Emergency jobs package to replace furlough scheme
With the furlough scheme winding down and local lockdowns on the increase to try to curb the rising tide of coronavirus, it was almost inevitable the Chancellor would have to step in again.
Yesterday (September 24, 2020), Rishi Sunak did just that by announcing his unscheduled ‘winter economy plan’. It is not an extension of the furlough scheme, which still ends on October 31, 2020 as planned.
The replacement draws inspiration from a tried-and-tested jobs support model already in use in Germany – the so-called Kurzarbeit (short-time working) approach.
Mr Sunak’s Job Support Scheme is designed to provide some support for jobs which remain viable but which are likely to be less in demand over the coming months.
The Chancellor also announced further support for the self-employed, an extension to the VAT reduction announced in the summer, and further measures to help businesses’ cash flow.
The Job Support Scheme
The UK-wide Job Support Scheme draws similarities with Germany’s Kurzarbeit in that it will see the Government help to pay the wages of people returning to work on a part-time basis. The system is designed to encourage companies to retain workers in viable jobs, while ensuring others are not kept on in posts that exist only because of the furlough scheme.
The new scheme, which will run for six months between November 1, 2020 and April 30, 2021, is less generous than the furlough scheme but more flexible, essentially encouraging employers to give staff as many hours as they can or need to.
To be eligible for the scheme, employees must work at least a third of their usual hours and be paid at their usual rate. For the remaining hours not worked, the Government and the employer each pay for a third of the worker’s wages, with the state contribution capped at £697.92 a month, which equates to a gross salary of £37,688 pa. So employees working 33% of their hours will get at least 77% of their salary, subject to this contribution cap.
The scheme is available to all small and medium-sized businesses, while large businesses will be able to use it only if they can show their turnover was reduced by the virus. It’s also available to employers, regardless of whether they have already used the furlough scheme.
The requirement to work 33% of the usual hours of employment will be reviewed after the first three months of operation of the scheme and may increase from month four onwards.
So, for an employee on a salary of £25,000 per annum who works 33% of their normal hours, they will be paid each month that the scheme operates as follows:
Total Paid by employer Paid by HMRC
|Total||Paid by employer||Paid by HMRC|
|Salary for work performed (33% x £25,000 / 12 months)||£687.50||£687.50||£0|
|Payment for work not done (1/3 each of 67% of salary)||£930.56||£465.28||£465.28|
Bear in mind that the employer will also have to pay employer’s NI of £122.23 and pension contributions of £32.94 as well so the total cost to a business of keeping this person employed would be a monthly equivalent of £1,307.95.
The grant payments are made in arrears so, in the example above, the employer would have to pay out the entire gross salary of £1,618.06 (plus employer’s NI and pension) and would later reclaim £465.28. It is expected the first claim can be made in December 2020 through a newly designed portal on Gov.uk.
Unlike the Coronavirus Job Retention Scheme (CJRS), employers using this scheme cannot voluntarily top up their employee’s wages to the normal level of earnings as that would disqualify them from the government contribution.
Also, unlike the CJRS, employees cannot be made redundant or put on notice of redundancy during the period within which the employer is claiming the grant. This is part of the Chancellor trying to ensure the scheme is only used for viable jobs.
SEISS grant extension
The self-employment income support scheme (SEISS), which was due to close for new applications on October 19, 2020, will now remain in place until April 30, 2021 on similar terms as the new support scheme. Mr Sunak said this extension will support viable traders who are facing reduced demand due to Covid-19.
It will only be available to self-employed individuals who are currently eligible for SEISS and actively continuing to trade.
The extension will come in the form of two taxable grants, with the first covering 20% of average monthly trading profits, paid in a single instalment for the three months from November 1, 2020 to January 31, 2021, and capped at £1,875 in total.
The Government has said it will review the level for the second grant, which will cover the period from February 1 to April 30, and “set this in due course”.
Individuals who began self-employment after 5 April 2019 or those who could not meet the requirement to have average profits of less than £50,000 pa during the relevant periods will still not qualify for the new grant.
There is also still no help for individuals operating through their own personal service company and paying themselves largely with dividends.
More time to pay income tax bills
Any of the 11.7 million of self-assessed income taxpayers who need extra help can also now extend their outstanding tax bill over 12 months from January 2021.
The Government has handed the self-employed and other taxpayers more time to pay taxes deferred from July 2020 and those due in January 2021, building on the payments on account deferral in July 2020.
Taxpayers with up to £30,000 in self-assessment liabilities due in January 2021 will be able to use HMRC’s time-to-pay facility to pay over an extra 12 months.
In practice, those who deferred their payments on account in July 2020 will not need to settle their bill in full until on or before January 31, 2022. There is no specific comment on interest being charged, but if under the existing time to pay arrangements, taxpayers should expect interest to be payable on deferred amounts.
Loans extension for struggling firms
There have been suspicions for some time that the coronavirus business interruption loan scheme (CBILS) might be extended past its current end date of Wednesday September 30, 2020.
The Chancellor has now confirmed that new applications for four existing business loan schemes have been extended until Monday November 30, 2020. These include:
● Coronavirus large business interruption loan scheme
● Bounce-back loan scheme (BBLs)
● The future fund
The Chancellor has also increased the repayment terms of BBLs and the CBILS by offering the choice of extending the repayments from six to 10 years, sharply reducing monthly instalments for around 1.6m UK businesses.
Hospitality & tourism VAT rate
On July 8, 2020, the Government cut the standard rate of VAT for businesses operating in the hospitality and tourism sectors from 20% to 5%, initially from July 15, 2020 until January 12, 2021.
This temporary reduction for the businesses severely affected by forced closures and social distancing measures due to the coronavirus has been extended until March 31, 2021. This applies to the same organisations that make supplies of hospitality, hotel and holiday accommodation and admission to certain attractions.
Option to split deferred VAT bills
Businesses that deferred their VAT payments between 20 March and 30 June 2020 will no longer have to pay a lump sum on or before March 31, 2021. Instead, the Government is offering the option to split this repayment into smaller, interest-free payments over the course of 11 months – potentially benefiting up to 500,000 firms.
New restrictions, more redundancies
This development comes in the context of new restrictions announced by Prime Minister Boris Johnson, including the compulsory 10pm closure of pubs, bars and restaurants. It’s possible – even likely – that further measures will be taken in October, taking the country back to something like the economic stagnation felt during lockdown in March and April this year.
Fears have also been growing of a wave of redundancies as the furlough scheme winds down, with 33% of private-sector firms intending to reduce the size of their workforces without additional government support, according to the CIPD.
How will the UK pay for this?
The cost of the Chancellor’s new plan will add billions to the £320bn deficit already chalked up attempting to stem the economic fallout from the coronavirus. As of August 2020, the furlough scheme has cost more than £36bn, while SEISS has cost around £7.5bn, pushing government spending up by around 60% compared to the same time in 2019.
At some point, taxes will have to rise but there was no mention of that in Sunak’s speech and the Chancellor has already postponed plans for an Autumn Budget until the spring, for the second consecutive year.
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