Yesterday the Chancellor, Rishi Sunak, confirmed that the budget will not take place in November, and also came out with his Winter Economy Plan.
The Chancellor and the government have a very difficult scenario to balance, with COVID-19 restrictions still being necessary, trying to move the economy forward sufficiently, and providing support for businesses whilst not wanting to cover all costs under any circumstances.
The measures announced are a combination of partial contributions to businesses employee costs, and measures designed to assist with cashflow in the hope that businesses look to last out and retain workers until there might be the ability to get back to bringing more staff back in fully. Businesses therefore are faced with a financial assessment as to whether the amount the business needs to pay out to retain employees for the amount of time the employees are not actually working fully is a cost worth bearing for a period of time. Clearly part of the difficulty with this for many businesses will be making an assessment as to the potential timescales by which there does become sufficient work available to bring staff back in fully.
The Job Support Scheme as well as the extended period of time to pay CBILS and bounce back loans, plus the extended payment period for deferred VAT and tax payments will be a welcome addition for many businesses. All measures do remove the “cliff edge” that many businesses could have been faced with no furlough support, and then faced with deferred VAT and tax payments due plus loan repayments commencing. However, the supportability of cashflows for businesses will remain a key assessment due to the deferred liabilities and loans still need repaying, albeit over an extended period.
Overall therefore, I think the new measures are to be welcomed as providing some potential additional support for businesses. However, they wont suit all businesses, and I would still encourage businesses to be continually reassessing their position and consider what the strategy is to get through what is clearly going to be an extended period of having some form of COVID-19 restrictions in place across the country.
As is always the case with initial announcements on new measures, not all of the finer detail has yet been released. We will let you know as more detail is announced. However, the detail we do have at the moment is summarised below:
JOB SUPPORT SCHEME
There will be a new job scheme starting 1 November 2020 to replace the current Job retention (“furlough”) scheme which ends 31 October 2020.
All small and medium-sized businesses are eligible, larger businesses must show their turnover has fallen during the pandemic. Employers can use the new scheme even if they have not previously used the furlough scheme.
The new Government scheme will last for six months to 30 April 2021 and to be eligible employees will need to be working a minimum of 33% of their hours. For the remaining hours not worked the Government and employer will pay one third of wages each. This means:
Employers will continue to pay the wages of staff for the hours they work – but for the hours not worked, the government and the employer will each pay one third of their equivalent salary.
Overall therefore, employees who can only go back to work on shorter time will still be paid two thirds of the hours for those hours they can’t work.
The level of grant will be calculated based on employee’s usual salary, capped at £697.92 per month.
By way of an example an employee working 33% of their hours will receive at least 77% of their pay, 22% paid by the Government and 55% paid by their employer (the “worked” 33% plus 22%).
SELF-EMPLOYED INCOME SUPPORT SCHEME
The existing self-employed grant (SEISS) will also be extended on the same basis as the job support scheme.
An initial taxable grant will be provided to those who are currently eligible for SEISS and are continuing to actively trade but face reduced demand due to coronavirus. The initial lump sum will cover three months’ worth of profits for the period from November to the end of January next year. This is worth 20% of average monthly profits, up to a total of £1,875.
An additional second grant, which may be adjusted to respond to changing circumstances, will be available for self-employed individuals to cover the period from February 2021 to the end of April.
VAT CUT FOR HOSPITALITY SECTOR CONTINUES
The reduction in VAT to 5% for the hospitality and tourism sector will be extended until 31 March 2021.
DEFERRAL OF VAT BILLS
Up to half a million businesses who deferred their VAT bills will be given more breathing space through the New Payment Scheme, which gives them the option to pay back in smaller instalments. Rather than paying a lump sum in full at the end March next year, they will be able to make 11 smaller interest-free payments during the 2021-22 financial year.
SELF-ASSESSMENT TAXPAYERS – TIME TO PAY EXTENSION
Approximately 11 million self-assessment taxpayers will be able to benefit from a separate additional 12-month extension from HMRC on the “Time to Pay” self-service facility, meaning payments deferred from July 2020, and those due in January 2021, will now not need to be paid until January 2022.
BOUNCE BACK LOANS – FLEXIBILITY GIVEN TO PAY BACK AMOUNTS BORROWED
More than a million businesses who took out a Bounce Back Loan will get more repayment time through a new Pay as You Grow flexible repayment system.
This includes extending the length of the loan from six years to ten, which will cut monthly repayments by nearly half. Interest-only periods of up to six months and payment holidays will also be available to businesses.
The Government also intends to give Coronavirus Business Interruption Loan Scheme lenders the ability to extend the length of loans from a maximum of six years to ten years if it will help businesses to repay the loan.
The chancellor also announced an extension in applications for the government’s coronavirus loan schemes until the end of November.
Further guidance will be issued in due course.
If you wish to discuss any of these measures and in particular consider your businesses strategy over the coming months and year, please get in contact with you relationship team at Clarke Nicklin.