Building Legacies Briefing
Chancellor of The Exchequer’s UK Economic Update – 24th September 2020
During the last six months the UK Government has initiated a number of state-funded schemes and interventions to support businesses and individuals who have been adversely affected economically as a result of the Coronavirus pandemic.
One of the largest support packages is the Coronavirus Job Retention Scheme (CJRS) – often called the ‘Furlough Scheme’ – which is now winding down and will cease altogether on 31st October.
Given that many companies and other trading organisations are still in financial difficulties, and because millions of jobs are still at risk, the Chancellor has announced the introduction of a replacement scheme, albeit less generous in the level of Government payments, which will be known as the Job Support Scheme (JSS).
Chancellor Sunak has also updated, revised and amended some of the existing support measures, all of which we will explain in this briefing.
1. The Job Support Scheme (JSS)
The main features of the new JSS are:
• The Government will subsidise the pay of employees who are working fewer than normal hours due to lower demand
• Workers must do at least a third of their normal hours
• Employers will pay staff for the hours they work
• The Government and the employer will pay a third each for the hours they can’t work
• It means someone working a third of their hours would receive 77% of their pay
• The grant will be capped at £697.92 per month per employee
• All small and medium sized businesses will be eligible for the scheme
• Larger business will be eligible if their turnover has fallen during the crisis
• It will be open to employers across the UK even if they have not previously used the Furlough Scheme
• The scheme will run for six months starting in November and replaces the Furlough Scheme
• It means the Government will pay a maximum of 22% of someone’s wages, down from 80% at the start of the original introduction of the Furlough Scheme
If an employee works reduced hours the employer pays for that.
In addition, the employer and Government each pay one third of the lost pay (up to the £697.92 cap).
So, as an example, someone on £2,000 a month working 50% hours would get £1,000 normal pay, plus £333 extra from their employer and £333 from the Government.
The scheme will open on 1st November 2020 and will run until 30th April 2021. Employers can start making claims online from early December 2020 (date and portal yet to be announced). They will be paid on a monthly basis.
JSS grant money will be payable in arrears, meaning that a claim can only be submitted in respect of a given pay period after payment to the employee has been made and that payment has been reported to HMRC via an RTI return. HMRC will check all claims.
Payments may be withheld or need to be paid back if a claim is found to be fraudulent or based on incorrect information. Grants can only be used as reimbursement for wage costs actually incurred.
Employers must agree the new short-time working arrangements with their staff, make any changes to the employment contract by agreement, and notify the employee in writing.
This agreement must be made available to HMRC on request. HMRC intend to inform each employee directly of full details of the claim made in their name by their employer.
Here’s an example:
Hours employee worked: 33% 40% 50% 60% 70%
Hours employee not working: 67% 60% 50% 40% 30%
Employee earnings (% of normal): 78% 80% 83% 87% 90%
Government grant (% of normal wage) 22% 20% 17% 13% 10%
Employer cost (% of normal wages): 55% 60% 67% 73% 80%
The JSS is designed as an additional grant alongside the Jobs Retention Bonus (https://www.gov.uk/government/publications/job-retention-bonus/job-retention-bonus) and could be worth over 60% of average wages of workers who have been furloughed – and are kept on until the start of February 2021.
Businesses can benefit from both schemes in order to help protect jobs.
You can read full details of the JSS here: Job Support Scheme
2. Extension of the Self-Employed Income Support Scheme (SEISS)
An initial taxable grant will be provided to those who are currently eligible for SEISS and are continuing to actively trade but face reduced demand due to Coronavirus.
The initial lump sum will cover three months’ worth of profits for the period from November 2020 to the end of January 2021.
This is worth 20% of average monthly profits, up to a total of £1,875.
An additional second grant, which may be adjusted to respond to changing circumstances, will be available for self-employed individuals to cover the period from 1st February 2021 to the end of April 2021, ensuring that Government support continues right through to next year.
This is in addition to the more than £13 billion of support already provided for over 2.6 million self-employed individuals through the first two stages of the SEISS.
Full details can be found here: extending the Self Employment Income Support Scheme
3. Tax Cuts and Deferrals
The Government announced that it will extend the temporary 15% VAT cut for the tourism and hospitality sectors to the end of March 2021.
This will give businesses in these sectors, which have been severely impacted by the pandemic, the confidence to retain as many staff as possible whilst they adapt to a new trading environment.
In addition, up to half a million business who deferred their VAT bills will be given more breathing space through the New Payment Scheme, which gives them the option to pay back in smaller instalments.
Rather than paying a lump sum in full at the end March 2021 they will be able to make 11 smaller interest-free payments during the 2021-22 financial year.
In addition, around 11 million self-assessment taxpayers will be able to benefit from a separate additional 12-month extension from HMRC on the “Time to Pay” self-service facility, meaning payments deferred from July 2020, and those due in January 2021, will now not need to be paid until January 2022.
You can request these changes via the HMRC online portal, using your unique identity reference code.
4. Extra Flexibility in Paying Back Loans
More than a million businesses that took out a Bounce Back Loan will now be able to re-structure and extend the period of their repayments through a new ‘Pay as You Grow’ flexible repayment system.
This includes extending the length of the loan from six years to ten, which will cut monthly repayments by nearly half.
Interest-only periods of up to six months and payment holidays will also be available.
Businesses struggling can choose to make interest-only payments for six months and those “in real trouble” can apply to suspend repayments altogether for six months.
These measures are designed to further protect jobs by helping different businesses recover from the pandemic over different periods of time.
The Government will also give Coronavirus Business Interruption Loan Scheme (CBILS) lenders the ability to extend the length of loans from a maximum of six years to ten years if it will help businesses to repay the loan whilst continuing to trade.
If you wish to extend your loan period, you should contact the bank that facilitated your original loan.
“Businesses will not see their credit rating fall as a result of these loan adjustments”, the Chancellor says.
In addition, the Chancellor also announced he would be extending new applications for the Government’s Coronavirus loan schemes until November 30th, 2020.
You do not have to apply for the loan through your own bank.
If you do so, and are declined, we strongly recommend that you try other banks on the Government’s approved provider list: https://www.british-business-bank.co.uk/ourpartners/coronavirus-business-interruption-loan-schemes/bounce-back-loans/current-accredited-lenders-and-partners/
As a result, more businesses will now be able to benefit from the Coronavirus Business Interruption Loan Scheme, the Coronavirus Large Business Interruption Loan Scheme, the Bounce Back Loan Scheme and the Future Fund.
This change aligns all the end dates of these schemes, ensuring that there is further support in place for those firms who need it.
5. Potential ‘Lockdown’ Grants
London is now on the Government’s Coronavirus ‘watch list’ as the incidence of infection is increasing.
If any Boroughs become subject to lockdown or targeted restriction measures and your business is required to close, you will be able to receive grants worth up to £1,500 every three weeks.
Sectors remaining closed due to national restrictions (e.g. nightclubs) will not be eligible.
Local Authorities will also receive limited additional funding for local discretionary grant schemes.
Each payment will be made for a three-week lockdown period and each new three-week lockdown period triggers an additional payment.
The new grant scheme will be administered by Local Authorities once Government guidance is provided.