to social distancing measures post pandemic.

Date 6: 1 May 2021

This is an important date if you were able to take advantage of a government backed loan as this is the first year anniversary of the Coronavirus Business Interruption Loan Scheme (CIBLS) and the Bounce Back Loan Scheme (BBLS).

Due to the significant impact on the economy from government spending to financially support businesses in need due to the pandemic coupled with the uncertainty of when the health crisis will end, it’s likely that 2019 sales levels will not return for some time to come.

Many businesses may find it difficult from May 2021 to start repaying these government backed loans combined with the other various tax liabilities mentioned above and potentially we could see a wave of businesses closing down over summer 2021.

The importance of cash flow planning now

The dates mentioned above are key if you want to survive post pandemic and into 2021.

The dates highlight the various “pinch points” that a business could face from a cash flow perspective.

The key to business recovery and resilience is to address these cash flow challenges now and start planning.

Mirandus can help you with your cash flow forecasting, please do get in touch.