Covid-19 business support Q&A – an EY guide to what you need to know

Furloughing your staff and the Coronavirus Business Interruption Loan Scheme (CBILS) explained. Joanna Santinon of EY answers your questions

Furloughing your staff

Does the furlough scheme cover commission?
No, for salaried employees commission is expressly excluded from the definition of salary. Although this disadvantages those in receipt of a certain pay mix from their employer, neither commission or bonuses are covered under furlough.

Can you stop accruing holiday during the period of furlough?
Holiday will accrue as normal during the period of furlough unless you agree, contractually, with your employees that it should not.

Any legal steps taken to furlough staff should consider the holiday point specifically and address:

  • accrual whilst furloughed
  • the impact of taking holiday whilst on furlough
  • the taking of holiday post return to work, and the time frames within such holiday may be taken

Are workers based overseas eligible for the Job Retention Scheme?
Assuming they are on the UK payroll and paid via PAYE they may be dealt with as per all other employees. If they are not, then the job retention scheme will not apply to them. It would be necessary to look coronavirus support measures in the country of employment.

Are furloughed employees able to take up additional training?
Guidance has clarified that training is acceptable. The key is that the furloughed individual does not provide services to generate revenue for, or on behalf of, the organisation.

If you have a reduced need, does that mean you have a part-time need – for example, can an employer pay and therefore claim a share of the grant as opposed to furloughing?
Unfortunately not. The Job Retention Scheme is all or nothing.  The individual must have otherwise been going to be made redundant and therefore not working for the business at all.  You can then furlough them instead and apply for the grant.  There is no option to reduce hours and apply for a partial grant.

If you are the founder and a director of a business can you be furloughed?
Yes, providing that you will only perform directors’ duties and will not be carrying our any revenue-generating activities, HMRC has confirmed that they will allow an individual who is a director to be furloughed.

Covid-19 business support for scale-ups

For businesses that do not qualify for either of the Coronavirus Business Interruption Loan Schemes (CBILS or CLBILS) or Covid-19 Corporate Financing Facility (CCFF), what can they do to stay afloat?
Businesses should ensure they investigate all government Covid-19 business support measures available such as people funding, tax support, grants. They should also seek to ensure they have exhausted all potential ‘self-help’ measures available including cutting or deferring capital spending or their reviewing working capital.

For those that still have a liquidity requirement and are not eligible for CCFF or CBILS, potential options will include engaging with existing lenders, exploring shareholder support and other alternative forms of capital – for example alternative lenders such as credit funds.

Can a newly incorporated company with no historical accounts access CBILS?
Some lenders have disclosed specific checklists outlining a request for 2019 accounts. Other lenders have not been specific. Based on the eligibility criteria, businesses need to have a borrowing proposal which, were it not for Covid-19 business support, would be considered viable by the lender.

If the business is newly incorporated, setting out its performance to date plus forecasts including a pre-Covid scenario and Covid-impacted scenario will be important to demonstrate that the business can support the debt.

If a company has received some state aid in the last two years, does that compromise its ability to access CBILS?
Any previous state aid does not impact eligibility for the scheme. Additionally, if other kinds of aid are being accessed as part of the response to Covid-19 such as business rate reliefs or grants, this will also not impact eligibility.

Are loss-making companies eligible for CBILS?
The eligibility criteria do not specifically prohibit loss-making companies from accessing CBILS. The key is whether the lender can consider the business to be a viable lending proposition were it not for Covid-19 and whether it is likely to recover in the short to medium term. An important point to consider is whether a bank would have lent to the company before Covid-19.

Do private equity-backed businesses qualify for CBILS?
Based on the eligibility criteria for CBILS, there is nothing that technically prohibits private equity-backed businesses from applying for a loan.

For private equity backed businesses, there is a current lack of clarity as to whether it is expected that the private equity firm should provide support for companies they own before CBILS is applied.

There will also be intercreditor complexities with existing financing arrangements that would need to be worked through.

How can you prove a robust credit case when clearly the commercial business modelling is uncertain currently?
Businesses should be ready to provide financial information and forecasts pre-Covid (to evidence viability of the business) as well as forecasts demonstrating the impact the Covid-19.

There is a great deal of uncertainty and therefore forecasting this impact now has challenges. To try and tackle this, scenario planning should be considered, looking at different levels of sensitivity and duration to demonstrate the potential impact of this crisis on the business.

How much debt is too much for the business to recover from?
This will be subject to several factors and there is no ‘one size fits all’. When considering debt capacity in ‘normal’ times, businesses should consider areas including revenue, profit, cashflow, stability, visibility and certainty, recent and forecast financial performance and whether sufficient cashflow is expected to be generated to cover debt service (both interest and amortisation payments).

These principles still apply but consideration should be given to how the business is expected to recover.

Joanna Santinon is a partner at EY and Entrepreneur Of The Year leader, UK

Further reading

How entrepreneurs are tackling the UK productivity challenge


Joanna Santinon

Joanna Santinon is a partner at EY and Entrepreneur Of The Year leader, UK.

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