Impact of Corona Virus on the economy

Corona Virus, from its discovery in 2019 to the present has caused havoc all around the world. Apart from being lethal to humans, it brought other devastating impacts, such as its impact on the world economy. Given the pandemic situation with no cure available, the only way to contain the virus was by imposing lockdown. The lockdown temporarily halted most of the businesses, due to which most of the countries went into economic recession. According to the IMF, the global economy shrunk by 4.4% in 2020.

Like other countries, the UK economy was also affected by the pandemic, most significantly its SMEs. The SMEs consist of 99.9 percent of the total business population in the UK while contributing 50 percent of the total revenue generated. According to a survey conducted among 10,000 small businesses in the UK, about two-thirds of the businesses recorded a decrease in their revenues, while 44% of the businesses have had to cut jobs. The most affected sectors in the UK are agriculture, construction, and logistics, while the education, insurance, finance, and scientific sectors are least affected.

The UK government has announced various tax reliefs and financial schemes for the business sector to compensate the businesses that are being affected by the pandemic.

Tax reliefs

Relief on business rates

In response to the COVID-19 pandemic, the government has announced Business Retail Discount, applicable in the years 2019 to 2020 and 2020 to 2021. The discount is up to 100 percent, while the sectors included are leisure and hospitality to compensate for their loss due to the closure as the result of restrictive measures. These reliefs are only applicable to occupied properties, whereas theirs no rateable value limit on the relief.

These reliefs apply to the properties used as:

  • Restaurants, cafes, drinking settings, shops, cinemas, and live music venues
  • Assembly and leisure
  • Self-catering accommodations and hotels


For more information, click here.

VAT deferrals

The UK government has announced a VAT deferral scheme. The business that hasn’t paid their VAT due between 20 March 2020 to 30 June 2020 can now pay in the full deferred amount till 31 March 2021. However, if you cannot pay in full by 31 March 2021, you can join a new payment scheme by 21 June 2021 that allows you to pay the VAT due in installments. You can also opt to pay in full by 30 June 2021, after which you may be charged a 5% penalty on your deferred payments.

The maximum number of installments available to you is set by the date you joined the scheme.

  • By 19 March 2021: 11 installments
  • By 21 April 2021: 10 installments
  • By 19 May 2021: 9 installments
  • By 19 May 2021: 8 installments

Loan schemes for the businesses

The government has launched four different loan schemes to support businesses during the pandemic crisis. These schemes are as follows:

  • Coronavirus business interruption loan scheme – loans provided by the lenders to the small businesses that are backed by guarantees from the British Business Bank to 80% of the loan. This scheme includes loans, invoice finance, asset finance, and overdrafts of up to £5 million up to 6 years without any fee or interest for the first 12 months. Any businesses that were viable before COVID-19 having turnover up to £45m are eligible for this scheme.
  • Coronavirus large business interruption loan scheme – this scheme is introduced to support medium and large enterprises with an annual turnover greater than £45 million during the pandemic. Under this scheme, businesses can borrow amounts up to 25% of their turnover or an amount two times their annual wage bill. However, the borrowable amount can be increased if a business needs to cover its liquidity requirements for the next 12 months. The maximum repayment time for this scheme is three years while money is lent at commercial interest rates. The maximum loan size in this scheme cannot exceed 50 million.
  • CLBILS loan size extended – on 19 May 2020 the government announced its plans to extend the CLBILS loan size from £50m to £200m. This extension was to help large firms that do not qualify for the Bank of England’s Covid Corporate Financing Facility. However, companies borrowing more than £50 million are liable to some restrictions, such as they cannot make dividend payments, cannot make any share buybacks, and cannot pay any bonuses or pay raises to senior management.
  • Bounce back loan scheme – the government announced this scheme on 27 April 2020 to help small and medium-sized businesses affected by the pandemic. Under this scheme, businesses can acquire from £2,000 to £50,000 loans which will be 100% guaranteed by the government. There will be no fees or interest to pay for the first 12 months, whereas the loan term will be up to 6 years.


Business grants

The government will introduce restart grants starting from 1 April 2021. The non-essential retail businesses that were shut during the pandemic will be eligible for restart grants. These grants will depend upon the rateable value of the business, whereas the maximum grant given under this scheme will be up to £18,000.

  • Rateable value of £15,000 or less grants £8,000
  • Rateable value of £15,000-£51,000 grants  £12,000
  • Rateable value Higher than £51,000 grants  £15,000 and £51,000


Self-Employment Income Support Scheme

The government has announced five grants to support self-employed individuals whose monthly incomes are affected by the COVID-19 pandemic. These grants are specified for a certain period as described below:

  • 1st grant – 80% of their average monthly income: £2,500 April-June
  • 2nd grant – 70% of average monthly income: £6,570 July- September
  • 3rd grant – 80% of the individual’s average monthly trading profits: £7,500 November-January
  • 4th grant – 80% of three months average trading profits: £7,500 January-April
  • 5th grant – 80% of three months average trading profits 80% of three months average trading profits for individual’s having turnover reduction of 30% or more till the end of September 2021
    30% of three months average trading profits £2,850 for those with a turnover reduction of less than 30%. till the end of September 2021


For more details, please visit GOV.UK website.

Ishfaq Shah

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