September 24th, 2020 / Insight posted in Articles, Tax

Chancellor’s Winter Economy Plan

Amid continuing uncertainty as a result of Coronavirus, the Chancellor of the Exchequer yesterday cancelled his proposed autumn Budget, and today announced a number of further support measures.

The Coronavirus Job Retention Scheme has long been due to end on 31 October, and with restrictions starting to increase once again, pressure has been mounting on the Chancellor to announce some sort of extension.

The Chancellor made it clear once again that the furlough scheme cannot continue, but he did announce a new measure – the Job Support Scheme – which 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.

Although today’s measures are not in the same league as some of those introduced earlier in the year, they will be a welcome lifeline to many. Others will simply be relieved that the prospect of tax rises has been deferred until at least the new year.

Job Support Scheme

From 1 November 2020 to 30 April 2021, the newly announced Job Support Scheme will follow on from the Coronavirus Job Retention Scheme which ends on 31 October 2020.

The scheme is open to all employers with a UK bank account and a UK PAYE scheme. All Small and Medium-Sized Enterprises (SMEs) will be eligible; large businesses will be required to demonstrate that their business has been adversely affected by Coronavirus, and the government expects that large employers will not be paying dividends while using the scheme.

This scheme can be used for any individual in employment as of 23 September. However, this means that the employee must have been included in a Real Time Information (RTI) upload to HMRC on or before 23 September which is going to exclude almost all monthly paid employees who started a job after the August payroll was processed by the employer.

Employees being paid under this scheme must work at least 33% of their normal hours and be paid by their employer for this work. The government and the employer will then pay two thirds of the short fall split equally between them. The government contribution is capped at £697.92 per month, which appears to mean the full benefit of the scheme will be available to employees with a gross salary of £37,500.

The requirement to work 33% of the normal 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:

 

 

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 that 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 that the scheme is only used for viable jobs.

Self-Employed Income Support Scheme

The Self-Employment Income Support Scheme extension is intended to support self-employed individuals (including members of partnerships) who are facing reduced demand over the winter months. A first grant – relating to the period from November 2020 to January 2021 – will cover 20% of average monthly trading profits. A second grant will be available for February to April 2021.

As before, the grant will be treated in the same way as self-employed trading profits so will be subject to income tax and NI.

To qualify, the individual must meet the following criteria:

  • Currently be eligible for the SEISS (although they do not have to have claimed the previous grants)
  • Declare that they are currently actively trading and intend to continue to trade
  • Declare that they are impacted by reduced demand due to Coronavirus in the qualifying period. The qualifying period for the first grant is between 1 November 2020 and the date of claim.

The first condition above replicates some of the problems of the original SEISS. Individuals who commenced self-employment after 5 April 2019 or those who could not meet the requirement to have average profits of less than £50,000 per annum during the relevant periods will still not qualify for this new grant. There is also still no help for individuals operating through their own personal service company and paying themselves largely with dividends.

There is a cap of £1,875 applicable to the first three months and the cap and relevant percentage for the second three months will be announced nearer the time.

VAT reduction

The government has extended the 5% VAT rate for the tourism and hospitality sectors to the end of March next year. The VAT reduction was previously due to revert to 20% on 12 January 2021.

This will continue to apply to supplies of food and non-alcoholic drinks from restaurants, pubs, bars, cafés and similar premises, supplies of accommodation and admission to attractions across the UK.

VAT deferral

Businesses who benefited from the automatic deferral of VAT payments due between March and June 2020 will no longer have to pay a lump sum at the end of March next year. They will have the option of splitting it into smaller, interest free payments over the course of 11 months.

All businesses which took advantage of the VAT deferral can use the New Payment Scheme. Businesses will need to opt in, but all are eligible. HMRC will put in place an opt-in process in early 2021.

Self-assessment tax deferred

Provided the tax outstanding is less than £30,000, individuals who deferred their 31 July 2020 self-assessment payment on account can now avoid paying this on 31 January 2021 and instead extend their outstanding tax bill over 12 months from January 2021.

Taxpayers with up to £30,000 of Self-Assessment liabilities due will be able to use HMRC’s self-service time to pay facility to secure a plan to pay over an additional 12 months. This means that self-assessment liabilities originally due in July 2020 will not need to be paid in full until January 2022.

Individuals with more than £30,000 to pay who wish to defer payment will still need to call the HMRC time to pay self-assessment helpline to attempt to agree a payment plan. However, it does appear possible to make a partial payment of tax to bring the outstanding amount below £30,000 so that they are eligible to use the automatic self-service system.

Coronavirus loan schemes

The application deadline for all Coronavirus loan schemes – including the future fund – has been extended to 30 November ensuring even more businesses can benefit from government-backed support.

The government guarantee given to lenders who have made loans under the Coronavirus Business Interruption Loan Scheme (CBILS) has been extended to up to 10 years giving lenders the ability to offer CBILS borrowers more time to make their repayments where needed.

Businesses which have borrowed under the Bounce Back Loan Scheme will be offered greater flexibility for their repayments under the “Pay-as-you-grow” scheme which can:

  • extend the loan term so that the loan can be repaid over 10 years
  • allow borrowers to make interest only repayments for three periods of up to 6 months during the term of the loan; and
  • pause their repayments entirely for up to six months (an option which can only be used once and only after having made six payments)