The below article details new elements of COVID support announced on Thursday 24th September 2020, updated 6pm Thursday 24th September. For ALL our latest updates on support available around COVID-19, please visit: www.frenchduncan.co.uk/covid-19. This links to various resources, all of which we are keeping updated as things progress.
Job Support Scheme:
The Chancellor has today announced the Job Support Scheme, as part of the Winter Economy Plan. A welcome announcement for many sectors, particularly those who know the coming months are going to be difficult to navigate with continued restrictions due to the coronavirus. We have provided a brief summary and comment below on what we understand from this initial announcement but look forward to the detailed guidance to allow us to support and advise our clients over the coming months.
What does Job Support Scheme entail?
The employer will continue to pay the employee for work carried out and for the hours not worked, the employee will be paid up to two-thirds of their usual wage. One-third of this will be paid by the government (up to a cap of £697.92 per month) and one third by the employer. The employee will not be paid for the remaining hours. The employee will therefore be paid a minimum of 77% of their wages. The scheme will open on 1st November for 6 months until April 2021, and claims can be made from December 2020.
The Scheme is open to all SME’s but larger companies will need to provide evidence that they have suffered financially due to COVID-19.
What will this mean for me as an Employer?
Until we have the full guidance on the scheme, it will be hard for employers to use the existing guidance to forecast how the scheme will work for them, particularly as the calculations are going to be complex.
Our view is this scheme is unlikely to be hailed as the knight in shining armour for UK employment, especially in the context of a potentially tough trading period ahead over winter. Some may say the new scheme could allow companies who have work to do, to at least divide this amongst their staff base through reduced working. However, employers will have to make a fairly substantial financial contribution to the payroll costs, and in sectors where business has been particularly hard hit, it is highly unlikely it will save the vast majority of jobs at risk.
The initial government furlough scheme has undoubtedly supported employers through a difficult 8 month period, but most would agree it has been a sticking plaster...and this new approach is essentially a replacement, less sturdy plaster.
If you are currently about to embark on a redundancy process, you may wish to wait until the full guidance on the Job Support Scheme before proceeding, so you can decide if this will be sufficient help to protect employment. Or you might feel you have no option but to proceed given the ongoing uncertainty. Either way, please do not hesitate to talk to us for further support or you may find out Redundancy Guide helpful as you consider the options.
Changes to loans, CBILS & "pay as you grow":
Overall the Chancellors message was "pay as you grow" today, meaning that various previous loans offered to business will have terms or deadlines extended. The Bounce Back Loans will be extended from six years to ten years, which means monthly repayments will reduce by nearly half. The CBILS (Coronavirus Business Interruption Loan Scheme) lenders will also be at liberty to extend the length of loans from the current maximum of six years to ten years.
If businesses are struggling, the Chancellor also announced that they can choose to make interest-only payments for six months and those "in real trouble" can apply to suspend repayments altogether for six months. Whilst the specifics of just what defines "struggling" or "in real trouble" have not been specified, the Chancellor did also say that businesses will not see their credit rating fall as a result of deferring such payments.
So what impact might these changes to loans have on businesses? Our Head of Entrepreneurial Services, Greg Callan, said today:
“I think the combination of extending the period for repayments of CBILS and BBL and spreading HMRC payments over a longer term will obviously help cashflow over an extended period and help businesses manage the effects of uncertainty. Q1 2021 was going to be an unsettling time anyway, due to the added uncertainty around the impact of Brexit.
So, welcome assistance to owner/managed businesses on top of the Job support scheme, the Job Retention Bonus and the extension of the temporary 5% VAT rate for the hospitality and tourism sectors.“
Reduced VAT rate for hospitality & tourism sector:
A welcome business support measure announced in the Chancellors speech this afternoon was the continuation of the temporarily reduced VAT rate for the hospitality and tourism sector. The reduced rate of 5%, originally introduced in July for a period of 6 months to 12 January, has now been extended to 31 March. This reduced rate will continue to apply to supplies of food and non-alcoholic drinks from restaurants, pubs, cafés etc., supplies of accommodation and admission to attractions across the UK.
