Ring-fencing COVID losses
Most companies will have fairly healthy accounts up to the middle of March 2020 when the lock-down of activity to control coronavirus started.
Since that date, many firms will have struggled to maintain profitability even with the support of the various government programmes.
If we do manage to extract ourselves from lock-down without re-awakening COVID-19, it will probably be the end of this year before we can start to show modest profits once more.
Accordingly, the last nine months of 2020 will likely ring-fence our COVID losses.
There are three issues arising that are worth contemplating:
- Profits up to 31 March 2020 will create tax payments early 2021 when our cash flow will be at its lowest ebb due to any COVID losses to the end of 2020.
- How will credit reference agencies react when the COVID losses start to be filed next year?
- Is there a strategy to extend accounting periods to absorb part of the COVID losses? For example, extending 31 December 2019 year ends to 30 June 2020, or 31 March 2020 to 30 September 2020? This would help to reduce tax payments next year but risk an earlier adverse reaction by credit reference agencies.
Credit reference agencies are already adding COVID risk indicators to their reports. Being one step ahead of these issues makes sense.
There is no one-fix solution. We suggest that business owners contact us to discuss these options and to find a best-fit option for their business.