Earlier today, Rishi Sunak announced his Winter Economy Plan.

This replaced the standard Budget to reflect the new lockdown measures and the impact on businesses and individuals for the next 6 months.

As expected, a replacement to the Furlough scheme was announced, but how will it work? And what other measures were introduced?

Watch our short video or read about it below.

Employers & Employees

The furlough scheme will be replaced by a new Job Support Scheme for 6 months from 1 November.

This will allow employees to work part-time, with the Government part-funding the remainder.

To be eligible, an employee must work for at least one third of their normal hours. For any hours that aren’t worked, the cost will be split:

  • One third paid by the Government
  • One third paid by the Employer
  • One third will be unpaid

This effectively means that the Government will fund up to 22% of an employee’s wages.

The maximum Government funding will be £697.92 per employee per month.

Employers will also still be eligible for the £1,000 Job Retention Bonus for any previously furloughed staff who are still on the payroll through the Job Support Scheme as at 1 February 2021.

What businesses are eligible?

All small and medium businesses are eligible. They do not need to have used furlough before.

Large businesses will need to show a drop in turnover due to COVID-19. The precise details haven’t yet been announced.

How much will the funding be?

To give two examples:

Example 1 – Employee works one third of the time

If an employee earns £1,000 per month and only works one third of the time:

  • The first £333 is paid by the employer
  • For the remaining hours, £222 is paid by the employer and £222 by the Government

In total, the Employer pays £555 and the Government £222. The employee receives a total of £777.

Example 2 – Employee works one half of the time

If an employee earns £1,000 per month and only works one third of the time:

  • The first £500 is paid by the employer
  • For the remaining hours, £167 is paid by the employer and £167 by the Government

In total, the Employer pays £667 and the Government £167. The employee receives a total of £834.

The Self-Employed

The Self-Employed Income Support Scheme will be extended by 6 months. The amount of grant will be in line with the maximum funding for employees – the Government will pay 20% of average monthly profits.

The eligibility criteria will be the same as the previous payments, ie open to people who were self-employed prior to 5 April 2019 and have had their business affected by coronavirus.

There will be an initial grant to cover November to January, capped at a maximum of £1,875.

A second grant will be paid for February to April – the amount will be finalised nearer the time to reflect the economy at that point.

Hospitality & Tourism

Two of the sectors who have been hit hardest by COVID are hospitality and tourism. Just as venues were reopening, they have now been hit by the 10am curfew. And only a small amount of people are booking holidays.

Therefore, the reduction on VAT in this sector to 5% will be extended to 31 March. The 15% reduction will allow venues to either use the savings to cover their costs, or pass on the savings to customers to attract more people to the venues.

Cash flow

Cash flow is vital to any business. Even if the business has a strong future, running out of cash during coronavirus will see it fail.

To help with this, the Government has given more time to pay back tax and loans.

VAT

The VAT that was deferred from the April, May & June 2020 was originally to be paid by 31 March 2021. This can now be spilt into 11 smaller payments during the 2021-22 financial year with no interest or penalties.

Income Tax

Income Tax from Self-Assessment Tax Returns deferred from July 2020 to 31 January 2021 can now be deferred by an additional 12 months to 31 January 2020. In addition, the standard tax payments due by 31 January 2021 can be deferred by 12 months.

Loans

The application deadline for Coronavirus Business Interruption Loans (CBILS) and Bounce Back Loans (BBLs) will be extended to 30 November 2020 to allow more businesses to access the loans.

In addition, there will be a Pay As You Grow flexible repayment system. Repayment terms can be extended to 10 years from the original 6-year maximum term.

Bounce Back Loan borrowers will also be able to take 6-month repayment holidays or interest-only payments. These will not affect credit ratings.

WHAT DOES IT MEAN OVERALL?

I think most people recognise that the Furlough scheme can’t go on indefinitely – it costs too much and, to an extent, is being used to protect jobs that are no longer viable.

However, there’s also a recognition that we were approaching a cliff edge on 31 October when the scheme was due to abruptly end.

The new scheme isn’t as generous, but it will support jobs that are viable in the longer term. Employers who do keep on previously furloughed staff until 1 February will also get a Job Retention Bonus of £1,000 per employee.

However, how many businesses will pay 55% of the standard salary of someone who is only working 33% of the time? It will need a genuine assessment of whether they will be needed full-time again in the future.

Perhaps a more targeted scheme could have been introduced to protect jobs in the worst-hit sectors, for example hospitality and tourism.

On the other measures, it’s only fair that the Self-Employed get the same treatment as the Employed. But there’s still nothing for the forgotten 3 million who missed out previously – freelancers, the newly self-employed, and Limited Company Directors.

I accept that all of the initial measures were pulled together quickly and that some people would miss out, but it seems there has been time now to work out a way to fix this in at least some cases.

The cash flow assistance on loans and taxes will be very welcome to many businesses. And I do like the “Pay As You Grow” tagline!

Overall, this will be a help for businesses.

If you do have any questions, please do get in touch.

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Any questions?

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