The cancellation of this autumn's UK Budget was a sobering reminder – if any were needed – of the worrying state of the UK public finances. New tax raising measures are now expected to be delayed until next year and the chancellor has announced a new package of economic measures to support businesses and protect 'viable' jobs in light of the Covid-19 pandemic. These supplement the measures made in the summer economic statement in July (see our previous Insight here).
Job Support Scheme
The Chancellor has announced a new Job Support Scheme which will start on 1 November 2020 and will last for 6 months (until the end of April 2021). It will replace the Coronavirus Job Retention Scheme (the furlough scheme), which ends on 31 October 2020. As with the furlough scheme, HMRC will check claims and pursue those making fraudulent or incorrect claims.
To be eligible for the Job Support Scheme, the employee must, for the first three months of the scheme, work a minimum of 33% of their hours. After the first three months, the government will consider whether to increase this minimum hours threshold. For the remaining hours not worked, the government and the employer will pay a third of the wages each (with the government contribution being capped at £697.92 per month). This will ensure employees earn a minimum of 77% of their normal wages, subject to the government cap. The grant will not cover class 1 employer NICs or pension contributions, which will remain payable by the employer.
All small and medium-sized enterprises will be eligible for the scheme, whereas large businesses will have to meet a financial assessment test to demonstrate that their turnover is lower as a result of the pandemic. The government expects that large employers will not be making capital distributions (such as dividends or share buybacks) while using the scheme. Businesses do not need to have previously used the furlough scheme to be eligible to apply.
Businesses claiming under the Job Support Scheme will also be able to claim the job retention bonus if they meet the eligibility criteria. The job retention bonus was announced as part of the summer economic statement and pays UK employers a one-off bonus of £1,000 for each furloughed employee brought back into the business who is still employed as of 31 January 2021.
Extension of access to finance schemes
The chancellor announced an extension for applying to each of the four temporary loan schemes: the Bounce Back Loans Scheme (BBLS), the Coronavirus Business Interruption Loan Scheme (CBILS), the Coronavirus Large Business Interruption Loan Scheme (CLBILS) and the Future Fund. The deadline for new application will be extended to 30 November 2020. The government has also highlighted that it may also consider providing bespoke financial support for companies which may have exhausted other options.
The chancellor also announced a new loan scheme which will be made available in January.
The chancellor announced that businesses which borrowed under the BBLS will have the option to repay their loan over a period of up to ten years (extended from six years) and will also be able to move to interest only payments for up to six months or suspend payments for six months, if they are in particular difficulty, for up to six months. The option to move to interest-only payments can be exercised up to three time, whereas the payment holiday will only be available once, and then only after the business has made at least six loan repayments.
CBILS loan extension
The government intends to allow CBILS lenders to extend the term of a loan up to ten years (from six years).
The temporary cut in VAT for food, non-alcoholic drinks, accommodation and admissions to UK attractions, from 20% to 5%, which was due to end on 12 January 2021, has been extended until 31 March 2021. It is hoped this will continue to encourage customers to spend more in some of the sectors worst affected by the pandemic.
Business that deferred their VAT, as part of the initial support package announced by the government in March (see our previous Insight here), will no longer have to pay the deferred payments in one lump sum in March 2021. Those businesses will have the option of splitting the payment into smaller, equal, interest-free payments over the course of 11 months.
All businesses which took advantage of the VAT deferral can use the new payment scheme but will have to opt-in to do so via the HMRC opt-in process, which will be put in place in early 2021.
The Chancellor announced that the government will extend the Self-employed income support scheme (SEISS) grant for a further six months (to April 2021). The grant will be limited to self-employed individuals who are currently eligible for the SEISS and are actively continuing to trade but are facing reduced demand due to Covid-19.
Building on the self-assessment deferral announced in July 2020 (see our previous Insight here) the government will give the self-employed and other taxpayers more time to pay taxes due in January 2021. Taxpayers with up to £30,000 of self-assessment liabilities due will be able to use HMRC’s self-service 'Time to Pay' facility to secure a plan to pay over an additional 12 months. This means that Self-Assessment liabilities due in July 2020 will not need to be paid in full until January 2022.
Osborne Clarke comment
It is not surprising that in light of the current crisis the Budget date was deferred. This delay gives the government an opportunity to make more fundamental changes to the UK tax system than previously predicted. Rather than changes to rates and thresholds, the government may be persuaded to go for much more radical reforms - possibly dusting off historic plans to align PAYE and NIC rules and to introduce a planning gain supplement, to tax the value of development land.
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