UK Tax News
Winter Economy Plan
Written by Ray Coman
Rishi Sunak announced a new raft of support measures in the Commons this afternoon. The package is designed to avert an economic crisis triggered by tougher lockdown restrictions. A recent spike in Coronavirus cases has resulted in a 10pm curfew effective today. Social gathering restraints are expected to last six months. The Winter Economy Plan included mostly extensions to previously announced funding. The Chancellor also reference future tax rises to pay for the support, however any such announcment would no longer form part of the 2020 Autumn Budget. The Autumn Budget has been cancelled.
The Chancellor announced a Job Support Scheme to replace the existing Coronavirus job retention scheme when it runs out at the end of October.
Jobs supported by the state must be viable. To prove long-term viability, the employee is required to work a third of their usual hours. The hours worked must be paid via payroll with income tax, national insurance and occupation pension scheme deductions calculated accordingly on that pay.
For the two thirds of the hours not worked, the government will pay one third. To clarify, the government will cover one third of 66% or 22%. The employer will also be required to pay a third of the hours not worked, or 22%. Therefore, the employer will be liable for one third, plus one third of two thirds, or 55%. The employee will receive 77% of their pay which is 22% from the government and 55% from their employer.
Reduction in working hours will differ, and the scheme is flexible to cover two thirds of the hours that are not worked. However, the government element of the support will be capped at £697.92 a month.
The employee will need to be on the payroll on or before 23 September 2020 to be eligible.
An employee can join, leave and, if necessary, re-join the scheme any number of times during the six-month period during which it will run. Unlike the previous furlough extension, the scheme is available to all UK employers. The scheme is open to employees even if they have not previously claimed furlough.
A larger business will only be eligible for the scheme if turnover has fallen resulting from Covid19.
The scheme is designed to encourage business to retain staff rather than make people redundant and thereby avert mass unemployment over winter when the current furlough scheme expires.
Employers would still be able to claim the previously announced Job Retention Bonus in addition to the job support scheme. The Job Retention Bonus is an award of £1,000 for retaining staff.
An employee cannot be made redundant or placed on redundancy notice for any period during which the employer is claiming the Job Support Scheme grant.
As with previous Covid19 support measures, the government aims to be even handed with the self-employed and employed sectors of the economy. A further self-employment grant will be available to sole traders and partners in an unincorporated business from February 2021 until the end of April 2021. Businesses previously eligible for the self-employed income support scheme will be eligible for the new scheme.
It will be a requirement for business to demonstrate that they are actively trading but have experienced reduced demand because of Covid19. The new grant will cover the period from 1 November to 31 January. The grant will pay 20% of profits for an average month subject to a cap of £1,875 for the three months.
A second grant will be available to cover the period from 1 February to the 30 April 2021. Further information about the amount and nature of this grant have not yet been published.
Businesses who had previously deferred VAT payable between March 2020 and June 2020, had to settle the deferred liability in one lump sum by 31 March 2021. That payment can now be spread over 11 monthly instalments through 2021/22.
Taxpayers with a liability arising in 2019/20 will have a further 12 months to settle this with HMRC. The usual payment deadline for tax arising for the year to 5 April 2020 is 31 January 2021. However, this liability can be paid over 12 months in equal monthly instalments. Provided the monthly payment plan is kept to there would be no late payment penalty or interest arising on the tax paid later than usual. The “Time to Pay” arrangement is a matter of negotiation between each taxpayer and HMRC.
Applications for the business bounce back loan will remain open until the end of November. The deadline had previously been set at 4 November 2020.
The loans which are intended to keep businesses cash positive through the era of depressed demand have been dubbed “pay as you grow.” Terms will be extended from 6 to 10 years, offering a facility for borrowers to cut their monthly repayment by almost one half.
During the term of the loan, it will be possible pause repayments for up to six months. The loan holiday will be available only once and provided at least six repayments have been made. It will be possible to enter three interest only payment periods. Each period would last six months.
The interest element of a loan can be deducted from taxable profits, whereas the repayment element is not tax deductible. As such, interest-only repayment periods provide both tax and cash benefit.
The reduction in VAT rate from 20% to 5% for the hospitality sectors are to be extended to the end of March. Reduced rate VAT was due to expire on 31 January 2021.