A first look at how the Winter Economy Plan can support you
A first look at how the Winter Economy Plan can support you
On Thursday 24 September, the government cancelled its annual Autumn Statement, which we had anticipated in our recent article might give rise to some important changes to capital gains tax (CGT) and inheritance tax (IHT), including increases in tax rates and changes to tax reliefs.
This cancellation gives opportunity for taxpayers to proactively review their structures and potentially take advantage of current tax rates and reliefs before any changes which may occur in Spring 2021. We will be working with our clients to assess how the possible changes may impact their ‘Big Picture’ and consequently whether they need to take any action.
In place of the Autumn Statement, the Chancellor instead published the “Winter Economy Plan”. Making clear that the country has no choice but to live with the virus, the government is introducing a package of targeted measures to help businesses to protect jobs and manage their finances. We have summarised the key announcements below, affecting both businesses and individuals, and we would urge our clients and contacts to consider whether these measures might help them in the months ahead.
Job Support Scheme
A new Job Support Scheme (“JSS”) was originally going to be introduced for six months from 1 November 2020; this is when the existing Job Retention (or “furlough”) Scheme ("JRS") was meant to end, and was designed to avoid the potential for mass unemployment. On 5 November, the government announced that the JRS is being extended to 31 March 2021, and it is unclear whether the JSS will now be introduced at the end of this period.
The original details of the JSS are as follows, but may change now that the scheme has been postponed:
The JSS is aimed at supporting jobs which will be viable in the long term, but which are temporarily affected by the recent measures to control the spread of the virus.
Under the JSS, employees will need to work a minimum of 33% of their usual hours (and not be on a redundancy notice), which is to demonstrate that the job is viable. For each hour not worked, the employer and the government will each pay 33% of the employee’s usual pay, and the government contribution will be capped at £697.92 per month (this equates to an annual salary of around £37,700). An example for an employee earning a salary of £30,000 is below:
Normal annual salary: £30,000.00
Normal monthly salary: £2,500.00
1/3 time actually worked: £833.33
2/3 time not worked: £1,666.67
Employer's JSS contribution: £555.56
Government's JSS contribution: £555.56
Employee's earnings under JSS: £1,944.44
Percentage of normal pay received: 77.78%
The scheme was originally going to run for six months from 1 November, and is open to all employers with a UK bank account and a UK PAYE scheme. All small and medium-sized businesses will be eligible; large businesses will be required to demonstrate that their business has been adversely affected by COVID-19 (meaning that revenues have reduced by over 33%), and the government expects that large employers will not be making capital distributions (such as dividends), whilst using the scheme. Employees using the scheme will receive at least 77% of their usual pay, where the government contribution has not been capped. Employers will be reimbursed in arrears for the government contribution by way of a grant.
We understand that the JSS can be used for any employee, irrespective of their joining date, and so it is not limited to those who have previously been furloughed. Further, employers who make a claim under the JSS will still be able to claim the Job Retention Bonus.
Detailed guidance on the JSS is yet to emerge. One matter which business-owners should consider is that, using the example above, they would need to fund 56% of usual wages, but would only benefit from 33% of the employee’s usual output. This is a significant uplift in the employer contribution, compared with the existing Job Retention Scheme. Business-owners will therefore need to weigh up the benefits of retaining valued employees on reduced hours against the costs of redundancy, should that be necessary, and potential recruitment costs when things pick up again.
Moreover, there has been no mention yet of grants for employer’s national insurance costs on these employees’ wages, and so the presumption is that employers will need to fund these too.
There are also cash flow considerations for employers; the JSS grant is payable in arrears, so businesses need to be aware that they will need to finance staff costs themselves initially.
SEISS Grant Extension
The Self-Employment Income Support Scheme (SEISS) Grant Extension is aimed at providing critical support to the self-employed. The grant will be limited to self-employed individuals who are currently eligible for the SEISS and are actively continuing to trade, but who are facing reduced demand due to the virus. The scheme will last for six months, from 1 November 2020 to 30 April 2021.
The extension will be in the form of two taxable grants. The first grant will cover a three-month period from the start of November until the end of January; this initial grant will cover 20% of average monthly trading profits, paid out in a single instalment covering three months’ worth of profits, and capped at £1,875 in total. The second grant will cover a three-month period from the start of February until the end of April. The government is yet to determine the cap for the second grant, but will be announcing this “in due course”.
- The VAT Deferral Scheme is being modified so that those businesses which took advantage of deferring VAT due in March to June 2020 can spread those payments over 11 months from 31 March 2021, rather than being payable in full at that date. All businesses will be eligible for this “New Payment Scheme”, and the government will be putting in place an “opt-in” scheme in early 2021. Update 1 February 2021: it is still not possible to "opt in" as yet, but the government has now provided some further details on its website here. There are some important actions to take now so that you are ready to opt in. Crucially, you must be up to date with your VAT returns and pay the first instalment of your deferred VAT liability (which can be spread over 11 months, interest-free) when you opt in to the scheme.
- Individuals with up to £30,000 of self-assessment tax liabilities will be able to use HMRC’s self-service Time To Pay facility to secure a plan to pay these over an additional 12 months. Therefore, liabilities which were due by 31 July 2020 (which HMRC had allowed individuals to defer to 31 January 2021) will not need to be paid in full until 31 January 2022.
- The Business Bounce Back Loan Scheme (BBLS) is being extended to 31 January 2021 for new applications. Further, businesses which have already accessed the BBLS will have the option to repay their loan over a period of up to 10 years under the “Pay As You Grow” scheme, as well as moving to an interest-only repayment plan for a period of up to six months (this can be used three times over the life of the loan), or pausing repayments entirely for up to six months (usable only once, and after six months’ repayments have already been made).
- The Coronavirus Business Interruption Loan Scheme (CBILS) is being extended to 31 January 2021 for new applications. In addition, lenders are being allowed to extend the term of a loan up to 10 years (originally, CBILS had to be repaid within six years).
- The temporarily reduced VAT rate of 5% for hospitality and tourism has been extended from 12 January to 31 March 2021.
We will continue to keep you updated in the coming weeks, as the government releases more detail on the Winter Economy Plan. Please get in touch with your usual contact if you’d like any assistance with the support available. Our office remains open, with the team working from home where they can. Please continue to use the main telephone number, 01892 546546, or any of our usual channels to communicate with our team. If the main line is busy, please do leave a message and we will get back to you.
Please note: The information above is based on our understanding and interpretation of the government's guidance as of 12pm on Monday 16 November 2020. Changes to government guidance on a daily basis may mean that this information is not accurate or complete beyond this time.