Don't let flooding sink your business

Considering ways in which you can safeguard your business from flooding.

Flooding has become a sad fact of life in many areas of the UK, with homes and businesses washed out by torrential rainfall and swollen rivers. Last year ended with one of the wettest autumns in living memory, while 2020 began with storms Ciara and Dennis saturating areas of the country. Flooding causes damage to buildings and machinery, the loss of records and stops businesses from running normally. Dealing with the aftermath of flooding while trying to stay afloat is an anxious and challenging time for any affected business.

Be prepared

Protecting your property against the threat of flood damage should be a priority for any business, and there is plenty of support and advice available. The government advises all businesses to take seven steps to protect themselves.

  1. Sign up for Environment Agency flood warnings.
  2. Create a flood plan.
  3. Train staff in flood safety procedures.
  4. Create a stockpile of potentially useful materials.
  5. Consider installing flood protection products.
  6. Make sure the business has appropriate flood insurance.
  7. Store insurance policy documents digitally, or away from the premises.

The aftermath

Once the shock of being flooded has passed, businesses will want to act. The Association of British Insurers (ABI) advises anyone who has suffered flood damage to contact their insurer or broker as soon as possible. Most will have 24-hour emergency helplines that give advice and help arrange repairs. Insurers also have teams on the ground helping their customers and managing the claims process.

Once the floodwater begins to recede, businesses will be eager to begin the recovery process. However, the ABI also recommends warns people not to return until it is safe to do so. It also advises businesses premises not to throw away damaged items in case they can be repaired while redecoration should wait until a property is fully dried out.

Maintaining vital cashflow

Flooded businesses will still need to pay many of their expenses, despite suffering a loss of income. HMRC's payment deadlines will still loom large, even for a business crippled by flooding. The tax authority can offer payment plans to those in financial difficulty. However, early dialogue with HMRC is essential in advance of payment deadlines.

Loss of business records

Floods can destroy paper and damage computers. Books, receipts and other records needed for filing tax returns could be lost, possibly irretrievably. Even a temporary loss could cause problems in meeting HMRC's deadlines for filing corporation tax, VAT or self assessment returns. For businesses afflicted by flooding reconstructing records and bringing paperwork up to date as quickly as possible will be as important as property recovery.

Those affected should not wait until the deadline has passed before notifying HMRC and opening discussions. Following past floods HMRC has shown a degree of leniency around filing deadlines, although it must receive advance notification of the delay to filing and a revised submission date.

Making financial recoveries

Ideally, most businesses will have flood cover as part of their property insurance, so will be able to make a claim for damages. A full insurance recovery will result in a tax neutral position. However, full recovery is unlikely if there is a policy excess.

Following this year's floods, the government announced that affected small and medium-sized enterprises (SMEs) would be eligible for 100% business rates relief for at least three months. Also, those SMEs that suffered uninsurable losses can claim up to £2,500 from the Business Recovery Grant.

Additionally, the government announced that businesses affected by flooding can apply for up to £5,000 to help make them more resilient to future flooding.

Finding relief

The availability of tax relief for expenditure on remedial works will be an important consideration for business-owners. This is particularly the case where there is no valid insurance policy in place. Expenses that are classed under 'repair and refurbish' will qualify for a deduction against taxable profits as revenue expenses. However, any 'improvements' will be regarded as investments and treated as capital expenses, so will not qualify for a deduction against taxable profits.

Learning the lessons

Sadly, flooding is becoming a fact of life in some parts of the UK. For businesses that are based in these areas, preparing for the worst will be key to surviving. A measured response will also be vital to an effective recovery.

Our team can help businesses with tax returns or negotiating with HMRC: please contact us.