Tom Biggs ACA CTA, summarises the Chancellor's plans to help businesses as another wave of COVID-19 hits the UK.
The British economy has been in a gradual state of opening up only for a rise in Coronavirus cases to lead to new restrictive measures being put in place for the next 6 months.
How will this impact the economy and businesses?
A consequence is the level of demand in the economy is now looking somewhat uncertain, just at a time when it had been recovering. Considering various coronavirus support measures were being phased out, the Chancellor was compelled to devise his Winter Economy Plan.
In this post we explain Rishi Sunak's proposals for supporting businesses and workers:
Commencing in November 2020, the Job Support Scheme will help subsidise the wages of employees that have not returned full time to their jobs (but are working at least a third of their usual hours).
To qualify, employees must:
Be working a minimum of a third of their normal hours
Have been on the payroll on or before 23 September 2020 – the RTI submission notifying payment made to that employee must have been made on or before this date
If you have employees not working any of their previously normal hours then they won't be eligible for this scheme. Furthermore your employees can't be made redundant, or put on notice for redundancy, when you're claiming the grant.
For many businesses the scheme will be applied based on your August payroll submission, unless it's run early in September. Employees can cycle on and off the scheme and don't have to work the same pattern every month.
How it works
The government and employer will each pay a third of the non-worked hours. This means your qualifying employees will have to sacrifice the final third of non-worked hours. The government contribution won't cover the class 1 employer NIC or pension contributions, instead these will remain payable by the employer.
Of note, the government's contribution is capped at £697.92 per month. This means the two thirds employer/government contribution won't hold true if your employee earns over a certain amount.
Making the claim and payment
The claim will be made online through the GOV.UK website. Claims will be processed after payment has been made to the employee and reported to HMRC via a payroll RTI. Owner managers will therefore need to think carefully about the short term implications on their cash flow and financial position.
The Job Support Scheme is being launched in response to the Coronavirus Job Retention Scheme (CJRS) being gradually phased out. CJRS evolved into 'flexible furlough' whereby employers have been paying an increasing proportion of their staff wages since July 2020.
CJRS coming to a close at the end of October sees the government subsidising 60% of the wages of employees that qualified for the support. The new scheme will reduce that to no more than 22%.
2. Another round of self employment grants
This is an extension of the existing Self Employed Income Support Scheme (SEISS). The taxable grant will continue to be available to those who are currently eligible for SEISS and still actively trading. The condition is you have experienced reduced demand due to the pandemic.
SEISS will now cover the period from November to the end of January 2021 and will be worth 20% of average profits up to a total of £1,875. Another grant is likely to be made available for self employed individuals to cover February to the end of April 2021. However, the amount is still to be determined.
3. An extension to business loan schemes and more time to pay these back
For Business Bounce Back Loans, the Chancellor introduced pay as you grow. This works whereby loans can be extended from the current 6 to 10 years. It could potentially help halve the average monthly payment, although it may in turn add to the total balance due to be settled.
Where a business is making use of these loans and falls into financial difficulty, you can suspend payments for up to 6 months. The government is also extending until 30 November 2020 application deadlines for the following:
4. A new payment scheme for the deferral of VAT and income tax bills
Previous COVID-19 support meant certain VAT payments were deferred and instead payable by 31 March 2021. Now there is a new payment scheme. Rather than paying all of the deferred VAT liability in one go, you'll able to make payments in 11 smaller instalments throughout the 2021/22 tax year. Furthermore, the deferral will be interest free.
Similarly, qualifying self-assessment income taxpayers can extend their outstanding tax bill for payment over 11 months through the 2021/22 tax year from January 2021 under revisions to the prior income tax deferral. Previously this would have been due by 31 January 2021.
Of note, if you do choose to defer payment beyond January 2021 then HMRC will apply interest to the amount owed. You'll have to organise a time-to-pay arrangement with HMRC in order to take advantage of this scheme, it won't be automatic like the deferral of the second payment on account in 2020.
It would also be wise to set money aside on a regular basis to ensure you can fulfil these tax liabilities.
5. An extension of the reduced VAT for the tourism and hospitality industries
The 15% VAT cut (down to 5% from 20%) for the tourism and hospitality industries has been extended to March 2021. It was originally due to end on 12 January 2021.
The underlying theme from these announcements is the Treasury are encouraging SMEs to borrow and take on more debt. The hope, and potential uncertainty, is that future trading volumes will be sufficient to afford it!?
This post was created on 24/09/2020 and updated on 09/10/2020.
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