A prominent accountancy firm has warned that businesses facing closure are failing to use the government’s Redundancy Payments Service.
Moore director Chris Tate said that in some cases his firm had witnessed, businesses had had no need to become insolvent because they could not afford basic restructuring because they could have used the RPS.
He described the service as underused despite having the capability of saving many viable businesses with cash reserves so low they could not afford to lay off staff.
To use the Redundancy Payments Service businesses must be able to provide evidence that they do not have the means to cover redundancy payments themselves. If they meet the criteria, the insolvency service can then step in to pay statutory redundancy payments directly to the redundant employee.
These payments are currently capped at £538 per week.
The scheme does not extend to payments such as arrears of wages, accrued holiday or notice periods. The financial assistance provided works as a loan scheme for businesses and is, therefore, subject to repayment.
Moore is calling for a publicity campaign to relaunch the service and increase usage.
It warned that the re-launched furlough scheme until March 2020 may not go far enough for many firms. The scheme, which covers 80% of a worker’s salary up to £2,500 a month, would still require financial input from employers that may well be on the brink of insolvency, Moore stated.
Tate described consequent redundancies as a “double-edged sword” because the redundancy costs could be significant at a time when cash reserves are already severally depleted, leaving businesses in a Catch-22 situation where they could afford neither to continue paying staff nor the alternative of large redundancy costs.
Tate added: “It is disappointing that crucial government support to businesses is not being sufficiently promoted. This needs to change as soon as possible to save otherwise viable businesses if it were not for the current pandemic.”
The closure of these businesses, he said, could lead to a permanent loss of skilled labour in those hardest hit sectors such as hospitality, arts and leisure, adding that if a business became insolvent and did not pay its suppliers this had knock-on effects for supply chains, with businesses further down the chain finding they had reduced cash to pay their suppliers.
“The RPS scheme is a time-to-pay solution which helps businesses like these to defer payments until they are in a stronger position,” he said.
“Over the last few months, Moore has made several businesses aware of the option of RPS. It is not the best choice for every business, but in cases where the cashflow issues are severe but temporary, it could be an alternative solution to insolvency. As always, each business should be looked at on a case-by-case basis to establish what works best in the circumstances and we urge businesses to seek professional help when exploring their options.”
He added that accessing the RPS service, was relatively simple, with the RPS asking only that an employer provided evidence that they could not afford to pay an employee’s statutory redundancy pay.