Tom Biggs ACA CTA, summarises the Chancellor's Summer statement as COVID-19 grips the economy.
The Chancellor has launched a fresh £30bn package of stimulus measures with the aim of trying to prevent further economic collapse as a result of the coronavirus pandemic. The "mini" Summer statement was designed to map out a recovery as the economy emerges from lockdown.
The only certainty at present however, is that the virus remains a threat to society. This means these measures can only be viewed as a sticking plaster. For demand to return to the economy, consumers and workers will need to be confident that they can venture out and not likely catch or spread COVID-19.
Until that is the case spending will probably remain restrained, meaning many businesses will struggle to regain sales. Meanwhile all the additional cleaning, safety, and social distancing measures will add to costs and squeeze organisation's profit margins.
Below is a summary of the Chancellor's announcements. Click on the links to find out more about each initiative.
1. Payments to organisations to bring back furloughed workers
There will be a new “job retention bonus”. This will work whereby £1,000 per worker will be paid to businesses who bring back staff out of furlough from the Coronavirus Job Retention Scheme (CJRS) and are continuously employed through to the end of end of January 2021.
A requirement is your employee(s) have to be earning at least the Lower Earnings Limit (£520 per month) on average between the end of October 2020 and end of January 2021.
Currently there are 9m people furloughed and if they are brought back to their jobs by their employers and continuously employed to the end of January 2021 then this could cost the government up to £9bn!
It was confirmed once again that CJRS will come to a close at the end of October.
2. The "kick starter" work creation scheme
This is a £2bn work creation scheme designed to prevent young people becoming unemployed long term as a result of the pandemic. It will help create a pool of “free labour” for businesses, by paying the minimum wage for up to 300,000 people aged 16-24 years old who are on Universal Credit.
Funding will cover 100% of the relevant National Minimum Wage for 25 hours a week, plus the associated employer National Insurance and employer minimum automatic enrolment contributions.
For an individual in the 21-24 age range, this would mean the government paying wages of £820, Employer's National Insurance Contributions (NIC) of £12.14, and Employer's pension contributions of £9 per month, equating to a total of £841.14 (on the assumption of a 4 week month).
3. Payments to employers who hire new apprentices
If you're an employer based in England then you will be able to receive a new payment of £2,000 for every new apprentice you hire. The condition is they have to be under 25 years of age. For those over 25 there will also be a £1,500 payment for each new apprentice.
The scheme will run from 1 August 2020 to 31 January 2021. The payments will be in addition to the existing £1,000 payment the Government already provides for taking on new 16-18 year old apprentices.
4. Payments to employers for traineeships
Employers providing work experience to 16-24-year-olds in work placements and training will be eligible to receive £1,000 per trainee. Provision of traineeships and eligibility for them will be extended to those with Level 3 qualifications and below. This means more young people will have access to training.
5. A cut to VAT for the hospitality and tourism sectors
There will be a VAT reduction from 20% to 5% for the hospitality and tourism industries. This will last from 15 July 2020 to 12 January 2021 and will come as welcome relief to many restaurants and pubs.
However, the devil is in the detail. The government's published document after the Chancellor's speech revealed that the cut is only applicable to the supply of food and non-alcoholic drinks from restaurants, pubs, bars, cafes and similar premises across the UK. It also applies to accommodation and attractions.
Therefore this measure is unlikely to be as beneficial as headlines would suggest given it doesn’t apply to alcoholic drinks, a key element of the hospitality trade.
6. The "eat out to help out" discount
This is a new 50% discount for meals and non-alcoholic drinks in cafés and restaurants in August 2020. The discounts are limited to up to £10 per diner and will only apply on Mondays, Tuesdays and Wednesdays.
Cash flow issues will hopefully be alleviated by the Government’s promise that payment of the 50% discount will be made to businesses within 5 days.
7. Stamp duty land tax slashed
The stamp duty land tax 0% threshold will rise from £125,000 to £500,000 immediately until the end of March 2021. It's likely to cost the government £3.8bn and is designed to help thaw a market that was frozen during the lockdown.
The duty only applies on completion of the sale meaning those who've just exchanged should also benefit from the cut. The stamp duty bands for individuals now stand as follows:
£500,000 - £925,000
£925,000 - £1.5m
A £700,000 property will result in a stamp duty charge of 5% on £200,000 of the sale, equating to £10,000. Previously stamp duty would have been £40,000.
The 3% surcharge will still apply to these bands for purchases through Limited Companies and second homes purchased by individuals. This means it's likely that in these scenarios a minimum 3% SDLT liability will still arise.
8. Housing energy efficiency - the Green Homes Grant
The Green Homes Grant is a £2bn home insulation scheme. It will be available to both homeowners and landlords. The government have pledged to pay for at least two-thirds of the cost of home improvements that save energy.
The grant will launch in September 2020 and there will be details of accredited local suppliers along with online applications for recommended energy efficiency measures, further details to be announced in due course.
The content of this post was created on 09/07/2020.
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