This extension of the reduced rate will be welcomed by businesses, not least because the winter months can be the hardest period in which to attract business under normal circumstances, resulting in any means of attracting additional custom or increasing profit margins extremely welcome; but also due to the fact that it was widely considered that the original cessation date of the scheme, halfway through the month, brought additional accounting challenges to a sector already under significant strain. This extension to the reduced rate period will hopefully result in a boost to turnover and an easement of the administrative burden of managing the transition back to the standard rate.
VAT Deferral Scheme:
The Chancellor has announced an extension to the time in which businesses have to repay VAT liabilities deferred under the VAT deferral scheme, which was introduced on 20 March this year. The scheme allowed VAT registered businesses to defer VAT return liabilities that fell due between 20 March and 30 June 2020, with payment being required in full to HMRC by 31 March 2021. Businesses could take advantage of this scheme without prior permission from HMRC and could choose to pay back in instalments or pay a lump sum at the end of the deferment period.
The new VAT deferral ‘Payment Scheme’ will allow all businesses that continue to have outstanding deferred VAT due to HMRC at 31 March to repay this via 11 interest-free equal instalments, which will come as a relief to those businesses which continue to struggle to meet their tax obligations in the wake of continued restrictions due to COVID-19. All businesses will be eligible but will need to actively opt in to use the scheme when HMRC publish the opt-in guidance at the start of 2021.
Of the 1,228,000 VAT payments that were eligible for deferment, only 496,000 were actually deferred, according to HMRC’s deferral scheme management information. This resulted in a total £27.5bn of VAT being deferred by businesses, much of which is likely to remain outstanding. By extending the time in which businesses can repay this tax, HMRC and the Treasury will hope that businesses that might otherwise have been unable to repay their VAT liabilities and were facing the prospect of insolvency, may now be able to continue to trade through ongoing financial challenges, resulting in jobs being saved and the outstanding tax, eventually, being collected.
This cash flow easement will no doubt also be welcomed by the many business sectors that face additional challenges come 1 January 2021, when the UK begins trading as an independent nation, following the Brexit transition period coming to an end on 31 December. The first quarter of 2021 will throw up many never before experienced challenges for businesses that trade with the EU. These challenges will be faced by more than the ‘traditional’ import and export sectors, as almost all businesses are, or have the potential to be, international thanks to the reach of the internet. The hospitality sector, for example, is often staffed by EU nationals, goods and services are purchased from EU suppliers and many of its customers will also hail from the EU. Brexit has the potential to introduce further cash flow challenges to UK business owners, which may make this extension to the VAT deferral scheme a lifeline for many.
Self-employed grants and income tax payments:
Self Employed Grant Extension:
Alongside the announcements made today for employees, it has been announced that there will be a similar extension to self-employed support.
The grant extension will be limited to those who are actively trading but facing reduced demand due to COVID-19. Your self-employed business must face reduced demand between 1 November and the date that you make your claim. In addition, you must have been eligible to claim the original SEISS support.
The extension to the scheme will be less generous than the previous SEISS scheme, which started at 80%, however it will still cover 20% of average monthly trading profits, paid in two instalments. The first grant will cover 3 months’ worth of profits from 1 November until 31 January. It will be worth 20% of average monthly profits, capped at £1,875 in total. The second grant is expected to cover 3 months’ worth of profits from 1 February until 30 April. The amounts for this will be reviewed and confirmed by the government in due course.
As with the first SEISS claims, this grant will be subject to Income Tax and National Insurance Contributions.
Delayed Income Tax Bills:
It was also announced that those with Self Assessment tax debt of up to £30,000 at 31 January 2021 will be able to set up a payment plan over 12 months to January 2022. This can be done online and will be invaluable to those who are finding it difficult to pay.
Whilst this will give immediate financial relief in regards to settling the January 2021 tax bill, the liability will still need to be settled over a period where additional liabilities for the 20/21 tax year will be becoming due. If the debts exceeds £30,000, you will need to phone HM Revenue and Customs to set up the plan.
Other COVID-19 Information:
For all our help, support and information around COVID-19 / Coronavirus visit: www.frenchduncan.co.uk/covid-19.