As we reported yesterday, the Chancellor of the Exchequer Rishi Sunak has announced a range of measures designed to support businesses during the autumn and winter.
The announcement follows a bleak presentation from the Prime Minister and his key advisers last week, in which further Covid-19 related restrictions were announced.
Following this, pressure mounted on the chancellor to introduce substantial assistance to businesses that will be adversely affected over the next six months following the implementation of these restrictions.
This is especially important as many of these businesses have already suffered a notable drop in revenue in the past six months.
The measures announced today fall into four district categories, as summarised below:
- A Job Support Scheme, replacing the Furlough Scheme
- An Extension to the Self-Employed Income Support Scheme
- A Relaxation of Bounce Back Loans Repayment Terms
- Tax Relief Including for Select Sectors
Job Support Scheme
The headline announcement in today’s statement from the Chancellor was an effective evolution of the furlough scheme.
The new Job Support Scheme will allow a partial subsidy of employees’ salaries for those working fewer hours than normal.
In essence, this allows employers to welcome back employees part-time (extending the ‘flexible furlough’ aspect of the current programme) and receive a grant towards the remaining usual salary.
Under the scheme, an employee must work at least one-third of their usual hours during the claim period.
The government will then issue a grant to fund one-third of their usual salary and the employer will be asked to contribute the final one-third.
Hence in effect 33% of the salary will be paid by the employer in respect of hours worked; 33% will be paid by the government grant and the employer will pay another 33% as a business cost.
The grant will be capped at £697.92 per month, far less than the original cap of £2,500 at the beginning of the furlough scheme.
As a result, an employee working one-third of their usual hours will receive just 77% of their usual salary.
Hence the government is only actually contributing a total of 22% of an employee’s usual salary; by contrast, it was 80% at the commencement of the furlough scheme.
The scheme is also only available to Small- and Medium-Sized businesses; larger businesses can only apply if evidence can be provided of a manifest reduction in turnover.
The scheme will be available for a period of six months, from 01 November 2020 (as the furlough scheme concludes on 31 October) onwards.
Self-Employed Income Support Scheme
Self-employed individuals will be eligible for a three month extension to the Self-Employed Income Support Scheme.
Those business people who qualified for the first two grants will be similarly eligible for the third grant.
The period covered is from the start of November 2020 to the end of January 2021.
There may well be a fourth grant available, to cover the period February to April 2021, if the Chancellor sees fit closer to the time.
However, the third instalment of the scheme is much less generous than its initial formation – only 20% of average monthly profits will be paid out, capped at £1,875.
We will report on this portal if the Chancellor decides to extend the scheme to allow for a fourth grant.
Bounce Back Loans
The Chancellor has extended the repayment terms of the Bounce Back loans in order to ease the long-term balance sheet position of businesses in receipt of such loans.
The original repayment period was six years, but this has been extended to 10 years.
This is after the initial one-year interest and repayment free period.
The scheme is also available for application to new applicants until 30 November 2020, extending the original deadline.
Furthermore, businesses in extreme trouble can also apply for additional relief in repayment terms.
Such businesses will be allowed to make interest only payments for six months and if still struggling after this, be eligible for a suspension of repayments for six moths.
Tax Relief
Another key measure in the Chancellor’s statement was an extension to the 15% VAT cut for the tourism and hospitality sectors.
This relief was originally set to run to 31 January 2021, but the new extension will see the relief sustained to 31 March 2021.
This means in effect that the VAT rate will be 5% for tourism and hospitality businesses until March next year.
In addition, for any businesses that deferred their VAT bill as per the previously announced relief, the repayment curve has been spread out to remove a significant ‘one off’ repayment.
Instead, such businesses will be able to pay back the tax due in 11 smaller instalments on an interest-free basis.
Finally, self-assessed tax payers who are struggling to meet their 31 January 2021 payment will be afforded more generous payment terms upon application.
Should you have any questions regarding this range of measures and how they may be applicable to your business, simply contact a member of our team at any time via our dedicated portal, by contacting your dedicated accountant or by various means via our contact us page.
Best wishes,
Alan
Alan Wright
Coronavirus Support Team
Switch Accountants