The Chancellor Rishi Sunak has announced a new Job Support Scheme to top up the wages of workers on reduced hours along with other emergency measures to assist businesses. We have provided a summary of the announcements.
Job Support Scheme
The new Job Support Scheme will begin on 1st November 2020 and will replace the ‘furlough scheme’. It will only be available for employees working at least one-third of their normal hours. Employers will continue to pay the wages of staff for the hours they work. For the hours not worked, the government and employer will pay one-third of the lost wages each, with the government’s contribution capped at £697.92 per month. This means that an employee working one-third of their hours will receive 77% of their pay (22% paid by the government and 55% by their employer). The government will pay a maximum of 22% of the employee’s wages, which is down from 80% at the start of the furlough scheme.
The aim of this wage subsidy scheme is to incentivise businesses to retain employees in viable jobs and has been compared to similar programmes in France and Germany.
All small and medium-sized businesses will be eligible. Larger businesses will have to show their turnover has decreased due to the pandemic. The scheme will last for at least 6 months.
Help for the self-employed
The Chancellor has also announced that a similar scheme will be in place for the self-employed. The government’s contribution will be 20% of their earnings (subject to a cap), so roughly level with the Job Support Scheme for employees.
A first taxable grant will be paid at the start of November covering 20% of their average trading profits for three months, with a limit of £1,875. A second grant will cover the three-month period from February to the end of April, but the amount has yet to be announced.
Further details of who is eligible for the grants can be found here: https://www.hawsons.co.uk/self-employment/
‘Pay as you grow’
Businesses that took government loans during the crisis will have longer to pay them back. The Chancellor announced a ‘pay as you grow’ scheme, allowing businesses to extend their bounce back loans from six to ten years. Businesses will also be able to move to interest-only payments or suspend repayments for six months. The government guarantee offered on Coronavirus Business Interruption Loans will be extended to 10 years. A new successor loan guarantee programme is expected to be announced in January.
VAT cut extended
The VAT cut from 20% to 5% for businesses in the tourism and hospitality sectors was due to end on 12 January 2021 but has been extended until 31 March 2021.
VAT deferment extended
Businesses that deferred their VAT bill will no longer have to pay a lump sum in March and can instead choose to pay the deferred VAT over 11 monthly instalments with no interest to pay.
Hawsons Tax Director Craig Walker commented:
“The furlough scheme is being replaced with a less generous job support scheme to top up the wages of workers on reduced hours. We wait to see the fine print of the announcements but there are likely to remain calls for the government to offer more financial assistance to businesses. The extension of the 5% VAT rate to the end of March will be most welcome to businesses in the hospitality and tourism sectors who have been hit hard by Covid-19. There was no mention of how the cost of the Chancellor’s new plans will be paid for but we may see some substantial tax rises.”
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