Updated 03 December 2020
As UK businesses have battled to stay afloat this year with the help of various schemes, many have found help closer to hand. New data reveals the part accountants have played in creating survival strategies, and how they may prove even more crucial in the months ahead. Article by Nick Green.
Nearly 8 out of 10 UK small and medium-sized businesses have resorted to some form of special measures in response to the Covid pandemic. These range from furloughing staff to government-backed loans, deferring income tax and using various other reliefs – and there is evidence that accountants have played key roles in helping businesses find the most effective remedies.
A study by Unbiased.co.uk has found that businesses that use accounting services extensively were more likely to have taken advantage of the various forms of support available, and may also have made better choices around which strategies to use. Measures offered to businesses since the first lockdown began have included the furlough schemes, government-backed business loans, business rates relief (for hospitality industries), deferring income tax and deferring VAT.
The most widely used is furlough (the Coronavirus Job Retention Scheme) and its equivalent for self-employed people, the self-employed income support scheme (SEISS). Over a third of SMEs with employees have resorted to furlough, while around a quarter (23%) of one-person businesses have used SEISS. Almost as popular have been the business loans – the Bounce Back Loans and the Coronavirus Business Interruption Loans (CBILS). These were taken up most by companies with between 10 and 49 employees, with around 1 in 3 of these SMEs using at least one type. Other measures offered by the government have included deferring VAT payments (used by around a quarter of companies with 10 or more staff) and deferring income tax (15-16% of this group).
A majority of SMEs did use at least one of the above. However, businesses that don’t employ an accountant (either internal or external) proved far less likely to take advantage of these lifelines, with over a third (36%) using none of them – either because they didn’t apply, or because they applied and were rejected.
One explanation for this is that accountants have helped to alert directors as to the sources of help available, and also to choose the most suitable measures to deploy. A further finding supports this hypothesis: the businesses most likely to secure these forms of help were those that use an accountant for more than just annual accounts. Businesses that use an accountant for more specialised tasks, e.g. handling tax, VAT, payroll, credit control and business planning, are far more likely to have used at least one of the mitigating measures.
For example, of the businesses that said they use an accountant for annual accounts (though not necessarily only for that), 40% use none of the available facilities. But of the businesses that use an accountant to handle areas of tax (e.g. VAT), just 12% haven’t used any. Meanwhile only 6% of those whose accountants helped with business planning had not used any of the measures.
The same applies where accountants help to manage cash flow – just 6% hadn’t used the support available. It seems that the more intimately the accountant is involved with the business, the more likely the company was to secure some form of government help during the pandemic, or to adopt its own survival strategies. This may be due both to greater awareness of what’s available, and also to being in a stronger position to apply (since even the government-backed loans had lending criteria).
In addition to using the facilities offered by the government, SMEs have turned to their own survival strategies during the periods of lockdown. These have included measures such as spending cash reserves, making staff redundant, modifying working practices (e.g. introducing remote working for the first time), taking out ordinary loans, or even recruiting more staff or introducing new products and services.
Of these, the most popular solution was to spend cash reserves – being also the most obvious and simple option for those with cash to spare. However, it may not always have been the right one, according to the further analysis below.
Taking out ordinary loans was not a popular option – just 5% of the total did this – except among companies whose accountants were employed to seek bank and/or equity finance. In this group, over a fifth of companies (21%/23%) took out loans other than CBILS and Bounce Back. This is a striking indicator of the added value that a specialised accountant was able to bring to these companies.
Those same companies – the ones using accountants to secure funding – were also the most likely group to bring out new products or services in response to the pandemic (a fifth did so), and they were also the most inclined to hire new staff during this period (29%). The likelihood is that these companies are in an aggressive growth phase anyway (hence the presence of an accountant to help secure funding) but it indicates that this provided a key advantage at a crucial time.
The choices made by many companies often suggest the hand of an accountant at work. For example, when it comes to spending cash reserves, the companies most likely to do this were those that use accountants for basic accounting and reporting (47%) and those with no accountants at all (28%). However, this is where it gets interesting. Companies that use accountants for more specialised work, such as handling tax efficiency, cash flow and business planning, were increasingly less likely to break into these cash reserves. Of those that have an accountant to manage cash flows, just 15% chose to spend their cash. Of those with an accountant handling credit control (vital in maintaining liquidity), just 12% used cash reserves. This strongly implies that these companies considered something that the others didn’t (namely, that cash is king).
Similar patterns can be seen elsewhere. The companies by far the most likely to defer VAT were those who have an accountant handling their VAT returns. At 47% it was the second most popular solution for this group, behind only furloughing staff. But on average, only 16% of companies chose deferring VAT as a solution. In a fairly close correlation, only 21% of companies said they use an accountant to handle their VAT.
As for deferring income tax, those who use a tax accountant are significantly more likely to have done this (34% versus an average 10%). Flipping it around, those who chose to defer income tax are more likely than average to use a tax accountant (22% versus an average 16%). These companies are simply more aware of the money that can be saved in this area.
When it came to the Future Fund – a convertible loan scheme for startups that are pre-profit – it was no surprise that the greatest uptake came from those using accountants to source funding for growth. Over a third of these companies accessed the Future Fund, compared to the 6% average. Again, this is because they are mostly likely aggressive startups in their first phase of growth, but again it highlights the key role that their accountants are playing.
It’s clear that accountants played a key role in helping their companies through the crisis, in terms of both assessing the options and sourcing each solution. These are encouraging findings. More worrying, however, is the number of companies that appear to be muddling along without this kind of support, or simply failing to make the most of what’s available.
The question remains as to how well UK businesses will cope once the sources of government support start to be withdrawn, and when the loans first dry up and then have to be repaid. There is also the matter of what may happen after the Brexit transition period. The need for companies to run a tight ship, financially speaking, has never been greater. Directors and the self-employed alike will need to use all their ingenuity to prevent cash-flow crises or debts that run out of control.
What these findings reveal is that even during a period of blanket government support, the companies able to benefit the most were those who made best use of their accountants’ expertise. But what’s also evident is how much more scope there is for improvement in this area. Companies that use an accountant for more than the basics (bookkeeping and reporting) are still in the minority. But the pandemic has highlighted the real monetary value of broader accounting expertise, such as to increase tax efficiency, defer payments, chase debts, improve cash flow, access reliefs and grants, balancing the books and securing funding from banks and investors.
For every business that is currently making use of at least one of these additional accounting benefits, there are usually at least two or three who are not. Also it appears that few businesses are using as many as they could. There is therefore huge additional potential for companies to streamline and strengthen their finances as the UK approaches the greatest test of all: the road to recovery.
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