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Chancellor’s Statement on New Coronavirus Measures 

24 Sep 2020


The Chancellor of the Exchequer today gave a statement to the House of Commons on a number of measures aimed at supporting jobs and business over the coming months.  Mr Sunak said that he saw reasons to be cautiously optimistic about the future so the next stage of his plan is aimed at nurturing the recovery. 

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The key measures announced were:

  • The Job Retention (Furlough) scheme will end as planned at the end of October.  The Chancellor was clear that in his view it was not appropriate to support jobs which are no longer viable and, to use his words, “exist only inside the furlough scheme.”

  • From November a new “Jobs Support Scheme” will be introduced and will run for six months.  This scheme will be aimed at only those jobs which are viable outside of furlough and will be available only where an employee works at least 1/3rd of their normal hours.  Under the scheme the government and the employer will each pay 1/3rd each of the difference between the employee’s normal pay and the pay they receive for the hours worked. 

    For example assume an employee earns £1,000 for their normal hours.  Under the new scheme they now work 1/3 of the normal hours and will receive £333.  Of the difference of £667 the Government will pay 1/3rd (£222) and the employer will pay the same, meaning the employee receives a total of £777 (subject to rounding!).  No doubt further detail will follow but presumably the additional amount from the government will be subject to income tax and NIC as with furlough scheme payments.

    Unlike Furlough however the scheme will not be open to all employers.  All small & medium sized entities will be able to access the scheme but large employers will only be eligible if their turnover has dropped as a result of the pandemic – presumably an attempt to target the measure at those businesses which have genuinely suffered over the last six months. 

    Eligible employers will be able to use the scheme irrespective of whether they have previously furloughed employees under the Job Retention Scheme.

  • The Self Employed Income Support Scheme will be extended “on similar terms to the Job Support Scheme” – no further details in the speech but presumably there may be similar restrictions to the amount of the grants payable under the scheme

  • A new “Pay As You Grow” scheme will be introduced for businesses which have taken out Bounceback loans, allowing repayments to be extended to up to 10 years.  It will be possible for businesses with cashflow difficulties to apply to make interest only payments and to suspend repayments for up to six months, again on application

  • The Government Guarantee on the other loan guarantee schemes (such as the Coronavirus Business Interruption Loan Scheme) will also be extended to 10 years and the deadline for new applications on all schemes extended to December of this year.  There will also be a replacement loan guarantee scheme introduced in January

  • Businesses will be able to spread the repayment of previously deferred VAT payments for up to 11 months with no interest.

  • There will also be an extension of up to 12 months for the payment of self-assessment tax bills due in January.  At this stage it is not immediately clear if this is the whole amount due in January or just the instalment payment which was able to be deferred from 31 July this year

  • The reduced 5% VAT rate for Hospitality and Tourism businesses will be extended to 31 March next year instead of increasing to 20% in January.

WR Partners Comment

 There are a wide range of measures announced in the statement but understandably detail is light at this stage given the pace of change.  There is a clear message that those jobs which have only been retained thanks to the Furlough scheme will now be effectively cut adrift with the focus being solely on those jobs which can exist (albeit on reduced hours) without Government support.  What larger companies will have to do to meet the “fall in turnover” condition is going to be very interesting – one would hope there will be some objective measures that can be used to make the calculation as straightforward as possible.  The extension of the Self Employed scheme is welcome but again the detail at this stage is very limited.

There was a real concern over the impact on cash flow of repayments of the government backed loan schemes and the deferred VAT and self-assessment payments in a short space of time in early 2021, so the Chancellor has taken steps to try to ease this.  These are undoubtedly positive developments but businesses will still need to be very clear about how they manage their cashflows even taking into account these changes.  What is clear is that the Government is still fully expecting these loans to be repaid, just perhaps on more flexible terms and over a longer period. 

Finally the extension of the VAT cut for hospitality and tourism businesses is again very welcome particularly through what would, for the hospitality trade at least, have been expected to be its busiest period in the lead up to Christmas. 

 

Overall then the Chancellor has again shown he is prepared to “think outside the box” when putting new measures in place, but it is very clear that his focus is on sustaining viable jobs and businesses – a distinct shift from the “one size fits all approach” through the first phase of the pandemic.  Businesses can expect a lot more detail on these measures in the coming weeks and will need to invest time in understanding the full impact on them. 

Here to Help

Please do get in touch if you would like to receive some guidance or advice that is specific to your business and your circumstances.

Written by Paul Brown | Tax Partner

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