The Recovery Loan Scheme, which helped businesses throughout the pandemic, has been extended for a further two years.

Launched on 6 April 2021, the Recovery Loan Scheme (RLS) was one of several finance schemes available to struggling businesses.

It provided financial support to businesses across the UK as they recovered and grew following the Coronavirus pandemic.

Nearly £80 billion was lent to SMEs through these schemes, but only £1 billion of borrowing was made via the Recovery Loan Scheme.

Scheme supported 19,000 businesses

The RLS has supported almost 19,000 businesses with an average of £202,000 in support.

It could be used to finance any legitimate business purpose – including managing cash flow, investment and growth. However, you had to be able to afford to take out additional debt finance for these purposes.

It was thought the scheme would be replaced with a version called RLS2, but now the Government has decided to extend the original scheme with the addition of a personal guarantee from borrowers.

How will the scheme work?

Businesses will be able to apply for the latest version of the scheme in August. The £2 million maximum loan amount remains the same and the Government will underwrite 70 per cent of lender liabilities, at the individual borrower level, in return for a lender fee.

Business Secretary, Kwasi Kwarteng, said: ‘‘The extension of the recovery loan scheme will help ensure we continue to provide much-needed finance to thousands of small businesses across the country, while stimulating local communities, creating jobs and driving economic growth in the UK.”

Shevaun Haviland, director general of the British Chambers of Commerce, added: “The two-year extension to the recovery loan scheme will be a lifeline for many businesses facing a rising tide of costs. It is now essential that businesses in need of this extra support can access the scheme as quickly as possible.”

If you intend to make use of this extension to the Recovery Loan Scheme, then you must seek professional accounting advice beforehand to make sure you maximise your use of the funding.

Link: Further support for small businesses feeling the squeeze as £4.5 billion Recovery Loan Scheme extended

Corporation Tax (CT) rates are set to rise in the UK from 1 April 2023. From this date, the main rate of CT will increase to 25 per cent for all companies with taxable profits over £250,000.

There will also be a small profits rate for companies with taxable profits of £50,000 or less of 19 per cent, while businesses that fall between these two thresholds will effectively be taxed at 25 per cent, but enjoy a marginal relief based on their specific level of profitability.

Although the future of the Corporation Tax rise is currently up in the air due to pledges made during the Conservative Party leadership contest, it is worth considering what impact this change could have on group companies.

Under the changes to CT, the existing 51 per cent group company test will be replaced by associated company rules.

These rules will determine whether a group should be deemed a large company (taxable profits in an accounting period between £1.5 and £20 million), or a very large company (profits in excess of £20 million) and should make payments through instalments due to this association.

Association is determined according to whether a company has been connected with another company for the 12 preceding months and, whether either, one company has control of the other or both companies are under the control of the same person or group of persons.

These rules apply to a company’s worldwide associations, regardless of their tax residency. However, the associated company rules don’t apply where a company is:

• Dormant
• A passive holding company
• Not substantially dependent on another company.

A potential pitfall

This change affects how companies make CT payments, which could affect cash flow.

If a group company is within the associated company rules, then it can continue to make quarterly instalment payments in the 7th, 10th 13th and 16th months of the accounting period.

Whereas, if this change deems them “non-large” and takes them out of the instalment regime, CT will be due nine months and one day after the end of the accounting period.

The overall impact of this is that the first tax instalment payment for the next accounting period will be due before the tax has been paid in respect of the previous year, creating an unexpected charge.

With this being the case, careful advanced planning is required to make sure cash flow is not adversely affected by this complex change.

Link: Corporation Tax Rise