Small businesses to face tough calls when Covid schemes end

“First six months of 2022 will tell a lot about a business owner's decision to stay in business or stop,” says leading accountant
Small businesses to face tough calls when Covid schemes end

Diners at the popular 'Al Fresco' eating area on Princes Street, Cork. Small business owners are giving innovative responses to the challenges created by the Covid pandemic.  Picture: Andy Gibson

Owners of small businesses have big decisions to make between now and December 31, 2021, when their Covid-related supports are scheduled to stop.

Paul O'Donovan, owner of Cork-based chartered accountants Paul O'Donovan & Associates (PODA), has spent the past 18 months helping business owners navigate their way through unprecedented challenges.

The State has cushioned the impacts of Covid with wage subsidies, debt warehousing, deferred payments and business restart schemes. In the long term national interest, however, most of these schemes will not continue into 2022.

“Without the availability of these supports, many businesses would have ceased trading and the country would now have a very high unemployment level,” said Paul O'Donovan. “Equally, it is extremely important for businesses to review their cash flows, be aware of their key performance indicators and other agile accounting formulas from now.

“The supports will cease at 31/12/2021 and all businesses need to be aware of their breakeven analysis and cash flow management to survive into the future.” 

 As part of its economic recover plan, Revenue recently announced extensions until December 31 for the Employment Wage Subsidy Scheme (EWSS), the Covid Restriction Support Scheme (CRSS) and the tax debt warehousing scheme.

It also announced enhanced restart week payments under CRSS, along with a new Business Resumption Support Scheme (BRSS) due in September and a new Covid-19 deferred payment arrangement to support additional statutory redundancy costs.

Meanwhile, the commercial rates waiver will be extended to September 30, 2021. A special case is being made for hospitality and tourism, with an extension of the reduction in the VAT rate of 9% for the sector until September 1, 2022. These decisions reflect the current realities for each sector of business.

Paul O'Donovan, owner of Cork-based chartered accountants Paul O'Donovan & Associates.
Paul O'Donovan, owner of Cork-based chartered accountants Paul O'Donovan & Associates.

“Hospitality, tourism and retail have been among the biggest users of the schemes,” said Paul O'Donovan. “Without these supports, we would have seen huge unemployment numbers, particularly in customer-facing retail, anyone selling goods like clothing, shoes, jewelry, etc.

“Supermarkets, of course, are the complete opposite. Their trade is very much up on previous years. The engineering sector is also up; so too are sectors like IT and pharma.

“Going forward, the construction sector will be very dependent on the volume of new housing being built. The bigger construction companies are doing a lot of offices, commercial and retail spaces, so few enough of those are availing of the CRSS.”

Revenue extends supports to December 31

Earlier this week, Revenue reminded businesses of the supports available to assist them with regard to reopening costs and payroll costs. Revenue also reminded businesses that the extension of the Debt Warehousing Scheme means that they can add eligible tax debt to the debt warehouse until December 31.

Businesses reopening in line with the public health regulations can also claim an enhanced restart payment under CRSS. Businesses can avail of a single payment covering a three-week period at double the normal weekly CRSS rate.

The maximum weekly amount has been increased from €5,000 to €10,000 weekly; or a total of €30,000 for the three-week restart period. Once a business makes a claim for the enhanced restart payment, it no longer qualifies for CRSS.

Of course, Covid restrictions are still in place. Businesses such as indoor hospitality, such as pubs, cafes and restaurants can apply now, then resume trading activities within a reasonable period of time from the date on which the restrictions are eased and no later than eight weeks from that date.

Revenue also notes that, as such businesses are no longer regarded as being significantly restricted by public health regulations from July 26, they will no longer meet the eligibility criteria for the CRSS and will therefore not be eligible for CRSS payments for the periods where they choose to remain closed.

Earlier this month, Revenue also updated employers and their tax agents regarding the extension of the EWSS until December 31. In brief, if a company's turnover is down by 30% or more, they still qualify for EWSS until the end of this year.

For now, business owners must self-assess on a monthly basis, compare their actuals for the previous month with their projections for the next month. Many are turning to their accountants for a steer through the processes. For business owners, the bigger choices will begin from next January.

“The first six months of next year will tell a lot about a business owner's decision to stay in business or to cease trading,” said Paul O'Donovan. “I'm advising 35 companies, each with over 1,000 employees, that are all going to continue in business.

“For some smaller business owners, however, the complexities in the decisions they're now facing are making life very difficult for them. Some are more aware than others of what's available to them. Companies need to make sure that they are getting proper advice.

“Accountancy firms like ours are now offering far more than just accounts and auditing services. We're there to offer far broader advice, like the decisions currently facing owners of small businesses.

“I've just done the May-June books for one client. The Covid-related supports have meant that his company is stable, more than breaking even after personnel costs and overheads. But he will be going into a loss-making scenario once you take away the current State supports.

“Some businesses are currently seeing that their cash flow and balance sheets are looking far healthier than ever. Nonetheless, many of these companies have complex issues to consider and big decisions to make between now and January.”

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