Insights 14.7.20 Author: Claire North

COVID-19: The ‘New’ Workplace from an Accounting Perspective

Insights 14.07.2020 Author: Claire North

What will the ‘new’ workplace look like from an accounting perspective? Covid-19 has brought us deferred tax payments, filing deadline extensions, CJRS (Coronavirus Job Retention Scheme) and the CBILS (The Coronavirus Business Interruption Loan Scheme) loan (to name a few), but what are the real impacts to bookkeeping, management accounts and statutory accounts as we come out of lockdown, and what do you need to do differently?

Now is the time to make sure that the next stage is planned properly, to help with the transition of returning towards a resemblance of what working life used to be like pre-pandemic, particularly for those clients who have been depending on support from the Government, such as the CJRS. At CBW, we are already assisting clients with forecasting and budgeting, implementing cloud based accounting systems and advising on some of the more technical areas of accounting that have arisen during the pandemic. Here are some areas we recommend businesses review and talk to us about as they plan for the next six months and beyond:

Robust forecasting to prepare for withdrawal of Government assistance

With more than one in four UK workers now estimated as being on the CJRS, it’s clear this has been a lifeline for some businesses. It has ensured that employees have a steady income, continue to be employed, and has taken a financial burden off companies. Where cash is king, it’s paramount that businesses have robust forecasts in place to plan for the next few months when government assistance is withdrawn and trade will hopefully increase. Management should ensure there is a proper plan in place to make sure there are sufficient funds to pay employees, and difficult decisions may need to be made to track expected outputs to what is required in terms of workforce. CBW has an HR team who can help with this.

Manage your deferred payments and prepare for larger outgoings

To reduce cash outflows, many companies have been deferring payments to HMRC and other suppliers, for example rental payments. For instance, it has been announced that if you have a VAT payment due between 20 March 2020 and 30 June 2020, it won’t be due for payment until 31 March 2021. However, it’s important to remember that this isn’t a forgiveness of this amount. Whilst the deferment of these payments is a lifeline for companies, there are likely to be large payments due towards the end of the year, and into 2021, and companies should ensure they have the cash to pay this and should be looking at when these outflows will happen and budget accordingly. It’s also crucial that when trading starts, cash is carefully monitored to ensure that over-trading doesn’t occur, where sales are too high and there is not sufficient working capital to deliver.

The preparation of forecasts is going to be key to survival for many businesses

Many businesses use excel to prepare forecasts, however some may make use of specialised software to do this, or engage the help of an accountant. In the General Practice department, we can help to prepare forecasts, where we use the historic financial information, discuss the various outflows that might occur, and apply suitable assumptions to realistically map the financial health of your company for anything from the next few months, to the next few years. We can produce accurate profit and loss accounts, balance sheets and cash flow statements to demonstrate where there may be pressure points on, say, cash, and help with a plan to ensure that these points are anticipated and cash is maintained to cope. There are several variables that can be applied, and we can manipulate the data to show the financial impact of these. For example, suppliers may be amending their credit terms as a result of the pandemic, therefore we can introduce different payment terms as a variable to show the effect of this. We could also perform sensitivity analysis, which can be a very useful tool especially in these uncertain times, to show for example the impact of different volumes of sales, or cost increases. Although many companies produce budgets and prepare forecasts, now more than ever it is important to ensure this is completed thoroughly, and the expertise of CBW could help to ensure this process is robust at a time where preparation is going to be, in some cases, key to survival.

Having the right accounting system in place to support the new normal

Maintaining up to date and accurate financial information during this time has been hard for some, where systems haven’t been set up to allow for remote working, and documentation is largely still paper based. In terms of an accounting function, cloud-based systems, like Xero, have really come into their own as they can be accessed remotely, providing full functionality, and if used to the fullest capabilities, provide an electronic storage system for a variety of documentation, like invoices. We are a Platinum Partner with Xero, and have a dedicated cloud accounting team who can assist with the implementation of systems to ensure they are tailored to the specific needs of each client,and  provide efficiencies to existing systems meaning the accounting function works better. Lots of companies have had to explore new ways of working and may have accounting software that can be accessed remotely, however with so many options out there, it might be a good time to explore whether a different system may work better for your specific requirements.

Deadlines to filing extensions and possible implications

One point to note is that various deadlines have been extended for filing financial information, for instance at Companies House. Companies can apply for an extension to the annual accounting filing deadline, which for a private limited company is usually nine months after the year end. The extension gives three additional months to file the accounts in addition to the usual nine. This may be useful for companies who are struggling to access financial information and records, for example, which may make the compiling of financial information for the year end accounts difficult. While the extension is useful where companies are affected in this way, some have noticed that credit agencies are looking at the old deadlines still and companies could see credit ratings dip if the old deadline is passed, even if the new one is adhered to.  We wouldn’t want this to deter companies from taking advantage of filing extensions, but strongly recommend working closely with your accountant who may be able, for example, to help you produce accounts on time.

In these unprecedented times, there are several more technical accounting areas that finance teams are having to consider the treatment of when it comes to their bookkeeping, management accounts and statutory accounts, that they may not have encountered before.

The following are some common scenarios which we are already talking to many of our clients about:

  • Your company has several employees on furlough, however how should these payments be accounted for, and what if you receive the payment from the government in a different month to when the salaries were actually paid?
  • You are currently benefiting from a rent-free period, however should you still be included a rent expense in your accounts?
  • You are having to buy in your product, rather than make it, to satisfy sales that are contracted from before the pandemic. All sales are therefore making a loss, when should you recognise this?
  • Should you account for notional interest on a CBILS loan when the first year is ‘interest free’?

What next?

The General Practice team can give specialist advice on how to account for these areas, and others that may have arisen. This can help with budgeting, which is important as previously mentioned, but can also have a significant impact on the level of profit or loss in the year, which is an important metric for internal and also external purposes, for example if this is sent to a third party like a bank.

The overarching message is to stay safe, and while lockdown is slowly easing, we’re mindful that companies will only be sending employees back when the risk to their health is reduced. However, we cannot recommend strongly enough that now is the time to prepare for what the ‘new’ workplace will hold.