Management & Finance > Merchant Voice

How Covid-19 affects U.K. businesses

Unsurprisingly, many ecommerce businesses in the U.K. have reported an increase in sales during the pandemic. This is mainly in the so-called “essential” and do-it-yourself areas. Sales of fashion, clothing, and luxury items, however, have dropped. Time will tell if these trends continue.

Delivery periods in the U.K. have increased. Even Amazon Prime shipments can take up to a week. This presumably is due to reducing warehouse workers to enable working at distances from each other. Smaller ecommerce companies can take advantage of this by delivering quickly. However, the global slowdown has affected inventory availability. So even small companies are impacted.

A key question for ecommerce merchants is whether first-time buyers will repeat or go back to high street shopping.

A key question… is whether first-time buyers will repeat or go back to high street shopping.

The U.K. government has put in place measures that should help my business and many others.

VAT

Normally companies that have registered for VAT (value-added tax, the U.K. sales tax) have to pay at the end of every quarter. That payment can now be deferred for a year. This immediately boosts cash flow. It is effectively an interest-free loan of 20 percent (the VAT rate) of sales for the previous three months. This helps all but the smallest of businesses, as those with annual turnover of at least £85,000 have to register for VAT.

Wages

Any employee can be furloughed, and the government will reimburse 80 percent of his wage. Employers have to pay the wage and then claim it back in a process that is not yet operating. (Hence the need for the cash flow boost.) The employer does not have to make up the additional 20 percent. Thus employees are sent home and receive 80 percent of their wages.

Property tax

Grants are available for £10,000 or £25,000 for businesses that occupy properties subject to business property tax. This money does not have to be paid back. In addition, the property tax itself has been eliminated for the year.

The grants operate in two ways.

First, businesses that pay property tax and that receive small business rates relief (a longstanding program that exempts companies that own a single, small property) get the £10,000 grant automatically. They just provide their bank details, and the money is deposited (eventually).

The second method is more restrictive. It excludes businesses that qualify for rates relief. Further, it is available only on a per property basis where the property is occupied and used for retail, hospitality, or leisure and where customers physically congregate. In other words, if you have a physical shop, you get the grant. If you conduct ecommerce from a warehouse, you do not. And it’s not automatic. The business must apply.

Solvency

The thrust of these schemes is to keep small and midsized businesses solvent — to encourage them to retain employees and pay their bills. Otherwise, millions of people will receive unemployment benefits.

The schemes include clever points that reduce fraud whilst improving simplicity. Businesses that have registered for VAT and have properly reported employee pay will fully benefit. Businesses that have cheated the system, not reported the business use of a property, and paid employees cash will get nothing.

In sum, the relief measures will help my business and others like mine. It is tailored to the U.K. economy. Other European countries have enacted similar programs to support small to midsized businesses. Those businesses, after all, employ most of the workforce.

In 2018 small to midsized businesses in the U.K. accounted for (i) 99.9 percent (5.9 million) of all companies, (ii) 60 percent (16.6 million) of employment, and (iii) around half (£2.2 trillion) of private-sector turnover.

Popular news outlets will always report on big companies with thousands of jobs. But the government has correctly concentrated on those of us who collectively employ 16.6 million people.

After Covid-19

It’s the responsibility of U.K. business owners to understand what help is offered and make sure they receive it. It’s tempting to consider the pandemic as an unplanned holiday. But a better idea is to catch up on administrative tasks and other improvements, such as to your website. Take better pictures of your products. Compose more accurate descriptions. Plan for your re-launch after Covid-19. It will, after all, eventually go away.

Richard Stubbings

Richard Stubbings

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