Temporary working capital

With insolvency, it seems the numbers don’t lie, but have contractors gotten over the worst yet?

It may come as no surprise to hardworking entrepreneurs working tirelessly at the forefront of an industry still getting used to IR35 reform, but the number of business insolvencies has risen sharply from 1,517 at 2,114. And so the question is, writes Chartered Insolvency Practitioner Matt Fox, Director of Beacon srl, Should Entrepreneurs Be Worried?

Released by the Insolvency Service, figures show insolvencies have more than doubled from the same month a year ago – i.e. they were 999 business insolvencies in March 2021, one month before the introduction of non-payroll changes. Today’s total insolvency stack – 2,114, is about 34% higher than the previous, pre-pandemic year.

Like insolvencies, CVLs are more common

Voluntary liquidations by creditors are also on the rise. In fact, last month some 1,844 CVLs were counted by the Insolvency Service, more than double the number in March 2021 and a steep 62% increase from 2019.

Interestingly, from the onset of covid-19 until mid-2021, the total number of individuals and business bankruptcies were still low compared to pre-pandemic levels. Yet one area that exploded during this time was CVLs – which are now much higher still.

The reason for this may be that court-ordered liquidations and bankruptcies have remained low due to the government measures that have been put in place to support these businesses during the pandemic. This, in addition to temporary restrictions on the use of statutory applications and liquidation petitions.

But as of September 30, 2021, some of the government’s covid support measures have ended or been reduced. And by March 31, 2022, everything government measures have expired. It remains to be seen whether there will now be a significant increase in bankruptcies and court-ordered liquidations as a result.

What could be the causes?

Overall (and in line with what we have witnessed), the trend of business insolvencies started to increase from February 2021 and continues to increase – but with a visible peak in insolvencies from the beginning of 2022.

For many small businesses, official funding to get through the pandemic or recover simply wasn’t enough to cover several months of closure, while they potentially still had to pay rent, utilities and other costs. commercial. Add to that that businesses, including contractors’ limited liability companies that accepted the government’s offer of a bounce-back loan, are now required to make monthly repayments.

Overall, it seems like the numbers don’t lie, as we’ve seen a steady increase in the number of business owners seeking help and advice. For many of them, it seems that the sectors in which they operate are still in a period of recovery – even though it’s almost May 2022. For these merchants and others, commissions or customer orders are simply not returning to pre-pandemic levels. Still.

The recovery that is still in recovery

This still recovering recovery could be due to a number of reasons depending on the industry in which you operate. But some notable factors are working from home; businesses are changing the way they operate and cutting costs to stay as efficient as possible. There are other, more uncontrollable forces contributing to a difficult economic climate for UK limited companies, including the runaway cost of living and Russia’s ongoing actions in Ukraine.

Looking at the official insolvency figures for March, our reading is that while many business leaders have taken advantage of government-backed loans, the resulting funds have sometimes still not been sufficient to carry out the business. business through this particularly difficult time and provide the necessary working capital as trade and demand pick up.

Time to pay or continuous improvement?

At the time of this writing, our advisers are starting to see increasing pressure from HMRC. Likewise, at this time, the owners are asking for prompt payment and settlement of any arrears.

As far as HMRC is concerned, contractors can of course try to get a payment delay agreement – which the Inland Revenue offers, but only in what they believe to be the ‘right’ circumstances.

But unless your business (entrepreneur or otherwise) improves All the time and can service its current debt, plus additional payments to clear arrears, without proper planning the business is always likely to fail. It’s no wonder we continue to provide free help and support to business owners who are worried about their business and its ability to survive. So, entrepreneurs who are worried or in financial difficulty, do not suffer in silence, but rather present yourselves.

An IR35 light at the end of the tunnel, potentially

Finally, there are signs that some of this potential suffering could hopefully be short-lived. Qdos research conducted between April and November 2021 found a staggering 83% increase in contractors to limited liability companies determined as works correctly outside IR35. With the contractor industry’s penchant for three-month contracts that are often extended, some of these compliant-operating contractor businesses are expected to add to their financial reserves at this time, so it’s an eye for this rising tide of insolvencies which, as far as individual businesses are concerned, we may now be past the worst.